Gladstone Plc
AIM : GLD

November 15, 2006 02:04 ET

Gladstone plc: Preliminary Results for the Year Ended 31 August 2006

LONDON, UNITED KINGDOM--(CCNMatthews - Nov. 15, 2006) - Gladstone plc ("Gladstone" or "the Company") (AIM:GLD) and its subsidiaries (together "the Group"), the leading UK provider of software and services to the leisure industry, announces its Preliminary Results for the year ended 31 August 2006.

Financial Highlights:

- Turnover Pounds Sterling 8.64 million (2005: Pounds Sterling 8.41 million)

- Recurring revenues enhanced, now in excess of 40% of turnover

- Profit before tax, amortisation and exceptional items increased by 62% at Pounds Sterling 1,376,000 (2005: Pounds Sterling 848,000)

- Cash at bank increased to Pounds Sterling 4.7 million (2005: Pounds Sterling 4.1 million)

- Freehold property revalued at in excess of Pounds Sterling 2.0 million (2005: Pounds Sterling 1.5 million)

- Net tangible assets increased to Pounds Sterling 5.1 million (2005: Pounds Sterling 4.0 million)

- No creditors due after more than one year (2005: Pounds Sterling 313,000)

Operating Highlights:

- Further new prestigious sites won

- Australia contributing to Group profits

- Actions to improve core business performance gathering pace

- Sharply focused on investment programmes in areas of core competence

- Clear strategy in place on new product development projects

- Strategic acquisitions of London Systems and Valuenetics A/S will accelerate growth

- Enhanced senior executive team focused on strategic growth

Commenting on the results, Said Ziai, Chairman and Chief Executive Officer of Gladstone plc, said: "The business has enjoyed significant improvements in performance over the past year building on its sound base of local authority and private clients. We have defined Gladstone's strategic path and are pursuing all available avenues and opportunities to create value for our shareholders. We have restructured some of our internal processes and have embarked on renewing all our systems in preparation for future growth. The business has undergone a year of consolidation to strengthen Gladstone's core competencies, whilst at the same time launching new initiatives providing sustainable improvements to our performance and competitive position. We have made two strategic acquisitions, paving the way for sustainable growth in the future. We expect to see these increasingly reflected in the results we achieve in the future and our performance against our competitors. With these initiatives and a sharp focus on our strategic growth prospects, I am confident we will, over a period of time, be able to demonstrate the growth potential inherent in Gladstone plc and the positive effect that growth potential will have on the long-term value to shareholders."



For further information, please contact:

Gladstone plc Tel: +44 (0) 1491 201 010
Said Ziai
Email: sziai@gladstonemrm.com

KBC Peel Hunt Limited Tel: +44 (0) 20 7418 8900
Oliver Scott
Email: oliver.scott@kbcpeelhunt.com

Media enquiries:
Abchurch Tel: +44 (0) 20 7398 7700
Martin Sutton
Email: martin.sutton@abchurch-group.com


ABOUT GLADSTONE PLC

Gladstone plc is a leading supplier of membership management systems to major health & fitness groups, local authority leisure centres, trusts, universities and a large number of private and single site clubs. The Company provides central database solutions for multi-site operators, facilitating central and cross-site on-line bookings, membership management and central administration, CRM, marketing and reporting. Gladstone also provides a wide range of systems and software based solutions, such as e-registration, cashless payments and biometric recognition in the education market, for schools, academies and colleges.

Established in 1999 to provide the UK and international leisure industry with market-leading member relationship management systems, Gladstone subsequently acquired Microcache and Membertrack, integrating them into Gladstone MRM, its operating subsidiary.

As the market leader, serving the UK market and with offices in Wallingford, Glasgow and Sydney, Gladstone has become a global supplier of Member Relationship Management software for the health and leisure industry as well as its recent entry into the education market where health and fitness have become a major focus of attention. The Company's current products include the comprehensive Plus2 which incorporates advanced functionality such as on-line booking, prospecting and the use of kiosks, as well as On Record serving the schools and colleges with e-registration, biometric recognition and cashless payment systems.

CHAIRMAN and CHIEF EXECUTIVE OFFICER'S REPORT

INTRODUCTION

Last year in my first statement I commented on Gladstone's strong position in the health and leisure market supported by the enthusiasm and experience of our staff. These attributes served us well during last year and helped us turn in a robust set of results whilst focusing our attention on the challenges and opportunities for profitable growth in the future.

We continued to consolidate our market leadership in the health and leisure market in the UK. We also invested in Valuenetics A/S in Denmark to provide enhanced development capabilities to reinforce our plans for future growth in our existing and extended core markets. Furthermore, with our recent investment in London Systems (UK) Limited and its software solutions for the education market, we opened up opportunities for additional growth in a much larger sector. The education market is a sector where we will be able to leverage Gladstone's existing infrastructure and market presence.

I have previously highlighted the challenges facing the Group in moving the turnover and profitability beyond the static trend of prior years. Whilst we consolidated our position, we placed emphasis on materially improving the core profitability of the business. We focused on underpinning our turnover whilst at the same time taking the necessary steps towards creating new opportunities to increase it. We strove to improve our service level to further reinforce our reputation as a market leader. We are clear in our focus and the need to deliver dependable systems and solutions to all our customers. We have developed clear plans on how to continue enhancing our existing products' functionality as well as introducing a suite of new products.

Last year we saw further changes in the make up and structure of our board. In June, we announced that Tony Caplin had retired to focus on his other business interests, having joined Gladstone as non-executive Chairman in July 2005. We further announced the appointment of Roderick Chamberlain as a non-executive director in August 2006. Rod brings with him a wealth of hands on management and board experience and we are already benefiting from his proactive contributions. The board also considered it in the best interests of the Group to combine the roles of Chairman and Chief Executive Officer for the time being, a position that will remain unchanged until the appropriate opportunity arises to appoint a suitably qualified Chairman. Gladstone's board is fully committed to high standards in corporate governance whilst maintaining a pragmatic view as to how the best interests of the Group can be served at the different stages of its development.

FINANCIAL OVERVIEW

Turnover grew from Pounds Sterling 8.41 million in 2005 to Pounds Sterling 8.64 million in 2006, an encouraging achievement which made up for the early maturity of some Pounds Sterling 0.4 million of sales expected to occur in 2006 but which were in fact delivered towards the end of the previous financial year. Our recurring revenues also stayed at a healthy level, in excess of 40% of turnover. Performance in Australia was solid, with the business contributing to Group profits. Operating profits before amortisation of goodwill and exceptional items increased by Pounds Sterling 0.53 million, a 62% increase on 2005 results, to Pounds Sterling 1.38 million.

Our early efforts last year to bring under control certain inconsistencies within our operations paid a significant dividend in improving core profitability. I indicated last year that we had to enter into a period of consolidating the business. We concentrated on improving the underlying performance of the operations. Sales and marketing as well as customer support services were restructured to increase effectiveness in sales and improve the quality of our customer service. We removed inefficiencies in a number of areas including ad hoc work in international markets.

Net tangible assets as at 31 August 2006 increased to Pounds Sterling 5.08 million (2005: Pounds Sterling 4.04 million). During the year the creditors falling due within one year dropped by Pounds Sterling 211,000 to Pounds Sterling 1.0 million. Gladstone MRM Limited has substantially used up its own carried forward trading tax losses. Gladstone plc has Pounds Sterling 3.1 million of capital losses and Pounds Sterling 4.7 million of excess management expenses available for relief in the future as appropriate.

Cash increased in the year by Pounds Sterling 0.55 million to Pounds Sterling 4.67 million not withstanding the early payments for our new investments. The cash generative nature of our business provides a healthy platform for further growth.

OPERATIONS OVERVIEW

Sales

We continued our focus on serving the existing base of customers and in winning a number of new prestige sites. This has been made possible by the strength of our robust and proven Plus2 platform and its extensive functionality, achieved in spite of a marked increase in the efforts of our competitors.

During last year, we were pleased to be awarded contracts to provide systems for Leisure Connection, Sports and Leisure Management (SLM), Topsy Turvy World and Golds Gym.

We also won a number of major contracts in the public sector, including; Liverpool City Council, Flintshire County Council, East Lothian Council and South Dublin County Council. Consolidation of the public sector leisure services has gathered further pace by major Managed Service operators, a majority of whom have chosen to use Gladstone's systems and services. We believe this consolidation trend in the public sector is likely to continue in the near to mid term.

Our efforts on upgrading legacy sites to current versions of our Plus2 product will gather pace in this current year in an initiative to remove the less efficient older systems and in order to improve our quality of service. Gladstone enjoys a strong position across all segments of the UK leisure industry, and we will continue to leverage this strength to further consolidate our position.

To emphasize the clarity of our messages and market positioning, we have carried out a review of Gladstone's corporate identity and all the marketing collateral. These were realigned and redesigned to better convey our unique position in the market-place. We are currently reviewing the way we use the web and internet tools in order to better utilise this media on all commercial fronts and in a manner consistent with our long term strategy.

Delivery and Service

Gladstone's installation and training teams improved their productivity and delivered a focused and more efficient service to our customers. The demand for a dedicated technical support team has continued to increase over the past 12 months due to the widening of our customer base and growth in demand for central server and other technically advanced systems. We have explored new means of improving the quality of training services as well as reducing costs. We have embarked on introducing web based training services. Gladstone has also been helping a number of businesses to leverage the extensive management information generated within Plus2 into appropriately formatted management reports to improve business performance. This area is currently being enhanced to offer an even more extensive set of reporting services. The demand for such value added services is growing as our clients look to further leverage the functionality and value of our systems to help them develop their businesses and broaden margins.

The number of support calls handled by our teams has steadily increased over the past four years. This reflects the increased base of installed systems and the wider functionality of the systems used by our customers. We carried out a significant restructuring of our customer support team by increasing their technical skills and incorporating specialist teams from across the business. With these changes, we managed to reduce our service costs whilst enhancing the quality of our service delivery.

Development

During the year, we carried out an extensive review of our core software application Plus2 and its further development requirements. Due to the wide scope of Plus2, the main emphasis remains on providing functionality that enhances our clients' operational efficiency and customer relationship management. We also decided to release a streamlined and specially adapted version of Plus2 marketed as Plus2 SOLO. We did this to address more specifically the unique requirements of the growing single site health and leisure operators, their desire for the flexibility to expand in the future and also to respond to the perceived competition from our smaller private competitors focusing exclusively on this segment of the market.

We have continued to dedicate resources to new product extensions for Plus2, focused on enhancing its versatility and market reach. These products include Connect, Kiosk and PocketPos. They provide web enabled access, self service ticket collection stations and field based stand alone point-of-sale hand-held devices, designed to maximise the mobility of leisure centre staff.

With the rapid evolutionary changes in the software development platforms and increasing demands for convergence of web, communications and network applications, we have decided to develop a new comprehensive set of next generation products to encompass new technology platforms and to capture the possibilities of further broadening our market base.

International

Our subsidiary located in Sydney Australia has now been in operation for over two years. Plus2's centralised database capabilities and comprehensive functionality have proved to be a major advantage in Australia. Gladstone's products and our team's professionalism have become widely known across the health and leisure sector in Australia. We have raised the benchmark for competition and have educated the market about the superiority of Gladstone's systems solutions. We won a number of major new contracts during the year including; Next Generation -- South Park, Mounties Fitness, Newcastle University, Equilibrium Health & Fitness Clubs and Lifestyle Fitness Clubs, more than quadrupling our installed base during last year. We also introduced a rental model to make our systems available to a wider range of customers. With Australia now contributing to Group profits, Gladstone has established itself in all the major states including; New South Wales, Victoria, South Australia, Western Australia and Queensland providing an excellent base for further referrals. With such material gains, we are confident about continued success and a strong market share in Australia. As we develop our focus in new vertical markets such as education, Australia will provide a further base for the roll out of these new initiatives.

With the reorganisation in Ireland, integrating some of the local activities with our Wallingford and Glasgow offices, we improved our margins as well as enhanced our customer focus and performance. We also rationalised the inefficiency in our legacy approach to international opportunities where lack of clarity had introduced unsustainable and unpredictable results.

STRATEGY

During the early part of last year we carried out a comprehensive review of Gladstone's competitive position across the health and leisure market and established a clear view of our comparative position. This has since enabled us to establish targeted priorities for the Group to further enhance our market leadership and prepare the ground for sustainable growth into the future.

Gladstone provides software solutions, support services and expertise to help operators in the Health and Leisure and related markets to achieve their business objectives. I have spent much time with the management team to develop clear roadmaps aimed at further improving our performance in all operational areas as well as fine tuning our service delivery formula. To enable future growth, we have embarked on introducing new integrated IT systems and processes across Gladstone. We expect this to remove further legacy inefficiencies as well as introducing a far more flexible and productive working framework across all the operating teams.

As a result of our strategy review, we are now committed to introducing a new set of next generation products that will extend the reach of our current products in line with the ongoing expectations of our wide range of existing customers. These products will enable us to open up new horizontal and vertical market opportunities. The acquisition of Valuenetics A/S reinforces this strategy with their proven software development capabilities. Their skills will be leveraged to facilitate our overall objective to enter new vertical markets compatible with health and leisure.

Our recent acquisition of London Systems (UK) Limited is also an early manifestation of some of the much wider opportunities that are open to Gladstone. The education software market is a developing and fast growing market in the UK. The core competencies, software platforms and end market characteristics of this market are a natural extension to our current activities, allowing Gladstone to utilise and leverage its market position to the growing needs of education where health and fitness have become a major focus of attention. The government's recently announced Building Schools for the Future program (BSF) with its significant investment in ICT over the next 15 years, will, in particular, give Gladstone the opportunity to create a strong competitive position.

We are keen to build on our past achievements as well as to establish new services for our future growth. In our strategy review we identified a range of possibilities and critical options facing Gladstone. We are intent on utilising our strong standing in our existing market as well as our robust financial base. We will continue to seek to leverage these strengths and speed up our efforts to broaden our market share as well as identify over time a broader set of synergistic market opportunities.

OUTLOOK

I noted last year our principal objective is to deliver shareholder value, through strong and consistent earnings growth, backed by a robust strategy based on the Group's intellectual property portfolio. This objective requires clear strategic vision as well as investment to rapidly develop a set of core competencies.

In a letter to all shareholders, I highlighted three distinct and partially concurrent stages to establishing the course for our growth; Initial focus, Organic and Strategic. We gained a healthy momentum in all those areas last year and are now much clearer in our aim to grow further by building our portfolio of strategic businesses complementing Gladstone's core capabilities. We stated our commitment to invest in new products and new opportunities as appropriate in order to provide competitive solutions to our current and potential customers by adding value to their core businesses. With our recent acquisitions, a year of consolidation behind us together with a strong financial performance, we are well aware of the significant challenges ahead. We are, however, confident in our ability to extend Gladstone's reach and grow our business in a measured way.

With an established core business, growing recurring revenues currently in excess of forty per cent of turnover, property included at net book value in the accounts at Pounds Sterling 2 million and cash at Pounds Sterling 4.7 million, Gladstone has the platform and financial strength to further grow its business.

PEOPLE

We are primarily a people business. We benefit from having a stable and loyal staff. As we rationalised some of our operations last year, we have had to rely on the skills and dedication of fewer people focused on delivering our services. We have clear targets specifically aligned with our future requirements. I would like to take this opportunity on behalf of the Board to thank all our employees for their unwavering contribution throughout all stages of Gladstone's development.

Said Ziai, Chairman and Chief Executive Officer



CONSOLIDATED PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 31 AUGUST 2006

2006 2005
(unaudited) (audited)
Notes Pounds Pounds
Sterling Sterling

Turnover 8,644,152 8,411,642

Cost of sales (1,266,459) (1,620,358)

-----------------------------

Gross profit 7,377,693 6,791,284

Administration expenses excluding
amortisation of goodwill and
exceptional items (6,163,188) (6,008,176)

-----------------------------

Operating profit before amortisation
of goodwill and exceptional items 1,214,505 783,108

Amortisation of goodwill 2 (444,129) (444,129)
Exceptional items 2 - (207,858)

Total administration expenses (6,607,317) (6,660,163)

-----------------------------
Operating profit and Profit on
ordinary activities before
interest 770,376 131,121

Interest receivable 187,667 125,299
Interest payable (26,087) (60,501)

-----------------------------

Profit on ordinary activities before
taxation 931,956 195,919
Taxation (13,150) (6,500)

-----------------------------

Profit retained 918,806 189,419
-----------------------------
-----------------------------
Profit on ordinary activities before
amortisation of goodwill, exceptional
items and taxation 1,376,085 847,906

-----------------------------
Profit per ordinary share (pence) 3
Basic 1.77p 0.40p
Basic before amortisation of goodwill
and exceptional items 2.63p 1.78p
Diluted 1.74p 0.38p

All of the amounts are in respect of continuing operations.



STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
AND NOTE OF HISTORIC COST PROFITS AND LOSSES
FOR THE YEAR ENDED 31 AUGUST 2006

2006 2005
(unaudited) (audited)
Pounds Pounds
Sterling Sterling

Statement of total recognised gains and losses
Profit for the financial year 918,806 189,419

Unrealised surplus on revaluation of properties 520,293 -
Exchange differences on retranslation of net assets
of foreign currency operations (2,308) 2,433

----------------------
Total recognised gains and losses relating to the
year 1,436,791 191,852
----------------------
----------------------

Note of historical cost profits and losses

2006 2005
(unaudited) (audited)
Pounds Pounds
Sterling Sterling
Reported profit on ordinary activities before
taxation 931,956 195,919

Difference between historic cost depreciation
charge and the actual depreciation charge of the
year calculated on the revalued amount 9,257 9,257

----------------------
Historic profit on ordinary activities before
taxation 941,213 205,176
----------------------
----------------------
Historic profit for the year retained after
taxation and dividends 928,063 198,676
----------------------
----------------------



CONSOLIDATED BALANCE SHEET
AS AT 31 AUGUST 2006

2006 2005
(unaudited) (audited)
Notes Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling
Fixed assets
Intangible assets 4 6,804,599 6,217,814
Tangible assets 2,577,606 2,183,982

------------ ------------
9,382,205 8,401,796
Current assets
Stocks 28,956 43,888
Debtors 2,084,673 1,861,388
Cash at bank and in
hand 4,667,200 4,116,722

---------- -----------
6,780,829 6,021,998
Creditors: amounts
falling due within
one year (988,116) (1,199,302)

---------- -----------

Net current assets 5,792,713 4,822,696
------------ ------------
Total assets less
current
liabilities 15,174,918 13,224,492

Creditors: amounts
falling due after
more than one
year - (313,291)

Provisions for
liabilities and
charges (29,804) (30,488)

Accruals and
deferred
income (3,257,332) (2,623,100)

------------ ------------
Net assets 11,887,782 10,257,613
------------ ------------
------------ ------------
Capital and
reserves
Called up share
capital 5 520,845 502,110
Share premium
account 6 15,216,527 15,041,884
Special reserve 6 4,667,133 4,667,133
Revaluation reserve 6 936,887 425,851
Other reserve 6 2,500 5,000
Profit and loss
account 6 (13,156,640) (14,084,895)

------------ ------------
Equity
shareholders' funds 8,187,252 6,557,083
Non-equity
shareholders' 5
funds 3,700,530 3,700,530
------------ ------------
Total shareholders'
funds 7 11,887,782 10,257,613
------------ ------------
------------ ------------



CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 AUGUST 2006

2006 2005
(unaudited) (audited)
Notes Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling

Net cash inflow from
operating activities 8 1,092,280 1,444,247

Returns on investments
and servicing of
finance
Interest received 187,667 125,299
Interest paid (26,087) (60,501)

--------- ----------
Net cash inflow from
returns on investments
and servicing of finance 161,580 64,798

------------ ----------
1,253,860 1,509,045

Taxation refunded (6,488) -

Capital expenditure
Purchase of tangible
fixed assets (39,483) (125,757)

--------- ----------
Net cash outflow for
capital expenditure (39,483) (125,757)

Acquisitions and
disposals
Purchase of subsidiary
undertaking (451,526) -
Net overdrafts acquired
with subsidiary (1,127) -

--------- ----------

Net cash outflow for
acquisitions and
disposals (452,653) -

------------ ----------

Net cash inflow before
financing 755,236 1,383,288

Financing
Proceeds from issues of
shares 193,378 1,535,216
Share issue costs - (47,379)
Bank loan repayments (394,292) (394,295)

--------- ----------

Net cash (outflow)/inflow
from financing (200,914) 1,093,542

------------ ----------
Increase in cash 9 554,322 2,476,830
------------ ----------
------------ ----------


NOTES TO THE UNAUDITED FINANCIAL INFORMATION

FOR THE YEAR ENDED 31 AUGUST 2006

1. Basis of preparation

The financial information has been prepared in accordance with applicable accounting standards in the United Kingdom and under the historical cost convention, modified to include the revaluation of a freehold property.

The financial information contained in this report does not constitute full statutory accounts within the meaning of Section 240 of the Companies Act 1985. The figures are extracted from the unaudited full financial statements for the year ended 31 August 2006 which will be filed with the Registrar of Companies following formal completion of the audit.

2. Administration expenses



The Group's profit and loss account includes the following items in
administration expenses:

2006 2005
Pounds Sterling Pounds Sterling

Amounts written off in connection with
acquisition of subsidiaries:
Amortisation of goodwill 444,129 444,129
---------------------------------
---------------------------------

Exceptional items:
Costs relating to the departure of Ben
Merrett - 207,858
---------------------------------
---------------------------------


3. Earnings per ordinary share

The basic earnings per ordinary share has been calculated using the profit for the year and the weighted average number of ordinary shares in issue during the year as follows:



2006 2005
Pounds Sterling Pounds Sterling
Profit for the year 918,806 189,419
---------------------------------
---------------------------------

Number Number

Weighted average of ordinary shares of 1p
each 51,845,796 47,194,067
---------------------------------
---------------------------------

Basic profit per share (pence) 1.77p 0.40p
---------------------------------
---------------------------------


The basic earnings per share before goodwill amortisation and exceptional items has also been presented since, in the opinion of the directors, this provides shareholders with a more appropriate measure of the earnings derived from the Group's businesses. It can be reconciled to basic earnings per share as follows:



Basic earnings per share (pence) 1.77p 0.40p
Goodwill amortisation items per share 0.86p 0.94p
Exceptional items 0.00p 0.44p

------- -------

Earnings per share before goodwill amortisation
and exceptional items 2.63p 1.78p
------- -------
------- -------


The diluted earnings per ordinary share, as defined in FRS 14, has been calculated on the following basis:



2006 2005
Pounds Pounds
Sterling Sterling

Profit for the year 918,806 189,419
---------------------------
---------------------------

Number Number

Weighted average of ordinary shares in issue
as above 51,845,796 47,194,067
Dilution for share options outstanding 894,161 2,469,307

---------------------------
Diluted weighted average number of shares in
issue 52,739,957 49,663,374
---------------------------
---------------------------
Diluted earnings per share (pence) 1.74p 0.38p
---------------------------
---------------------------



4. Intangible fixed assets

Goodwill Development Total
costs
Group Pounds Pounds Pounds
Sterling Sterling Sterling

Cost
At 31 August 2005 17,876,829 733,873 18,610,702
Acquisitions during the year 1,030,914 - 1,030,914

-----------------------------------
At 31 August 2006 18,907,743 733,873 19,641,616
-----------------------------------

Amortisation
At 31 August 2005 11,659,015 733,873 12,392,888
Charge for the year 444,129 - 444,129

-----------------------------------
At 31 August 2006 12,103,144 733,873 12,837,017
-----------------------------------

Net book values
At 31 August 2006 6,804,599 - 6,804,599
-----------------------------------
-----------------------------------
At 31 August 2005 6,217,814 - 6,217,814
-----------------------------------
-----------------------------------


Goodwill is amortised over the period which the Directors estimate will represent its useful economic life. The Directors are of the opinion that the useful economic life of the goodwill is 20 years from the date of acquisition of the business.



5. Share capital
2006 2005
Pounds Pounds
Sterling Sterling

Authorised
Equity
2,000,000,000 Ordinary shares of 1p each 20,000,000 20,000,000

--------- ---------
--------- ---------
Non-Equity
41,116,996 Non-voting deferred shares of 9p
each 3,700,530 3,700,530

--------- ---------
--------- ---------
Allotted, called up and fully paid
Equity
52,084,379 Ordinary shares of 1p each
(2005: 50,210,995 Ordinary shares of 1p each) 520,845 502,110
Non-Equity
41,116,996 Non-voting deferred shares of 9p
each 3,700,530 3,700,530
--------- ---------
4,221,375 4,202,640
--------- ---------
--------- ---------


During the year the company issued a further 1,873,384 shares of 1 pence each, following exercise of some of its share options under the EMI scheme and the unapproved scheme. The movements in shares and share premium following the above issues and reorganisation of shares are summarised as follows:



Number of Share Share
shares capital premium
Pounds Pounds
Sterling Sterling

As at 1 October 2005 50,210,995 502,110 15,041,884

Shares issued on exercise of share
options 1,873,384 18,735 174,643

---------- ------- ----------
As at 31 August 2006 52,084,379 520,845 15,216,527
---------- ------- ----------
---------- ------- ----------



6. Statement of movements on reserves

Share Special Revaluation Other Profit
premium reserve reserve reserve and loss
account account
Pounds Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling Sterling

Balance at 1
September
2005 15,041,884 4,667,133 425,851 5,000 (14,084,895)

Share issues 174,643 - - - -
Unrealised
surplus on
revaluation of
properties - - 520,293 - -
Transfer from
revaluation
reserve to
profit and
loss account - - (9,257) - 9,257
Currency
translation
differences on
foreign
currency
operations - - - - (2,308)
Transfer from
other reserve
to profit and
loss account - - - (2,500) 2,500
Retained Profit
for the year - - - - 918,806
---------- --------- -------- -------- ------------
At 31 August
2006 15,216,527 4,667,133 936,887 2,500 (13,156,640)
---------- --------- -------- -------- ------------
---------- --------- -------- -------- ------------


The special reserve arose as a result of the demerger of Ge.world UK and its subsidiaries during the year ended 31 August 2001 and comprises:



Pounds
Sterling
Amount transferred from share premium account to
eliminate deficit in the Company's profit and loss
account at the date of the demerger 25,000,000
Transferred to profit and loss account (20,332,867)
------------
4,667,133
------------
------------



7. Reconciliation of movements in shareholders' funds

2006 2005
Pounds Pounds
Sterling Sterling

Profit for the period 918,806 189,419
Proceeds from issues of shares 193,378 1,487,837
Unrealised surplus on revaluation of properties 520,293 -
Other reserve - -
Foreign exchange gains (2,308) 2,433

----------------------
Net increase in shareholders' funds 1,630,169 1,679,689
Opening shareholders' funds at start of the year 10,257,613 8,577,924

----------------------
Closing shareholders' funds at end of the year 11,887,782 10,257,613
----------------------
----------------------



8. Reconciliation of operating profit to net cash inflow from operating
activities

2006 2005
Pounds Pounds
Sterling Sterling

Operating profit 770,376 131,121
Depreciation charges 166,681 207,484
Amortisation of goodwill 444,129 444,129
Decrease in stocks 29,512 84,845
(Increase)/decrease in debtors (116,155) 258,029
(Decrease)/increase in creditors (220,225) 39,328
Increase in accruals and deferred income 20,954 265,593
(Decrease)/increase in provisions (684) 11,285
Foreign exchange gain (2,308) 2,433

---------------------
Net cash inflow from operating activities 1,092,280 1,444,247
---------------------
---------------------


9. Analysis of changes in net debt

2005 Cash Non-cash 2006
flows Changes
Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling

Cash at bank and in hand 4,116,722 550,478 - 4,667,200
Bank overdraft (3,844) 3,844 - -

-------------------------------------------
4,112,878 554,322 - 4,667,200

-------------------------------------------
Bank loans (707,583) 394,292 - (313,291)

-------------------------------------------
Total net debt 3,405,295 948,614 - 4,353,909
-------------------------------------------
-------------------------------------------


10. Post balance sheet event

On 12 September 2006, the Company acquired 60 per cent of the ordinary share capital of Valuenetics A/S, a software development company established and currently operating in Denmark. This investment allows the Company to utilise and leverage its core competencies and market position to the growing needs of the health and leisure, education and other similar markets where leading edge development capabilities and innovative solutions provide sustainable value to customers.

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