Chairman's Statement

FOR IMMEDIATE RELEASE 08 NOVEMBER 2007 Intellego Holdings plc ('Intellego' or 'the Group') UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 SEPTEMBER 2007 The Board of Intellego, the AIM traded e-learning and compliance courseware solutions business is pleased to announce its interim results for the six months to September 2007. HIGHLIGHTS * Sales up 78% to £740,557 (2006: £416,379) * Gross profit up 104% to £530,498 (2006: £259,732) * Losses for the period reduced to (£149,111) (2006: (£315,825)) * New product added * Potential acquisition targets under review Intellego has made a significant increase in its sales which are up 78% to £740,557, in addition to increasing gross profits by 104% to £530,498. The Group has made a strong effort to reduce losses for the period bringing them to (£149,111), down from (£315,825). Intellego is also pleased to report the addition of a new product, Halogen, which was announced to the Market last month in conjunction with a new customer. The Group continues to be optimistic as it looks to accelerate organic growth in conjunction with expansion through acquisition. Intellego has identified several opportunities which are being reviewed and meet the Board's criteria of delivering shareholder value. Commenting on these results, Chairman Angus Forrest said, "This period has seen a substantial improvement for Intellego. We have delivered increases in sales and gross profit so significantly reducing losses. With the current sales prospects and opportunities to grow by acquisition, we are confident of delivering continued growth over the coming six months." Enquiries Intellego Angus Forrest/ Ranjit Roy-Choudhuri Tel: 0870 428 1250 www.intellego-systems.com Bishopsgate Communications Limited Maxine Barnes/ Nick Farmer Tel. 020 7562 3350 intellego@bishopsgatecommunications.com Beaumont Cornish Limited Roland Cornish Tel: 020 7628 3396 Intellego Holdings plc Unaudited Condensed Consolidated Interim Financial Statements for the period ended 30 September 2007 Chairman's Statement Your business continues to grow rapidly with sales of £740,557(six months to 30 September 2006 £416,379) a 78% increase, and the gross profit generated rose to £530,498 (2006: £259,732) or 104%. The Group reduced losses for the period falling to £149,111 (2006 £315,825) less than half the level in the comparative period in 2006. This continues the trend of improvement maintained over the past two years. The Group is benefiting from the wider range of resources it is now able to deploy to provide customers with both first rate product and service offerings which enables it to handle larger projects and generate greater value per sale. This is the first occasion that the Company has prepared the accounts using the new international financial reporting standards (IFRS). The effect of the new standards to the reported numbers has been immaterial. However, the new segmental reporting highlights the underlying improvement in the business showing growth in all segments and the emergence of a new publishing segment. This new sector should offer the Company high sustainable margins and opportunities for repeat revenues so improving the quality of the Company's earnings. Product portfolio As part of our strategy to develop the Group's product range with products which offer customers additional functionality to their Learning Management System (LMS) we have added a new product, Halogen, a talent management system which links to the LMS allowing users greater control and management reporting and so greater value to the total offering. We were pleased to launch Halogen with a new customer. Since the formation of Intellego Interactive and acquisition of the eMedit business the emphasis of the Group has further moved to adding value to the products we distribute and there has been material growth in the sales of content developed for clients. This both increases the total value of a sale and contribution to the Group. Market There is an increasing awareness of Intellego in its chosen market sectors supported by several customer related initiatives including more frequent attendance at trade exhibitions, a new customer newsletter and the recruitment of additional sales staff. Over the past six months we have been selected to quote for several significantly larger projects and we are on an increasing number of customer preferred supplier lists. This should allow us to participate in higher value projects and improve the lead to sale conversion ratio. We noticed that the uncertainty in financial markets in August and September impacted adversely on customers' decision making process, otherwise I am confident that the headline sales figure would have been higher. However, there has been some recovery in October. Outlook The Group's sales prospects have never been better so I believe there is cause for optimism that the pace of growth will continue and accelerate over the next six months. We are looking to accelerate the Group's organic growth, and expand through acquisition. Several opportunities which meet our criteria of complementing the existing business and growing shareholder value are being reviewed currently. For further information please visit www.intellego-systems.com or contact: +-------------------------------------------------------------------+ | Intellego: Angus Forrest, Ranjit | Tel: 0870 428 1250 | | Roy-Choudhuri | | |----------------------------------------------+--------------------| | Beaumont Cornish Limited: Roland Cornish | Tel: 020 7628 3396 | |----------------------------------------------+--------------------| | Bishopsgate Communications Limited: Maxine | Tel: 020 7652 3350 | | Barnes, Nick Farmer | | +-------------------------------------------------------------------+ Condensed consolidated interim income statement (unaudited) Six months Six months Year to 31 to 30 to 30 March 2007 September 2007 September 2006 Note £ £ £ Continuing operations Revenue 740,557 416,379 1,051,746 Cost of sales (210,059) (156,647) (392,849) __ __ __ Gross profit 530,498 259,732 658,897 Administrative costs 5 (665,836) (562,556) (1,168,856) __ __ __ Operating loss (135,338) (302,824) (509,959) Investment income 1,618 179 649 Interest expense (15,391) (13,180) (28,483) __ __ __ Loss before tax (149,111) (315,825) (537,793) Income tax expense __ __ __ __ __ __ Loss for the period (149,111) (315,825) (537,793) == == == Loss per share: Basic and diluted 6 (0.17p) (0.60p) (0.92p) == == == Condensed consolidated interim balance sheet (unaudited) 30 30 31 March 2007 September September 2007 2006 Note £ £ £ ASSETS Non-current assets Property, plant and equipment 83,185 103,290 98,030 Goodwill 72,006 18,930 72,006 Other intangible assets 63,087 60,042 72,023 --- --- -- 218,278 182,262 242,059 --- -- -- Current assets Inventories 5,976 9,714 6,476 Trade and other receivables 413,771 515,325 503,675 Cash and cash equivalents 199,177 2,215 128,665 -- -- --- 618,924 527,254 638,816 --- -- -- Total assets 837,202 709,516 880,875 == == == Condensed consolidated interim balance sheet (unaudited) (continued) 30 30 31 March September September 2007 2007 2006 £ Note £ £ LIABILITIES Current liabilities Trade and other payables 407,578 427,209 508,935 Short-term borrowings 112,696 126,321 149,033 Current portion of long-term borrowings 7,204 7,204 7,214 __ __ __ 527,478 560,734 665,182 Non-current liabilities Long-term borrowings 16,844 24,058 20,451 __ __ __ Total non-current liabilities 16,844 24,058 20,451 __ __ __ Total liabilities 544,322 584,792 685,633 Net assets 292,880 124,724 195,242 EQUITY Equity attributable to equity holders of the parent Share capital 504,637 292,800 415,138 Share premium account 1,261,824 934,426 1,104,574 Profit and loss reserve (1,473,581) (1,102,502) (1,324,470) __ __ __ Total equity 292,880 124,724 195,242 Condensed consolidated interim statement of changes in equity (unaudited) Profit and Total Share Share Shares to loss equity capital premium be issued reserve £ £ £ £ £ Balance at 1 (786,677) 364,648 April 2006 235,500 762,226 153,599 Shares issued 57,300 172,200 - - 229,500 Deferred consideration released on the acquisition of Modinex Limited (subsequently renamed Intellego TTS Limited) - - (153,599) - (153,599) Loss for the period - - - (315,825) (315,825) __ __ __ __ __ Balance at 30 September 2006 292,800 934,426 - (1,102,502) 124,724 == ==== === == == Balance at 1 October 2006 292,800 934,426 - (1,102,502) 124,724 Shares issued 122,338 170,148 - - 292,486 Loss for the period - - - (221,968) (221,968) __ __ __ __ __ Balance at 31 (1,324,470) 195,242 March 2007 415,138 1,104,574 - === === === === === Balance at 1 (1,324,470) 195,242 April 2007 415,138 1,104,574 - Shares issued 89,499 157,250 - - 246,749 Loss for the period - - - (149,111) (149,111) __ __ __ __ __ Balance at 30 September 2007 504,637 1,261,824 - (1,473,581) 292,880 === === == === === Condensed consolidated interim cash flow statement (unaudited) Six months to Year to 31 Six months to 30 September March 2007 30 September 2007 2006 Note £ £ £ Cash flows from operating activities Loss after taxation (149,111) (315,825) (537,793) Adjustments for: Depreciation 18,910 26,801 43,980 Amortisation 8,935 8,652 29,229 Investment income (1,618) (179) (649) Interest expense 15,391 13,180 28,483 Decrease in trade and 162,983 other receivables 89,904 64,159 Decrease in inventories 500 9,714 12,952 Decrease in trade (76,628) payables (101,357) (69,592) __ __ __ Cash used in operations (118,446) (263,090) (337,443) Interest paid (15,391) (13,180) (28,483) __ __ __ Net cash used in operating activities (133,837) (276,270) (365,926) __ __ __ Cash flows from investing activities Purchase of property, (16,077) plant and equipment (4,065) (11,712) Overdraft acquired with (8,092) business assets - - Interest received 1,618 179 649 __ __ __ Net cash used in investing activities (2,447) (11,533) (23,520) __ __ __ Cash flows from financing activities Proceeds from issue of 471,986 share capital 246,749 229,500 Principle payment of (40,494) long-term bank loan (3,616) (3,607) __ __ __ Net cash used in financing activities 243,133 225,893 431,492 __ __ __ Net increase / (decrease) in cash and cash equivalents 106,849 (61,910) 42,046 Cash and cash equivalents at beginning of period (20,368) (62,414) (62,414) __ __ __ Cash and cash equivalents at end of period 86,481 (124,324) (20,368) == == == Notes to the condensed consolidated interim financial statements 1 General information The financial information set out in this condensed interim report for the six months ended 30 September 2007 and the comparative figures for the six months ended 30 September 2006 and the year ended 31 March 2007 are unaudited. This financial information does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The Group's statutory financial statements for the year ended 31 March 2007, prepared under UK GAAP, received an unqualified audit report, did not contain statements under section 237(2) of the Companies Act 1985 and have been filed with the Registrar of Companies. 2 Basis of preparation These September 2007 condensed consolidated interim financial statements of Intellego Holdings plc are for the six months ended 30 September 2007. They have been prepared taking into account the requirements of IAS 34, Interim Financial Reporting, and the requirements of IFRS1, First-time Adoption of IFRS, because they are part of the period covered by the Group's first IFRS financial statements for the year ending 31 March 2008. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group prepared under UK GAAP, for the year ended 31 March 2007. These condensed consolidated interim financial statements (the interim financial statements) have been prepared in accordance with the accounting policies set out below which are based on the recognition and measurement principles of IFRS in issue as adopted by the European Union (EU) and are effective at 31 March 2008 or are expected to be adopted and effective at 31 March 2008, our first annual reporting date at which we are required to use IFRS accounting standards adopted by the EU. Intellego Holdings plc's consolidated financial statements were prepared in accordance with applicable United Kingdom Generally Accepted Accounting Principles (UK GAAP) until 31 March 2007. The date of transition was 1 April 2006. UK GAAP differs in some areas from IFRS. In preparing Intellego Holdings plc's 2007 condensed consolidated interim financial statements, management has amended certain accounting, valuation and consolidation methods applied in the UK GAAP financial statements to comply with IFRS. The comparative figures in respect of 2006 and 2007 were restated to reflect these adjustments. Reconciliations and descriptions of the effect of the transition from UK GAAP to IFRS on the Group's equity and its net income and cash flows are provided in Note 7. These condensed consolidated interim financial statements have been prepared under the historical cost convention. The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Group's accounting policies. 3 Summary of significant accounting policies Basis of consolidation The Group's consolidated interim financial statements incorporate the financial statements of the parent company and all of its subsidiaries drawn up to 30 September 2007. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights. Unrealised gains on transactions between the Group and its subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the group. The Group has applied the principles of merger accounting for the acquisition of Intellego Systems Limited during 2004. Subsequent acquisitions of subsidiaries are dealt with by the purchase method. The purchase method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their fair values, which are also used as the bases for subsequent measurement in accordance with the Group accounting policies. Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of acquisition cost over the fair value of the Group's share of the identifiable net assets of the acquired subsidiary at the date of acquisition. Business combinations completed prior to date of transition to IFRS The Group has elected not to apply IFRS 3 Business Combinations retrospectively to business combinations prior to 1 April 2006, the date of transition. Accordingly the classification of the combination (acquisition, reverse acquisition or merger) remains unchanged from that used under UK GAAP. Assets and liabilities are recognised at date of transition if they would be recognised under IFRS, and are measured using their UK GAAP carrying amount immediately post-acquisition as deemed cost under IFRS, unless IFRS requires fair value measurement. Deferred tax and minority interest are adjusted for the impact of any consequential adjustments after taking advantage of the transitional provisions. Revenue Revenue is measured by reference to the fair value of consideration received or receivable by the Group for goods supplied and services provided, excluding VAT and trade discounts. Revenue is recognised upon the performance of services or transfer of risk to the customer. Revenue from the sale of goods is recognised when all the following conditions have been satisfied: * the Group has transferred to the buyer the significant risks and rewards of ownership of the goods which is generally when a software license is delivered. * the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold which is generally when the license key is delivered, * it is probable that the economic benefits associated with the transaction will flow to the entity, and * the amount of revenue and the costs associated with the transaction can be measured reliably Related ancillary services such as support and maintenance and system hosting are recognised over the period of the contract. Content development sales are recognised on achievement of agreed milestones or on delivery. Where training or support services are invoiced but not supplied by the period end, the value of these services is recorded in current liabilities as deferred income. The outcome of the transaction is deemed to be able to be estimated reliably when all the following conditions are satisfied: * the stage of completion of the transaction at the balance sheet date can be measured reliably and is estimated by reference to agreed delivery milestones or over the period of the contract, * it is probable that the economic benefits associated with the transaction will flow to the entity, and * the amount of revenue and costs incurred for the transaction and the costs to complete the transaction can be measured reliably. Goodwill Goodwill representing the excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired, is capitalised and reviewed annually for impairment. Goodwill is carried at cost less accumulated impairment losses. Intangible assets Acquired distribution rights are amortised to the income statement over their estimated economic life. Software development costs relate to expenditure on the development of certain new products and service projects where the outcome of those projects is assessed as being reasonably certain as regards viability and technical feasibility. Such expenditure is capitalised and amortised over the expected sales life of the software being generally a period not longer than five years commencing in the year the sales of the product were first made. Development costs incurred on specific projects are capitalised when all the following conditions are satisfied: * completion of the intangible asset is technically feasible so that it will be available for use or sale * the Group intends to complete the intangible asset and use or sell it * the Group has the ability to use or sell the intangible asset * the intangible asset will generate probable future economic benefits. * there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and * the expenditure attributable to the intangible asset during its development can be measured reliably Development costs not meeting the criteria for capitalisation are expensed as incurred. Assets acquired as part of a business combination In accordance with IFRS 3 Business Combinations, an intangible asset acquired in a business combination is deemed to have a cost to the Group of its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will flow to the Group. Where an intangible asset might be separable, but only together with a related tangible or intangible asset, the group of assets is recognised as a single asset separately from goodwill where the individual fair values of the assets in the Group are not reliably measurable. Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. On the acquisition of the assets and liabilities of Emedit Limited in December 2006 a medical content library and an on-line content delivery system was acquired. The fair value is based on the review of future cash flows discounted back at 20% over a period of three years. Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets. Intangible assets with an indefinite life are not amortised but are systematically tested for impairment. Property, plant and equipment Property, plant and equipment is stated at cost, net of depreciation and any provision for impairment. Disposal of assets The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the income statement. Depreciation Depreciation is calculated to write down the cost less estimated residual value of all property, plant and equipment by equal annual instalments where it reflects the basis of consumption of the asset over their estimated useful economic lives. The rates/periods generally applicable are: Fixtures, fittings and equipment 20-25% straight line Computer hardware 33 1/3 % straight line Improvements to leasehold Over the term of the lease Impairment testing of goodwill, other intangible assets and property, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors the related cash flows. Goodwill, other individual assets or cash-generating units that include goodwill, other intangible assets with an indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Inventories Inventories are stated at the lower of cost and net realisable value. Costs of ordinarily interchangeable items are assigned using the first in, first out cost formula. Taxation Current tax is the tax currently payable based on taxable profit for the year. Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity. Leases Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Operating lease costs are charged to the income statement on a straight line basis over the lease term. Financial assets Financial assets relate to loans and receivables. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which they were acquired. The designation of financial assets is re-evaluated at every reporting date at which a choice of classification or accounting treatment is available. All financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets are recognised at fair value plus transaction costs. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade receivables are classified as loans and receivables. Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in the income statement. Provision against trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows. A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the financial asset is transferred and that transfer qualifies for derecognition. A financial asset is transferred if the contractual rights to receive the cash flows of the asset have been transferred or the Group retains the contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash flows to one or more recipients. A financial asset that is transferred qualifies for derecognition if the Group transfers substantially all the risks and rewards of ownership of the asset, or if the Group neither retains nor transfers substantially all the risks and rewards if ownership but does transfer control of that asset. Financial liabilities Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial liabilities categorised as at fair value through profit or loss are recorded initially at fair value and all transaction costs are recognised immediately in the income statement. All other financial liabilities are recorded initially at fair value, net of direct issue costs. Financial liabilities categorised as at fair value through profit or loss are remeasured at each reporting date at fair value, with changes in fair value being recognised in the income statement. All other financial liabilities are recorded at amortised cost using the effective interest method, with interest-related charges recognised as an expense in finance cost in the income statement. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the income statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Equity Equity comprises the following: * "Share capital" represents the nominal value of equity shares. * "Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue. * "Profit and loss reserve" represents retained profits. Foreign currencies Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in the income statement in the period in which they arise. Share-based payment For equity-settled share options, the services received from employees are measured by reference to the fair value of the share options. The fair value is calculated at grant date and recognised in the income statement, together with a corresponding credit to "profit and loss reserves", on a straight-line basis over the vesting period, based on the best available estimate of the number of options that are expected eventually to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Vesting conditions, other than market conditions, are not taken into account when estimating the fair value. IFRS 2 has been applied, in accordance with IFRS 1, to equity-settled share options granted on or after 7 November 2002 and not vested at 1 April 2006. Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium. The adoption of IFRS 2 has had no material effect on the figures previously reported or on the results for the period. 4 Segment analysis The Group's primary reporting format is business segment and its secondary format is geographical segment by origin of revenue. Intellego operates three main business segments Distribution, Services and Publishing. The activities undertaken by the Distribution segment are the resale of software developed by third parties including maintenance and support contracts. The Services segment includes consultancy, customisation, development of bespoke content and integration of e-learning systems. The Publishing segment includes the publishing and sale of internally generated product. The revenues and net result generated by each of Intellego plc's business segments are summarised as follows: 6 months to 30 September 2007 Distribution Services Publishing Group £ £ £ £ Revenue 343,356 304,644 92,557 740,557 (Loss)/profit (91,920) (47,911) (9,280) (149,111) for the period == == == == 6 months to 30 September 2006 Distribution Services Publishing Group Revenue 286,377 130,002 - 416,379 Loss for the (257,531) (58,294) - (315,825) period == == == == Year to 31 March 2007 Distribution Services Publishing Group Revenue 673,438 378,308 - 1,051,746 Loss for the (453,714) (84,079) - period (537,793) == == == == 5 Administrative costs Six months to Six months to Year to 31 30 September 30 September March 2007 2007 2006 £ £ £ Administrative costs 665,836 438,654 963,890 __ __ __ Exceptional items: Inventory written off - - 12,952 Long standing bad debts and 163,789 prepayments written off - 111,681 Non-current assets written 28,225 off - 12,221 __ __ __ Total exceptional items - 123,902 204,966 __ __ __ Total administrative costs 665,836 562,556 1,168,856 == == == 6 Loss per share The calculation of basic loss per share is based on a loss for the period of £149,111 (31 March 2007: £537,793, 30 September 2006: £315,825) and on 87,502,585 (31 March 2007: 58,646,896, 30 September 2006: 52,830,000) ordinary shares, being the weighted average number of ordinary shares in issue during the year. The loss attributable to ordinary shareholders and the weighted average number of ordinary shares for the purpose of calculating the diluted loss per share are identical to those used for the basic loss per share. Similarly, the adjusted loss attributable to ordinary shareholders and the weighted average number of ordinary shares for the purposes of calculating the diluted loss per share are identical to those used for the loss per share. This is because the exercise of share options and warrants would have the effect of reducing the loss per share and is therefore not dilutive under the terms of IAS 33. 7 Explanation of transition to IFRS As stated in the Basis of Preparation, these are the Group's first condensed consolidated interim financial statements for part of the period covered by the first IFRS annual consolidated financial statements prepared in accordance with IFRS. An explanation of how the transition from UK GAAP to IFRS has affected the Group's financial position, financial performance and cash flows is set out below. IFRS 1 permits entities adopting IFRS for the first time to take certain exemptions from the full requirements of IFRS in the transition period. These Condensed interim financial statements have been prepared on the basis of taking the following exemptions: * business combinations prior to 1 April 2006, the Group's date of transition to IFRS, have not been restated to comply with IFRS 3 "Business Combinations". Under UK GAAP both positive and negative goodwill arising on consolidation relating to acquisitions prior to 31 March 2006 and representing the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired, is capitalised and is amortised on a straight line basis over its estimated useful economic life of 10 years. The Group has taken the exemption under IFRS 1 in respect of positive goodwill, and therefore the net book value of positive goodwill under UK GAAP at 31 March 2006 becomes the deemed cost of goodwill as at the date of transition (1 April 2006). Under IFRS this goodwill balance is no longer amortised but instead subject to an annual impairment review. The impact of adopting IFRS is to reverse the goodwill amortisation charged in 2006 and 2007 and to increase the carrying value of goodwill in the balance sheet dated 30 September 2006 and 31 March 2007. In accordance with IFRS 3 Business Combinations, an intangible asset acquired in a business combination is deemed to have a cost to the Group of its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will flow to the Group. On the acquisition of the assets and liabilities of Emedit Limited in December 2006 a medical content library and an on-line content delivery system was acquired. The fair value is based on the review of future cash flows discounted back at 20% over a period of three years. The following reconciliations provide a quantification of the effect of the transition to IFRS. 7.1 Reconciliation of equity at 1 April 2006 UK GAAP A B C(a) IFRS £ £ £ £ £ Non-current assets Property, plant and equipment 118,379 - - - 118,379 Goodwill 172,529 - - - 172,529 Other intangible assets 68,923 - - - 68,923 __ __ __ __ __ 359,831 - - - 359,831 Current assets Inventories 19,428 - - - 19,428 Trade and other receivables 579,484 - - - 579,484 __ __ __ __ __ 598,912 - - - 598,912 __ __ __ __ __ Total assets 958,743 - - - 958,743 == == == == == Current liabilities Trade and other payables 496,802 - - - 496,802 Short-term borrowings 62,414 - - - 62,414 Current portion of long-term - borrowings 7,214 - - 7,214 __ __ __ __ __ 566,430 - - - 566,430 Non-current liabilities Long-term borrowings 27,665 - - - 27,665 __ __ __ __ __ Total liabilities 594,095 - - - 594,095 == == == == == __ __ __ __ __ Net assets 364,648 - - - 364,648 == == == == == Equity Share capital 235,500 - - - 235,500 Share premium account 762,226 - - - 762,226 Shares to be issued 153,599 - - - 153,599 Profit and loss reserve (786,677) - - - (786,677) __ __ __ __ __ Total equity 364,648 - - - 364,648 == == == == == 7.2 Reconciliation of equity at 30 September 2006 UK GAAP A B C (a) IFRS £ £ £ £ £ Non-current assets Property, plant and equipment 103,290 - - - 103,290 Goodwill 17,907 1,023 - - 18,930 Other intangible assets 60,042 - - - 60,042 __ __ __ __ __ 181,239 1,023 - - 182,262 Current assets Inventories 9,714 - - - 9,714 Trade and other receivables 515,325 - - - 515,325 Cash and cash equivalents 2,215 - - - 2,215 __ __ __ __ __ 527,254 - - - 527,254 __ __ __ __ __ Total assets 708,493 1,023 - - 709,516 == == === == == Current liabilities Trade and other payables 427,209 - - - 427,209 Short-term borrowings 126,321 - - - 126,321 Current portion of - long-term borrowings 7,204 - - 7,204 __ __ __ __ __ 560,734 - - - 560,734 Non-current liabilities Long-term borrowings 24,058 - - - 24,058 __ __ __ __ __ Total liabilities 584,792 - - - 584,792 == == == == == __ __ __ __ __ Net assets 123,701 1,023 - - 124,724 == == == == == Equity Share capital 292,800 - - - 292,800 Share premium account 934,426 - - - 934,426 Profit and loss reserve (1,103,525) 1,023 - - (1,102,502) __ __ __ __ __ Total equity 123,701 1,023 - - 124,724 == == == == == 7.3 Reconciliation of equity at 31 March 2007 UK GAAP A B C (a) D IFRS £ £ £ £ £ £ Non-current assets Property, - 98,030 plant and equipment 98,030 - - - Goodwill 99,781 1,023 3,531 (32,329) 72,006 Other 72,023 intangible assets 41,310 - - 32,329 (1,616) __ __ __ __ __ __ 239,121 1,023 3,531 - (1,616) 242,059 Current assets Inventories 6,476 - - - - 6,476 Trade and other receivables 503,675 - - - - 503,675 Cash and cash equivalents 128,665 - - - - 128,665 __ __ __ __ __ __ 638,816 - - - - 638,816 __ __ __ __ __ __ Total assets 877,937 1,023 3,531 - (1,616) 880,875 == == == == == == Current liabilities Trade and - other payables 508,935 - - - 508,935 Short-term - borrowings 149,033 - - - 149,033 Current - portion of long-term borrowings 7,214 - - - 7,214 __ __ __ __ __ __ 665,182 - - - - 665,182 Non-current liabilities Long-term - borrowings 20,451 - - - 20,451 __ __ __ __ __ __ Total 685,633 - - - - 685,633 liabilities == == == == == == __ __ __ __ __ __ Net assets 192,304 1,023 3,531 - (1,616) 195,242 == == == == == == Equity Share capital 415,138 - - - - 415,138 Share premium - account 1,104,574 - - - 1,104,574 Profit and - loss reserve (1,327,408) 1,023 3,531 (1,616) (1,324,470) __ __ __ __ __ __ Total equity 192,304 1,023 3,531 - (1,616) 195,242 == == == == == == 7.4 Reconciliation of net income Six months to 30 September 2006 UK A B C (b) D IFRS GAAP £ £ £ £ £ £ Revenue 416,379 - - - - 416,379 Cost of sales (156,647) - - - - (156,647) __ __- __- __- __- __ Gross profit 259,732 - - - - 259,732 Administrative costs (439,676) 1,023 - (123,903) - (562,556) Exceptional items (123,903) - - 123,903 - - __ __- __- __- __- __ Total administration costs (563,579) 1,023 - - - (562,556) __ __- __- __- __- __ Operating loss (303,847) 1,023 - - - (302,824) Investment income 179 - - - - 179 Interest income (13,180) - - - - (13,180) __ __- __- __- __- __ Loss before tax (316,848) 1,023 - - - (315,825) Income tax expense - - - - - - __ __- __- __- __- __ Loss for the period (316,848) 1,023 - - - (315,825) ==== ==== == == == == Year to 31 March 2007 UK GAAP A B C (b) D IFRS £ £ £ £ £ £ Revenue 1,051,746 - - - - 1,051,746 Cost of sales (392,849) - - - - (392,849) __ __ __ __ __ __ Gross profit 658,897 - - - - 658,897 Administrative costs (966,828) 1,023 3,531 (204,966) (1,616) (1,168,856) Exceptional items (204,966) - - 204,966 - - __ __ __ __ __ __ Total administration costs (1,171,794) 1,023 3,531 - (1,616) (1,168,856) __ __ __ __ __ __ Operating loss (303,847) 1,023 3,531 - (1,616) (509,959) Investment income 649 - - - - 649 Interest income (28,483) - - - - (28,483) __ __ __ __ __ __ Loss before tax (540,731) 1,023 3,531 - (1,616) (537,793) Income tax expense - - - - - - __ __ __ __ __ __ Loss for the period (540,731) 1,023 3,531 - (1,616) (537,793) == == == == == == 7.5 Notes to the reconciliation Note A: Being the write back of goodwill amortisation in the period from 1 April to 30 September 2006. Note B: Being the write back of goodwill amortisation in the period from 1 October 2006 to 31 March 2007. Note C (a): Being the reclassification from goodwill to intangible assets of assets acquired from Emedit Limited. Note C (b): Being the reclassification of exceptional items to administration costs. Note D: Being the amortisation of intangible assets relating to the acquisition of assets from Emedit Limited from 22 December 2006 (the date of acquisition) to 31 March 2007. 7.6 Explanation of material adjustments to the cash flow statement Application of IFRS has resulted in the reclassification of certain items in the cash flow statement as follows: * Under UK GAAP, payments to acquire property, plant and equipment were classified as part of 'Capital expenditure and financial investment'. Under IFRS, payments to acquire property, plant and equipment have been classified as part of 'Investing activities' * Income taxes are classified as operating cash flows under IFRS, but were included in a separate category of tax cash flow under UK GAAP. * Interest paid and interest received are classified as cash flows from investing activities under IFRS, but were included in the 'Returns on investments and servicing of finance' category in cash flows under UK GAAP. There are no other material differences between the cash flow statement presented under IFRS and that presented under UK GAAP. ---END OF MESSAGE---