RNS Number : 2433J
Cantono PLC
01 December 2008
Cantono PLC
30 November 2008
Preliminary Statement
Chairman's statement
Highlights
* Group turnover up 66% on 2007 at �8.5M (2007; �5.1M)
* Group loss for the year �7.8m (2007: �8.9m)
* Cantono to specialise in Data Centre colocation
* New Fareham High Density Data Centre operational
* �3m offer accepted on Managed Services Business (conditional on Shareholder approval)
As I previously reported, in my Chairman's Statement that accompanied the Directors' Report and Financial Statements for the year ended
31 May 2007 the Group has focussed its efforts during the current year around two distinct business strategies.
The first was to grow its Managed Services business which had been built on the amalgamation of its three acquired companies, CSF
Managed Services plc, NSA Solutions Limited & Blue River Systems Limited in conjunction with the incumbent business iRevolution, rebranded
as Cantono Managed Services.
One of the key challenges faced by many companies in our sector is that managed service offerings can be disparate and covering a wide
range of product and service offerings, resulting in a confused message being given to the target market. Therefore an important task was
for Cantono to define exactly which services it was selling and put in place the resources required to deliver these services. This was
achieved by concentrating our efforts around three complementary services lines; Business Continuity, Managed Networks and Hosted Managed
Solutions.
I am pleased to say that all three areas were well received and understood by our existing and prospective clients and the Managed
Services business performed broadly in line with Management's expectations.
Second half revenues were at a similar level to those reported in our first half, giving overall revenues for the full financial year,
ending May 2008, of � 8.5m which equates to an increase of 66% based on re-stated 2007 figures. These figures are exclusively Managed
Serviced based revenues.
Our second strategy has been to locate, develop and build out our own data centre. A suitable leasehold property in Fareham was
identified and conversion and build out of the first phase is now well advanced.
In order to give this business activity the requisite resources and focus a new subsidiary, Cantono Data Centre Services Limited, was
formed. This new subsidiary now has its own staff and financial plans.
The first phase of the Fareham Data Centre became operational on 17th September 2008 enabling us to relocate a number of the existing
Managed Services customers from a rented co-location site in East India Docks in London to the Data Centre. It is planned to continue to
transfer the former managed services clients to the facility after the proposed sale of the managed services businesses.
Given the size of the Fareham facility it is clear that to fulfil its potential we will need to look outside our own Managed Services
business to market and maximise the opportunity. I am pleased to say that after only a few months of marketing the Data Centre we have built
up an encouraging sales pipeline through our own Managed Services sales force as well as third party business partners, which is our primary
route to market for our new facility.
On reviewing and comparing the opportunities available to the Group and the limited senior management bandwidth and resources available,
it became clear to your Board that the interests of Shareholders would be best served by a total focus on the Data Centre business.
The Group has sent a circular to Shareholders on 27 November recommending shareholders approve an offer from Xploite plc to acquire the
Managed Services businesses of the Group and has also accepted offers, subject to contract, and firm indications, from certain institutional
investors to subscribe for between �1.4m and �2m of secured convertible loan stock, the details of which will be announced in due course.
If the disposal of the Managed Services business and its assets are approved by Shareholders at the General Meeting, scheduled on 15
December, the resulting consideration together with the new funds will result in your Company being on a sound footing with the business
transformed and be able to completely focus on the high growth potential available within the co-location Data Centre market.
Mike Northall
Chairman
30 November 2008
Consolidated Income Statement
for year ended 31 May 2008
Note 2008 2007
� �
Revenue 2 8,534,079 5,144,268
Cost of sales (4,071,724) (1,571,739)
Gross profit 4,462,355 3,572,529
Reorganisation costs 4 - (1,106,956)
Pre operating costs 2 (2,402,982) -
Share based payments 18 (565,279) -
Impairment of goodwill and other intangible 4,10 (3,505,318) -
assets
Amortisation of intangible assets 3,10 (1,183,030) (852,628)
Depreciation of tangible assets 3,9 (693,817) (411,798)
Other administrative expenses (4,308,747) (7,605,552)
Administrative expenses 3 (12,659,173) (9,976,934)
Operating loss 3 (8,196,818) (6,404,405)
Loss on disposal of subsidiary 4 - (2,274,416)
Finance income 6 74,931 6,674
Finance expense 6 (427,987) (346,365)
Net financing costs (353,056) (339,691)
Loss before tax (8,549,874) (9,018,512)
Taxation 7 764,430 144,456
Loss for the year (7,785,444) (8,874,056)
Attributable to:
Equity holders of the parent (7,785,444) (8,874,056)
Minority interest - -
Loss for the year (7,785,444) (8,874,056)
Basic and diluted loss per ordinary share 8 (28.80)p (48.26)p
Consolidated Statement of Recognised Income and Expense
for year ended 31 May 2008
2008 2007
� �
Loss for the year (7,785,444) (8,874,056)
Foreign currency translation differences - (19,399)
Net recognised expense (7,785,444) (8,893,455)
Net recognised income attributable to minority - -
interests
Net recognised expense attributable to equity
shareholders of the company
(7,785,444) (8,893,455)
Net recognised expense (7,785,444) (8,893,455)
Consolidated Balance Sheet
At 31 May 2008
Note 2008 2007
� �
Non-current assets
Property, plant and equipment 9 4,289,671 1,302,522
Goodwill 10 1,103,273 3,388,842
Other intangible assets 10 2,296,338 4,340,116
7,689,282 9,031,480
Current assets
Inventories 13 39,870 7,214
Tax receivable 241,046 -
Trade and other receivables 14 2,475,360 950,056
Cash and cash equivalents 15 2,559,546 109,243
5,315,822 1,066,513
Total assets 13,005,104 10,097,994
Current liabilities
Bank overdrafts 15 - 367,676
Other interest-bearing loans and borrowings 16 506,719 259,316
Trade and other payables 17 4,966,620 2,852,415
Accruals and deferred income 1,500,439 2,945,402
6,973,778 6,424,809
Non-current liabilities
Deferred tax liabilities 12 426,016 949,400
426,016 949,400
Total liabilities 7,399,794 7,374,209
Net assets 5,605,310 2,723,785
Equity attributable to equity holders of the
parent
Share capital 19 9,881,837 7,758,136
Share premium 19 18,935,451 10,957,455
Retained earnings 19 (23,211,978) (15,991,806)
Total equity 5,605,310 2,723,785
These financial statements were approved by the board of directors on 30th November 2008 and were signed on its behalf by:
Eamus Halpin
Director
Consolidated Cash Flow Statement
for year ended 31 May 2008
Note 2008 2007
� �
Cash flows from operating activities
Loss for the year (7,785,444) (8,874,056)
Adjustments for:
Impairment of intangible assets 3,505,318 -
Amortisation of intangible assets 1,183,029 852,628
Depreciation of tangible assets 693,817 411,798
Disposal of fixed assets (4,622) -
Capitalised costs - (44,033)
Loss on disposal of subsidiary - 2,274,416
Equity settled share-based payment expenses 565,279 -
Net finance charge 344,122 339,691
Tax charge for the year (764,430) (144,456)
(2,262,931) (5,184,012)
(Increase)/decrease in trade and other (1,525,304) 928,344
receivables
(Increase)/decrease in stock (32,656) (572)
(Decrease)/increase in trade and other payables 712,429 2,269,644
(3,108,462) (1,986,596)
Interest paid (419,053) (346,365)
Tax paid - (8,158)
Net cash from operating activities (3,527,515) (2,341,119)
Cash flows from investing activities
Proceeds from sale of property, plant and 16,750 750,778
equipment
Interest received 74,933 6,674
Acquisition of subsidiary, net of cash acquired - (459,331)
Acquisition of intellectual property (359,000)
Acquisition of property, plant and equipment (3,400,423) (190,103)
Net cash from investing activities (3,667,740) 108,018
Cash flows from financing activities
Proceeds from the issue of share capital 10,618,494 2,347,000
Payment of transaction costs (516,803) (225,649)
Proceeds from new loan 200,000 -
Repayment of borrowings (206,333) (126,411)
Payment of finance lease liabilities (82,124) (14,452)
Net cash from financing activities 10,013,234 1,980,488
Net increase in cash and cash equivalents 2,817,979 (252,613)
Cash and cash equivalents at 1 June (258,433) (5,820)
Cash and cash equivalents at 31 May 2,559,546 (258,433)
Notes to the consolidated financial statements
(forming part of the financial statements)
1. Accounting policies
Cantono plc (the "Company") is a company incorporated in the UK.
The group financial statements consolidate those of the Company and its subsidiaries (together referred to as the "Group"). The parent
company financial statements present information about the Company as a separate entity and not about its group.
The group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting
Standards as adopted by the EU ("Adopted IFRSs"). The Company has elected to prepare its parent company financial statements in accordance
with UK GAAP; these are presented on pages 48 to 54.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these group
financial statements and in preparing an opening IFRS balance sheet at 1 June 2006 for the purposes of the transition to Adopted IFRSs.
Transition to Adopted IFRSs
The Group is preparing its financial statements in accordance with Adopted IFRS for the first time and consequently has applied IFRS 1.
An explanation of how the transition to Adopted IFRSs has affected the reported financial position, financial performance and cash flows of
the Group is provided in note 25.
The following exemptions have been taken in these financial statements:
* Business combinations effected before 1 June 2006, including those that were accounted for using the merger method of accounting under
UK accounting standards have not been restated.
* The carrying amount of capitalised goodwill at 31 May 2006 that arose on business combinations accounted for using the acquisition
method under UK GAAP was frozen at this amount and tested for impairment at 1 June 2006. The carrying amount was adjusted for intangible
assets that would have been required to be recognised in the acquiree's separate financial statements in accordance with IAS 38 'Intangible
Assets', such as development costs.
* Only those exchange differences arising on the retranslation of foreign operations since 1 June 2006 have been recognised as a
separate component of equity.
* IFRS 2 'Share-based payments' has been applied to employee options granted after 7 November 2002 that had not vested by 1 June 2006.
Measurement convention
The financial statements are prepared on the historical cost basis.
Going Concern
The financial statements are prepared on a going concern basis which the directors believe to be appropriate for the following reasons.
The group and company have no banking facilities and meet day to day working capital requirements from cash balances.
As described in the directors' report on page 6 the current economic environment is challenging and the group has reported an operating
loss for the year. This arose due to ongoing losses in the Managed Services Business and to pre-trading costs in the Data Centre Business.
During the year the group raised approx �10m in a placing of new shares. In the year the Group utilised �3.5m on operations and �3.5m on
capital, primarily the new data centre. The group exited the year with �2.5m cash. The operating losses have continued in the period since
the balance sheet date and as at the date of signing the accounts the directors believe the group has sufficient cash until the transactions
referred to below complete.
On 27 November the group entered into an agreement to sell, subject to shareholder approval, the managed services business to Xploite
plc for �3m cash. The group has also accepted offers, subject to contract, and firm indications, from certain institutional investors to
subscribe for between �1.4m and �2m of secured convertible loan stock, the details of which will be announced in due course. Approval for
the sale of the managed service business will be sought at a General Meeting on 15 December 2008. The directors anticipate the secured
convertible loan stock transaction completing within the next 14 days. The directors believe that the groups ability to continue trading for
the foreseeable future is dependent upon these transactions completing. As both these transactions are conditional there can be no certainty
that the sale of the Managed Service Business or the secured convertible loan note transaction will proceed. Based on the directors
assessment of the conditions associated with each of the transactions, the directors have a reasonable expectation that they will proceed successfully.
The directors have prepared forecasts for the ongoing business for the next 12 months on the basis that the transactions complete and on
what we regard as very prudent assumptions, such as that no new contracts being secured. These indicate that the business will consume cash
of around �1.5m in the next 12 months. In addition �1.9m of current creditors will be settled from the proceeds of the sale of the Managed
Service Business.
In the longer term the viability of the business is dependent upon the opportunities for the data centre translating into revenues.
The directors have concluded that the combination of these circumstances represent a material uncertainty that casts significant doubt
upon the group's and the company's ability to continue as a going concern. The group and company may, therefore, be unable to continue
realising its assets and discharging its liabilities in the normal course of business.
Nevertheless after considering the uncertainties described above, the directors have a reasonable expectation that the group and the
company have adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt
the going concern basis in preparing the annual report and accounts. The financial statements do not include any adjustments that would
result from the basis of preparation being inappropriate.
Basis of consolidation
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the
financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights
that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control ceases.
Segment reporting
A business segment is a distinguishable group of assets and operations, reflected in the way that the group manages its business, that
are subject to risks and returns that are different from those of other business segments.
The group has identified that the primary segments in which the group operates are business segments. The group has two business
segments and these are Managed Services and the Data Centre operations.
Foreign currency
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date.
Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are
measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at foreign exchange rates
ruling at the dates the fair value was determined.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated
at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an average
rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions.
Exchange differences arising from this translation of foreign operations are taken directly to the translation reserve. They are
released into the income statement upon disposal.
The group has taken advantage of the relief available in IFRS 1 to deem the cumulative translation differences for all foreign
operations to be zero at the date of transition to Adopted IFRSs, 1 June 2006.
Classification of financial instruments issued by the Group
Following the adoption of IAS 32, financial instruments issued by the Group are treated as equity only to the extent that they meet the
following two conditions:
* they include no contractual obligations upon the group to deliver cash or other financial assets or to exchange financial assets
or financial liabilities with another party under conditions that are potentially unfavourable to the group; and
* where the instrument will or may be settled in the company's own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the company's own equity instruments or is a derivative that will be settled by the company's
exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so
classified takes the legal form of the company's own shares, the amounts presented in these financial statements for called up share capital
and share premium account exclude amounts in relation to those shares.
Finance payments associated with financial liabilities are dealt with as part of finance expenses.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of
property, plant and equipment.
Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance
leases. Leased assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and the present value
of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. Lease payments are accounted
for as described below.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of
property, plant and equipment. The estimated useful lives are as follows:
* plant and machinery 3 - 7 years
* fixtures and fittings 3 - 5 years
Intangible assets and goodwill
Goodwill represents the excess of the cost of a business combination over the interest in the fair value of identifiable assets,
liabilities and contingent liabilities acquired. Cost comprises the fair values of assets given, liabilities assumed and equity instruments
issued, plus any direct costs of acquisition.
Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the
excess is credited in full to the income statement.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised
but is tested annually for impairment.
Externally acquired intangible assets
Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their
useful economic lives. The amortisation expense is included within the administrative expenses line in the income statement.
Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other
contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques.
The significant intangibles recognised by the group, their useful economic lives and the methods used to determine the cost of
intangibles acquired in a business combination are as follows:
Intangible asset Useful economic life Valuation method
Contractual relationships Term of contract - between 3- 5 years Estimated
discounted
Cashflow
Inventory
Inventory is valued at the lower of cost and net realisable value, after due regard for obsolete and slow moving stocks. Net realisable
value is based on selling price less anticipated costs to completion and selling costs.
Impairment excluding inventories and deferred tax assets
The carrying amounts of the Group's assets, are reviewed at each balance sheet date to determine whether there is any indication of
impairment. If any such indication exists, the asset's recoverable amount is estimated.
For goodwill the recoverable amount is estimated at each balance sheet date.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.
Impairment losses are recognised in the income statement.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill
allocated to cash-generating units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis. A cash
generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows
from other assets or groups of assets.
Calculation of recoverable amount
The recoverable amount of the Group's receivables carried at amortised cost is calculated as the present value of estimated future cash
flows. Discounting is not applied as all receivables have a short duration.
The recoverable amount of other assets is the greater of their net selling price and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the
recoverable amount is determined for the cash-generating unit to which the asset belongs.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised
in the income statement over the period of the borrowings on an effective interest basis.
Employee benefits
Defined contribution plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A
provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present
legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated
reliably
Share-based payment transactions
The grant date fair value of options granted to employees is recognised as an employee expense, with a corresponding increase in equity,
over the period in which the employees become unconditionally entitled to the options. The fair value of the options granted is measured
using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as
an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not
achieving the threshold for vesting.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past
event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material,
provisions are determined by discounting the expected, risk adjusted, future cash flows at a pre-tax risk-free rate.
Revenue
Turnover represents the amounts derived from the provision of goods and services to third party customers during the period and is
exclusive of value added tax.
The Group's income from its Managed Services activities includes software sales and associated support and maintenance income and
professional services income. Data Centre revenue comprises the provision of managed hosting facilities and services.
Software sales of standard products are recognised when and to the extent that the Group has obtained the right to consideration through
its performance. Revenue from support and maintenance is recognised on a straight-line basis over the period to which the maintenance
agreement relates. Revenue from other managed services is recognised on a straight-line basis over the period of the contract. Professional
services income is recognised at the point of completion.
Hardware sales are recognized when risk of loss has transferred to the client and there are no unfulfilled company obligations that
affect the client's final acceptance of the arrangement. Revenue from rentals and operating leases is recognized on a straight-line basis
over the term of the rental or lease.
Expenses
Operating lease payments
Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease
incentives received are recognised in the income statement as an integral part of the total lease expense.
Finance lease payments
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is
allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the
liability.
Net financing costs
Net financing costs comprise interest payable and finance leases, foreign exchange gains and losses.
Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the
extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of
goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business
combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable
future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the asset can be utilised.
Accounting estimates and judgements
In the process of applying the Group's accounting policies as described above, management has made the following judgments and
estimations that have the most significant effect on the amounts recognised in the financial statements.
a) Impairment of goodwill
The Group determines whether goodwill is impaired on an annual basis. This requires an estimate of the value in use of the cash
generating units to which the goodwill has been allocated. This requires the Group to make an estimate of the future cash flows from those
assets using a suitable discount rate to calculate the present value of those cash flows.
b) Intangible assets
The Group made three acquisitions in the prior year. The assessment of fair values of the tangible assets and liabilities and
identification of intangible assets affect goodwill and this requires judgement based on historical experience and a reasonable expectation
of future events. Intangible assets acquired by the Group have required estimates to be made of the future cash flows and their useful
lives, using a suitable discount rate to calculate the present value of those cash flows.
c) Valuation of receivables
In assessing the recoverability of trade receivables the group uses historic performance to estimate the likely future cash flows from
contractual debt. Assumptions need to be made about indicators of recoverability and any required provisions.
Adopted IFRS not yet applied
Certain new standards and interpretations to existing standards have been published that will be mandatory in future accounting periods
and relevant for the group, but which the group has decided not to adopt early.
IFRS 8 'Operating Segments' (effective for accounting periods beginning on or after 1 January 2009). This standard sets out requirements
for the disclosure of information about an entity's operating segments and also about the entity's products and services, the geographical
areas in which it operates, and its major customers. It replaces IAS 14, Segmental Reporting. The group expects to apply this standard in
the accounting period beginning on 1 June 2009. As this is a disclosure standard it will not have any impact on the results or net assets of
the group.
IAS 1 'Presentation of Financial Statements' (effective for accounting periods beginning on or after 1 January 2009). This amendment is
still to be endorsed by the EU but is expected to be applicable for the group's 2010 year end. Key changes in the revised version of IAS 1
include: the requirement to aggregate information in the financial statements on the basis of shared characteristic; changes in the titles
of some primary statements (non mandatory); introducing the possibility of a single Statement of Comprehensive income (combining the Income
Statement and the Statement of Recognised Income and Expense); only the total of comprehensive income is to be shown in the Statement of
Changes in equity. Management is currently assessing the impact of the Amendment on the financial statements, but the effect is
presentational and will not change the group's result.
The Revised IFRS 3 'Business Combinations' and complementary Amendments to IAS 27 'Consolidated and separate financial statements' (both
effective for accounting periods beginning on or after 1 July 2009). The revised IFRS 3 and IAS 27 are still to be endorsed by the EU but
are expected to be applicable for the group's 2011 year end. These standards lead to IFRS being largely converged with the related, recently
issued US requirements and will result in very significant changes to the accounting for future business combinations, but no restatement of
past business combinations is required. Management is currently assessing the impact of revised IFRS 3 and amendments to IAS 27 on the
financial statements.
Amendment to IFRS 2 'Share-based payments: vesting conditions' (effective for accounting periods beginning on or after 1 January 2009).
This amendment is still to be endorsed by the EU but is expected to be applicable for the group's 2010 year end. The Amendment to IFRS 2 is
of particular relevance to companies that operate employee shares save schemes. This is because it results in an immediate acceleration of
the IFRS 2 expense that would otherwise have been recognised in future periods should an employee decide to stop contributing to the savings
plan, as well as a potential revision to the fair value of the awards granted to factor in the probability of employees withdrawing from
such a plan. Management is currently assessing the impact of the Amendment on the financial statements.
IAS 23 'Borrowing Costs (revised)' (effective for accounting periods beginning on or after 1 January 2009). The revised IAS 23 is still
to be endorsed by the EU but is expected to be applicable for the group's 2010 year end. The main change from the previous version is the
removal of the option of immediately recognising as an expense borrowing costs that relate to qualifying assets, broadly being assets that
take a substantial period of time to get ready for use or sale. The group considers this will have little impact on the financial
statements.
'Improvements to IFRS' (effective for accounting periods beginning on or after 1 July 2009). This improvements project is still to be
endorsed by the EU but is expected to be applicable for the group's 2011 year end. The amendments take various forms, including the
clarification of the requirements of IFRS and the elimination of inconsistencies between Standards. Management is currently assessing the
impact of the Amendment on the financial statements.
The group does not consider that any other standards or interpretations issued by the IASB but not yet applicable will have a
significant impact on the financial statements.
2. Segment information
The Group operates in two segments - Managed Services and the Data Centre. Further details are provided in the Directors' Report.
No comparative information has been presented as, until the commencement of the Data Centre operations in the current year, the group's
only reportable segment was Managed Services.
The Group's primary reporting format for reporting segment information is business segments.
Business Segments
Managed Services Data Centre Other Total
2008 2008 2008 2008
� � � �
Revenue - external 8,534,079 - - 8,534,079
Segment result
Finance income - - 74,931 74,931
Finance costs - - (427,987) (427,987)
Loss before tax (5,793,836) (2,402,982) (353,056) (8,549,874)
Taxation 523,384 - 241,046 764,430
Loss for the year (5,270,452) (2,402,982) (112,010) (7,785,444)
Capital expenditure 502,672 3,190,423 - 3,693,095
Sale of assets 4,622 - - 4,622
Depreciation of tangible (693,817) - - (693,817)
assets (note 9)
Amortisation of intangible (1,183,030) - - (1,183,030)
assets (note 10)
Impairment of goodwill and (3,505,318) - - (3,505,318)
other intangible assets (note
10)
Segmental assets and liabilities as 31 May 2008 and capital expenditure for the year then ended are as follows:
Business Segments
Managed Services Data Centre Other Total
2008 2008 2008 2008
� � � �
Total Assets 6,837,008 3,912,126 2,255,970 13,005,104
Total Liabilities (3,510,249) (2,769,288) (1,120,257) (7,399,794)
Capital expenditure 502,672 3,190,423 - 3,693,095
Segment assets and liabilities
are reconciled to the Group's
assets and liabilities as
follows:
Assets Liabilities
Segment assets/liabilities 10,749,134 (6,279,537)
Unallocated:
Cash and cash equivalents 2,014,924 -
Current tax 241,046 -
Deferred tax - (426,016)
Other financial liabilities - (694,241)
Total 13,005,104 (7,399,794)
An analysis of turnover by geographical market is given below:
31-May-08 31-May-07
� �
UK 8,271,606 4,469,278
Europe 262,474 674,990
8,534,079 5,144,268
3. Expenses and auditor's remuneration
Included in the operating loss are the following:
2008 2007
� �
Pre operating costs - included in administrative expenses 2,402,982 -
Amortisation - included in administrative expenses 1,183,030 852,628
Profit on disposal of fixed asset - included in 4,622 -
administrative expenses
Restructuring costs expensed as incurred - included in - 1,106,956
administrative expenses
Research and development expensed as incurred - included 619,622 1,007,489
in administrative expenses
Hire of other assets (operating leases) - included in 148,501 248,329
administrative expenses
Foreign currency losses - 14,193
Auditor's remuneration:
2008 2007
� �
Audit of these financial statements 10,000 10,000
Disclosures below based on amounts payable by company and
its subsidiaries
Amounts receivable by auditors and their associates in
respect of:
Audit of financial statements of subsidiaries pursuant to 65,000 65,000
legislation
Other services relating to taxation - 8,735
Review of interim statement 15,000 15,000
Other advisory services 19,500 -
4. Exceptional items
2008 2007
� �
Reorganisation and restructuring costs - 1,106,956
Loss on sale of subsidiary - 2,274,416
Included within Administrative expenses
Impairment of goodwill and other intangible assets 3,505,318 -
A review of the valuation of goodwill and the other intangible assets was made, as described in note 10, resulting in reducing the value
attributed to the assets.
The reorganisation costs related to the restructuring and integration costs following the acquisitions of Blue River Systems Limited,
NSA Solutions Limited, Vox Technology Limited and CSF Managed Services plc.
On 5 May 2007 the Group sold its 54% interest in Panopticon Software AB, via its holding in Hamsard Holdings Limited, to Edenmore
Investments Limited, a company incorporated in Cyprus and controlled by Mr Giertz, the Vice President of Sales in Panopticon Software AB.
The transfer of ownership was part of a debt repayment of a deep discounted loan of �2,427,753, and also involved the Company issuing
36,363,636 Ordinary shares of 1p at 5.5p. The accounts for the period ended 30 April 2007 show that Panopticon had lost �827,107, and its
net liabilities excluding goodwill as at the 30 April 2007 were �609,899. The loss on disposal was made up as follows:
2007
�
Consideration received:
Loan Waiver 427,753
________
Net assets disposed:
Property, Plant and Equipment (279,078)
Current assets (657,326)
Payables 1,582,683
________
Net liabilities 646,279
Minority interest (36,380)
________
609,899
Goodwill balance outstanding at the date of sale (3,312,068)
________
(2,702,169)
Loss on disposal 2,274,416
5. Staff numbers and costs
The average number of persons employed by the group (including directors) during the year, analysed by category, was as follows:
Number of employees
2008 2007
Technical 65 86
Sales and marketing 14 6
Management and administration 14 16
____ ____
93 108
The aggregate payroll costs of these persons were as
follows:
� �
Wages and salaries 4,973,274 3,679,415
Share based payments (See note 18) 459,905 -
Social security costs 559,727 518,277
Other pension costs 27,301 33,334
________ ________
6,020,207 4,231,026
Directors' remuneration
Directors' remuneration
2008 2007
� �
Emoluments 631,985 678,819
Company contributions to money purchase pension schemes - 21,667
Compensation for loss of office - 159,000
________ ________
631,985 859,486
The aggregate of emoluments and amounts receivable under long term incentive schemes of the highest paid director was �231,672 (2007:
�270,479).
There was nil (2007: nil) director in the company's defined contribution pension scheme during the year.
In July 2007 286,000 unapproved share options were granted to Voltera Limited, a company controlled by Willem De Geer a former director.
6. Finance income and expense
2008 2007
� �
Interest income on financial assets 74,931 6,674
Interest expense on bank loans and overdrafts 12,642 144,148
Interest expense on finance leases 27,079 1,979
Interest expense on receivables financing 353,055 176,146
Other interest expense - receivables financing 35,211 24,092
Total finance expense on financial liabilities held at 427,987 346,365
amortised cost
7. Taxation
Recognised in the income statement
2008 2007
� �
Current tax credit/(charge)
Current year 241,046 (8,158)
Deferred tax credit 523,384 152,614
Total tax in income statement 764,430 144,456
Reconciliation of effective tax rate
2008 2007
� �
Loss before tax for the period (8,549,874) (9,018,512)
Total tax expense
Profit/(Loss) excluding taxation
Tax using the UK corporation tax rate of 28% (2007: (2,393,965) (2,705,554)
30%)
R & D Tax claim 241,046 -
Loss on disposal of subsidiary - (510,857)
Non-deductible expenses 2,631,669 1,864,517
Amortisation of tax benefit arising on intangible 523,384 164,770
assets
Tax losses (237,704) 1,331,580
Total tax expense 764,430 144,456
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or
substantively enacted by the balance sheet date. The Group has estimated tax losses of �21,014,450 (2007: �21,753,509) available for carry
forward against future trading profits. A deferred tax asset of �5,884,046 (2007: �6,526,053) has not been recognised as its future recovery
is uncertain or not currently anticipated.
8. Loss per share
The loss per share for the year ended 31 May 2008 is based on the weighted average number of shares in issue during the year.
Following the capital reorganisation on 3 August 2007, details of which are disclosed in the share capital note (note 19 below), the
loss per share for the year ended 31 May 2007 is based on 18,387,166 ordinary shares of 20p each, being the total number of shares in issue
following the reorganisation on 3 August 2007, prior to the share issue.
2008 2007
� �
Numerator
Loss used for calculation of basic and diluted EPS (7,785,444) (8,874,056)
Denominator
Weighted average number of shares used in basic and 27,032,830 18,387,166
diluted EPS
9. Property, plant and equipment
Assets in the Fixtures, fittings Motor vehicles Total
course of and equipment
construction
� � � �
Cost
Balance at 1 June 2006 - 342,070 - 342,070
Acquisitions through business - 1,873,346 29,374 1,902,720
combinations
Additions - 272,627 - 272,627
Disposals - (791,771) - (791,771)
Balance at 31 May 2007 - 1,696,272 29,374 1,725,646
Balance at 1 June 2007 - 1,696,272 29,374 1,725,646
Additions 3,190,423 502,672 - 3,693,095
Disposals - - (29,374) (29,374)
Balance at 31 May 2008 3,190,423 2,198,944 - 5,389,367
Depreciation and impairment
Balance at 1 June 2006 - 39,602 - 39,602
Depreciation charge for the - 405,331 6,467 411,798
year
Disposals - (28,276) - (28,276)
Balance at 31 May 2007 - 416,657 6,467 423,124
Balance at 1 June 2007 - 416,657 6,467 423,124
Depreciation charge for the - 683,039 10,778 693,817
year
Disposals - (17,245) (17,245)
Balance at 31 May 2008 - 1,099,696 - 1,099,696
Net book value
At 1 June 2006 - 302,468 - 302,468
At 31 May 2007 and 1 June 2007 - 1,279,615 22,907 1,302,522
At 31 May 2008 3,190,423 1,099,248 - 4,289,671
The net book value of fixtures, fittings and equipment includes an amount of �201,543 (2007: �71,062) in respect of assets held under
finance leases and hire purchase contracts. The depreciation charged on those assets was �79,669 (2007: �11,461).
10. Intangible assets
Goodwill Development costs Customer contracts Total
� � � �
Cost
Balance at 1 June 2006 6,337,043 474,916 470,041 7,282,000
Acquisitions through business 2,553,153 4,567,737 7,120,890
combinations
Disposals (3,981,856) (474,916) (4,456,772)
Balance at 31 May 2007 4,908,340 - 5,037,778 9,946,118
Balance at 1 June 2007 4,908,340 - 5,037,778 9,946,118
Additions - 359,000 359,000
Balance at 31 May 2008 4,908,340 359,000 5,037,778 10,305,118
Amortisation and impairment
Balance at 1 June 2006 2,189,284 53,590 - 2,242,874
Elimination on disposal (669,787) (208,555) (878,342)
Amortisation for the year 154,965 697,663 852,628
Balance at 31 May 2007 1,519,497 - 697,663 2,217,160
Balance at 1 June 2007 1,519,497 - 697,663 2,217,160
Amortisation for the year 10,162 1,172,867 1,183,029
Impairment 2,285,570 1,219,748 3,505,318
Balance at 31 May 2008 3,805,067 10,162 3,090,278 6,905,507
Net book value
At 1 June 2006 4,147,757 421,326 470,041 5,039,124
At 31 May 2007 3,388,843 - 4,340,115 7,728,958
At 31 May 2008 1,103,273 348,838 1,947,500 3,399,611
Amortisation and impairment charge
The amortisation and impairment charge is recognised in administrative expenses in the income statement
The directors have reviewed the carrying value of intangible assets, specifically goodwill and customer contracts, generated on the
acquisition of Blue River Systems Limited, NSA Solutions Limited and CSF Managed Services plc. In the light of the current economic
conditions and the proposed sale of the managed services business the directors believe it prudent to write the value associated with these
categories of intangible assets down. Therefore, they have impaired the carrying value of goodwill by �2,285,570 and written down some of
the customer contracts by �1,219,748 following some customers decisions not to renew some contracts, making a total impairment charge of
�3,505,318. This has reduced the overall carrying value of intangible assets excluding development costs to �3,050,773. This writing down in
the value of goodwill has also been reflected in the carrying value of investments by the company in its balance sheet.
The recoverable amount for customer contracts in the managed service businesses has been calculated with reference to its value in use.
The key features of this calculation are shown below:
2008 2007
Period on which management approved forecasts are based 5 years 5 years
Growth rate applied beyond approved forecast period 2% 2%
Discount rate 15% 15%
11. Acquisitions of subsidiaries
The Company made no acquisitions in the current financial year.
In the year ended 31 May 2007, the Company made three acquisitions as described below.
On 20 November 2006 the Company acquired the whole of the share capital of Blue River Systems Limited. Its accounts for the year ended
31 March 2006 show a profit before tax of �33,849. The management accounts for the eight months ended 30 November 2006 show a loss of
�110,600. The fair value adjustments relate to a mark down in tangible assets, a review of the recoverability of debtors and attributing an
amount to the value of contracts.
On 20 November 2006 the Company acquired the whole of the share capital of NSA Solutions Limited and its subsidiary, Vox Technology
Limited. The accounts for the year ended 30 September 2006 show a loss before tax of �130,067 and �7,790 for NSA Solutions Limited and Vox
Technology Limited respectively. The management accounts for the two months ended 30 November 2006 show a loss of �19,173 and �16,998 for
NSA Solutions Limited and Vox Technology Limited respectively. The fair value adjustments relate to a mark down in tangible assets, a review
of the recoverability of debtors and attributing an amount to the value of contracts.
On 4 January 2007 the Company acquired the whole of the share capital of CSF Managed Services plc. Its audited accounts for the year
ended 31 December 2006 show a loss before tax of �3,642,602 and a net liability of �8,763,427. The fair value adjustments relate to a mark
down in tangible assets and stock, a review of the recoverability of debtors and attributing an amount to the value of contracts. As part of
the sale agreement Computer Solutions and Finance Group plc, its ultimate holding company at the date of sale, agreed that an inter-company
loan would be written back to �750,000 prior to acquisition, which resulted in the Net Assets on 4 January 2007 being �1,179,766.
Effect of acquisitions
The acquisitions made in the year ended 31 May 2007 had the following effect in aggregate on the Group's assets and liabilities:
Acquiree's book Fair value adjustments Acquisition amounts
values
� � �
Acquirees' net assets at the
acquisition date:
Property, plant and equipment 2,740,053 (837,333) 1,902,720
Intangible assets - 4,567,737 4,567,737
Stocks 106,642 (100,000) 6,642
Trade and other receivables 980,188 (305,749) 674,439
Cash and cash equivalents (17,626) - (17,626)
Interest-bearing loans and (217,206) - (217,206)
borrowings
Trade and other payables (2,628,962) - (2,628,962)
Deferred Tax - (999,192) (999,192)
Net identifiable assets and 963,089 2,325,463 3,288,552
liabilities
Goodwill on acquisition 2,553,153
5,841,705
Consideration paid:
Shares allotted 5,400,000
Cash 220,000
Acquisition costs 221,705
Net cash outflow 5,841,705
12. Deferred tax liabilities
Recognised deferred tax liabilities
Liabilities
2008 2007
� �
Intangible assets 426,016 949,400
Net tax (assets) / liabilities 426,016 949,400
The deferred tax liability relates to the remaining tax attributes of the intangibles acquired in the business combinations acquired,
shown in note 10. The amount of temporary differences, unused tax losses and tax credits for which no deferred tax asset is recognised are
disclosed in note 7.
Movement in deferred tax during the year
01-Jun-07 Recognised in income Recognised in equity 31-May-08
� � � �
Intangible assets 949,400 (523,384) - 426,016
949,400 (523,384) - 426,016
Movement in deferred tax during the prior year
01-Jun-06 Recognised in income Arising from 31-May-07
business combination
� � � �
Intangible assets 102,822 (152,614) 999,192 949,400
102,822 (152,614) 999,192 949,400
13. Inventories
2008 2007
� �
Finished goods 39,870 7,214
14. Trade and other receivables
2008 2007
� �
Trade receivables 1,436,671 718,448
Other receivables 515,648 43,929
Prepayments 523,041 187,679
2,475,360 950,056
At 31 May 2008 trade receivables are shown net of an impairment allowance of �201,337 (2007: �146,860) arising from specific provisions
made against amounts due to the group. The impairment loss recognised in the current year was �83,916 (2007: �100,968).
Included in last years trade debtors were �119,311 secured by a factoring agreement with Royal Bank of Scotland Invoice Finance Limited.
The total amount advanced against this at 31 May 2007 was �95,449. In August 2007, following a change in bankers, the factoring arrangement
was terminated.
15. Cash and cash equivalents and bank overdrafts
2008 2007
� �
Cash and cash equivalents per balance sheet 2,559,546 109,243
Bank overdrafts - (367,676)
Cash and cash equivalents per cash flow statement 2,559,546 (258,433)
The bank overdraft was part of an unsecured facility with National Westminster Bank plc at 31st May 2007, at an interest rate of base
plus 3%. In August 2007, the Company changed its principal bankers to Barclays Bank plc and repaid the overdraft facility.
The Group has provided debentures and cross guarantees to Barclays Bank plc in support of its asset backed finance lease and bank loan
facilities.
16. Other interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings. For more information
about the Group's exposure to interest rate and foreign currency risk, see note 19.
2008 2007
� �
Current liabilities
Other loans - 95,449
Finance lease liabilities 306,719 96,170
Secured asset loan 200,000 -
Secured bank loan - 67,697
506,719 259,316
The secured asset loan was a loan from Barclays Mercantile Finance secured on specific assets.
Included in other loans of the prior year is an advance of �95,449 from Royal Bank of Scotland Invoice Finance Limited relating to a
subsidiary undertaking's factoring arrangement over its trade debtors amounting to �119,311. The advance following a change of bankers, was
repaid in Sep 2007.
The unsecured bank loan, was taken over following an acquisition, was via Lloyds Bank and was repaid in Aug 2007.
Finance and Secured Asset Lease liabilities
Finance lease liabilities are payable as follows:
Principal Principal
2008 2007
� �
Less than one year 174,692 35,107
Between one and five years 332,027 61,063
506,719 96,170
17. Trade and other payables
2008 2007
� �
Trade payables 4,247,375 1,803,835
Other payables 534,298 188,430
Other taxation and social security 184,947 860,150
4,966,620 2,852,415
18. Employee benefits
Defined contribution plans
The Group operates a defined contribution pension plan.
The total expense relating to this plan in the current year was �27,301 (2007: �11,667).
Contributions totalling �16,143 (2007 �2,316) were payable to the scheme at the end of the period and we are included in payables.
Share-based payments
The Company's share based payment scheme consists of various share option schemes designed to reward and motivate the Group's employees.
The company has applied the provisions of International Financial Reporting Standard 2 in respect of options granted but not vested by 1
June 2006. Calculations performed under the Black Scholes Merton valuation model show that the fair value of the prior year award was
immaterial. Details of the movement on options and the charge for the year are disclosed below.
Approved Share Options
Options at beginning of the Granted during the Exercised during the Lapsed during the Options at end of Exercise price
Grant date Date from then Expiry date
year year year year the year
exercisable
- 470,707 - (23,070) 447,637 0.63
03/12/2007 Dec-10 Dec-17
1,200 - - (200) 1,000 7.41
27/04/2005 Apr-08 Apr-15
- 200,000 - - 200,000 1.00
06/07/2007 Jan-10 Jul-17
- 24,984 - - 24,984 0.50
06/07/2007 Nov-09 Jul-17
10,794 - - - 10,794 6.28
27/04/2005 Apr-08 Apr-15
13,491 - - - 13,491 6.28
27/04/2005 Oct-06 Apr-15
- 30,769 - - 30,769 0.39
03/03/2008 Dec-10 Mar-18
25,485 726,460 - (23,270) 728,675
Unapproved Share Options
Options at beginning of the Granted during the Exercised during the Lapsed during the Options at end of Exercise price
Grant date Date from then Expiry date
year year year year the year
exercisable
- 764,003 - - 764,003 0.50
06/07/2007 Nov-09 Jul-17
- 487,007 - - 487,007 0.50
06/07/2007 Nov-09 Jul-17
- 100,000 - - 100,000 0.50
06/07/2007 Jan-10 Jul-17
- 288,600 - - 288,600 0.50
06/07/2007 Nov-09 Jul-17
- 1,639,610 - - 1,639,610
The unapproved share options immediately vested when they were granted on the 6th July 2007.
286,000 unapproved share options were granted to Voltera Limited, a company controlled by William De Geer, a former director.
Summary All Share Options
Options at beginning of the Granted during the Exercised during the Lapsed during the Options at end of Exercise price
Grant date Date from then Expiry date
year year year year the year
exercisable
- 470,707 - (23,070) 447,637 0.63
03/12/2007 Dec-10 Dec-17
1,200 - - (200) 1,000 7.41
27/04/2005 Apr-08 Apr-15
- 300,000 - - 300,000 1.00
06/07/2007 Jan-10 Jul-17
- 1,564,594 - - 1,564,595 0.50
06/07/2007 Nov-09 Jul-17
10,794 - - - 10,794 6.28
27/04/2005 Apr-08 Apr-15
13,491 - - - 13,491 6.28
27/04/2005 Oct-06 Apr-15
- 30,769 - - 30,769 0.39
03/03/2008 Dec-10 Mar-18
25,485 2,366,070 - (23,270) 2,368,285
Following the capital reorganisation on 3 August 2007, as disclosed in Note 31, Post Balance Sheet Events, the option exercise prices of
31.39p and 37.06p become �6.28 and �7.41 respectively.
The number and weighted average exercise prices of share options are as follows:
Weighted average Number of options Weighted average Number of options
exercise price exercise price
Price Price
2008 2008 2007 2007
Outstanding at the beginning 6.32 25,485 6.68 105,976
of the period
Forfeited during the period - - - -
Exercised during the period - - - -
Granted during the period 0.59 2,366,070 - -
Lapsed during the period 0.69 23,270 6.79 80,491
Outstanding at the end of the 0.65 2,368,285 6.32 25,485
period
Exercisable at the end of the 6.32 25,285 6.27 43,036
period
During the period no options were exercised, cancelled or exchanged.
Options granted under the unapproved scheme vest immediately whereas those under the approved scheme vest over a 3 year period. The
options outstanding at the year end have an exercisable price in the range of 39p to �7.41 and a weighted average contractual life of 9
years.
The fair value of the option rights at grant date is determined based on the Black Scholes Merton model. The model inputs on the major
award during the period were the share price of 4p, the exercise price of 2.5p, expected volatility of 10, expected dividends of Nil, a term
of 3 years and a risk free rate of 4%.
19. Capital and reserves
Reconciliation of movement in capital and reserves
Share capital Share premium Foreign Currency Retained earnings Total parent equity Minority
interest Total equity
Reserve
� � � � �
� �
Balance at 1 June 2006 4,134,116 1,789,835 - (7,827,639) (1,903,688)
692,907 (1,210,781)
Loss for the year - - - (8,874,056) (8,874,056)
(8,874,056)
Issue of shares 3,624,020 9,167,620 - - 12,791,640 -
12,791,640
Foreign currency translation - - (19,399) - (19,399) -
(19,399)
differences
Transfer 19,399 (19,399)
Disposal of minority 729,288
(692,907)
Balance at 31 May 2007 7,758,136 10,957,455 (15,991,806) 2,723,785 -
2,723,785
Balance at 1 June 2007 7,758,136 10,957,455 - (15,991,806) 2,723,785
- 2,723,785
Loss for the year - - - (7,785,444) (7,785,444)
- (7,785,444)
Issue of shares 2,123,701 7,977,996 - - 10,101,697
- 10,101,697
Equity-settled share based - - - 565,272 565,272
- 565,272
payment transactions
Balance at 31 May 2008 9,881,837 18,935,451 - (23,211,978) 5,605,310 -
5,605,310
Share capital
Authorised 31 May 2008 31 May 2007
� �
Equity
850,000,000 Ordinary shares of - 8,500,000
1p each
42,500,000 New Ordinary shares 8,500,000 -
of 20p each
100,000,000 Ordinary Deferred 9,000,000 9,000,000
shares of 9p each
17,500,000 17,500,000
Allotted, called up and fully 31 May 2008 31 May 2007 31 May 2008 31 May 2007
paid
Number of Number of
Issued share capital � � Shares Shares
Ordinary shares of 1p each - 3,677,432 - 367,743,173
Ordinary deferred shares of 9p 4,080,704 4,080,704 45,341,160 45,341,160
each
New Ordinary shares of 20p 5,801,133 - 29,005,666 -
each
9,881,837 7,758,136 74,346,826 424,976,585
Share capital movements during New Ordinary 20p New Ordinary 9p New Ordinary 1p shares Total
the year shares deferred shares
� � � �
Shares in issue as at 1 June - 4,080,704 3,677,432 7,758,136
2007
Share conversion on 3 August 3,677,432 (3,677,42) -
2007
Shares issued on 7 August 2007 2,123,701 - 2,123,701
Shares in issue as at 31 May 5,801,133 4,080,704 - 9,881,837
2008
Details of changes in the Company's share capital in the year ended 31 May 2007
On 5 July 2006 the Company raised �300,000 of additional capital via the placing of 3,000,000 10p Ordinary shares at 10p per share. In
addition, �50,000 of the ex-Directors loans owed to each of Michael Sharples and James Metcalf were converted into a total of 1,000,000
ordinary shares at the placing price of 10p.
On 16 November 2006 the Company converted each 10p ordinary share into one new Ordinary share of 1p and one non-voting deferred share of
9p.
On 20 November 2006 the Company completed the acquisitions of Blue River Systems Limited and NSA Solutions Limited. Blue River Systems
Limited was acquired for a consideration of �1,720,000 satisfied by a payment of �220,000 in cash on completion and by the issue of
30,000,000 new Ordinary shares of 1p at a price of 5p. NSA Solutions Limited was acquired for a consideration of �600,000 satisfied by the
issue of 12,000,000 new Ordinary shares of 1p at a price of 5p.
On 22 November 2006, the Company successfully completed the placing of 81,880,000 new Ordinary shares of 1p at a price of 2.5pper share
raising �2,047,000 before expenses, for working capital purposes. In addition, Brunswick Investment Holdings Limited converted a �1,500,000
loan together with other liabilities of �129,340 to 65,173,600 new ordinary shares of 1p at the placing price of 2.5p. Ex-Directors Michael
Sharples and James Metcalf each converted a further �37,500 of their loans outstanding to 1,500,000 new Ordinary shares of 1p each at the
placing price of 2.5p. W H Ireland converted �55,164 of fees outstanding to 2,206,550 Ordinary shares of 1p at the placing price of 2.5p.
On 4 January 2007 the Company acquired CSF Managed Services plc for a consideration of �3,300,000 satisfied by the issue of 66,000,000
new Ordinary shares of 1p at a price of 5p.
On 3 April 2007 1,272,727 Ordinary 1p shares were issued at 4.95p to Appel M and A International in lieu of fees in connection with the
acquisition of CSF Managed Services plc.
On 30 May 2007 the Company issued 24,505,400 Ordinary shares of 1p at a placing price of 5.5p in order to repay a deep discounted bond
of �1,509,995 that was owed to Brunswick Investment Holdings Limited . Also on 30 May 2007 36,363,636 Ordinary shares were issued at 5.5p to
Edenmore Investments Limited as part of the sale of Panopticon and the repayment of deep discounted bonds owed to Brunswick Investments
Holdings Limited. Details of the sale are disclosed in Note 5.
Details of changes in the Company's share capital in the year ended 31 May 2008
On 3 August 2007 the Company consolidated the share capital by converting every 20 issued and un-issued Ordinary shares into 1 New
Ordinary 20p share. In order to deal with fractional entitlements, �2.47 of the sum standing to the credit of the Company's share premium
was capitalised.
On 7 August 2007 the Company issued 10,618,500 New Ordinary 20p shares at a placing price of �1.00 per share. The net proceeds of
approximately �10,000,000 were to be used for additional working capital and to allow the Company to make capital investments into its new
business strategy, details of which are disclosed in the Directors' Report.
Following the allotments on 7 August 2007, the current authorised share capital is �17,500,000 divided into 42,500,000 ordinary shares
of 20p each of which at that date 29,005,666 ordinary 20p shares were in issue and 100,000,000 deferred shares of 9p of which 45,341,160
deferred shares of 9p are in issue.
On 28 February 2008 the rights attaching to the 9p deferred shares were amended so that they are no longer classed as redeemable.
Details of changes in the Company's share capital in the year ended 31 May 2009
On 11 August 2008 the Company issued 43,589 Ordinary shares of 20p to certain of the vendors of NSA Solutions Limited in settlement of
outstanding loans owed to them by NSA Solutions Limited. The notional issue price was 39p per share.
On 29 October 2008 the authorised share capital of the Company was increased from �17,500,000 to �27,500,000 by the creation of
50,000,000 ordinary 20p shares, such shares ranking pari passu with the existing 20p ordinary shares.
On 29 October 2008 the Company converted each issued and unissued 20p ordinary share into one new Ordinary share of 1p and one
non-voting deferred share of 19p.
Details of classes of share capital
Holders of ordinary shares are entitled to attend and vote at general meetings and, on a poll, each holder will have one vote per share.
Ordinary shares rank pari passu with each other in respect of dividends and on a return of capital or a winding up.
Holders of deferred shares are not entitled to receive notice of or attend or vote at any general meeting. They are not entitled to
receive any dividend or other distribution, nor receive any part of the assets of the Company on a return of capital or a winding up. They
are not entitled to receive a share certificate.
20. Financial Instruments
The group is exposed to risks that arise from its use of ordinary financial instruments in its day to day business. This note describes
the group's objectives, policies and processes for managing those risks and the methods used to measure them.
The Board has overall responsibility for the determination of the group's risk management objectives and policies, and has delegated the
authority for designing and implementing appropriate processes to the finance function.
The group's financial instruments at 31 May 2008 comprised cash, bank overdrafts, loans, finance leases and other loans together with
trade receivables, trade payables and accruals. The main purpose of these financial instruments is to finance the group's trading
operations. The fair value of the Group's financial instruments is equal to book value as noted below. The group finances its operations
through shareholder equity reserves and bank and other borrowings.
The group is exposed through its operations to credit risk, cash flow risks and the risk of interest rate changes. There have been no
substantive changes in the nature of the group's exposure to financial instrument risk or the management thereof. The group's business
activities are focussed on the UK market and thus it has no exposure to foreign currency risk. Details of the policies and processes in
place to manage the risk exposure are given below:
i) Credit risk:
The group is mainly exposed to credit risks arising on its credit sales to customers. The directors consider appropriate procedures are
in place to assess credit risk on new customers before entering into sales contracts, including background checks, setting credit limits and
agreeing payment terms. Credit collection processes are in place to monitor overdue balances and manage credit risk in line with normal
market practices. Where appropriate the group will allow customers to obtain finance for the purchase. Where finance is obtained all credit
risk, and collection rights, are with the provider of the finance with no recourse for these risks to Cantono. Given the nature of the
group's products and services, there is no real concentration of credit risk affecting the group's trade receivables position.
Settlement terms are typically in the range 30-60 days. At the year end �14,367 (1% )of the total outstanding debtors was outside the
30-60 settlement term date, after adjusting for doubtful debts. (2007 - �14,036 (2%)).
Counterparties for cash balances are financial institutions with strong credit ratings.
ii) Interest rate risk:
The Group finances its operations through a combination of shareholder funds, bank overdrafts, bank and other loans (short and long
term) and finance leases. The Group does not have a bank overdraft facility, and borrowings are unsecured.
The Group's finance lease commitments have a fixed rate of interest. In addition surplus cash balances are placed on short term
deposit.
Prior year bank loans have been taken over following the various business acquisitions made last year, and following the fund raising
last year repaid so that the Group does not taken on any interest rate risk.
The average weighted year end interest rate for these borrowings was 11.5% (2007: 8.74%).
Liquidity and effective interest rates analysis
In respect of income-earning financial assets and interest-bearing financial liabilities, the following table indicates their effective
interest rates at the balance sheet date and the periods in which they mature or, if earlier, are re-priced.
Effective Total 0 - 1 to Effective Total 0 to 1 to
interest
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