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RNS Number:6927T
Imagestate PLC
29 December 2003
PRESS RELEASE
A copy of the Annual Report and Financial Statements of the Group for the year
ended 30 June 2003 has been sent to shareholders today. The notice convening the
Group's Annual General Meeting and the relevant Form of Proxy will be sent in
due course.
The Group's Annual Report and Financial Statements are reproduced in full below:
ImageState PLC
Report and Financial Statements for the year ended 30 June 2003
DIRECTORS
C Adamson
J Beckwith
M Johnson
M Luckwell
SECRETARY
C Adamson
NOMINATED ADVISOR AND BROKER
Evolution Beeson Gregory
The Registry
Royal Mint Court
London
EC3N 4LB
AUDITORS
BDO Stoy Hayward
8 Baker St
London W1U 3LL
BANKERS
Bank of Scotland
155 Bishopsgate
London
2M 3YB
SOLICITORS
Taylor Wessing
Carmelite
50 Victoria Embankment
Blackfriars
London EC4Y ODX
REGISTERED OFFICE
Ramillies House
1-2 Ramillies St
London W1F 7LN
CHAIRMAN'S STATEMENT
INTRODUCTION
During the year ended 30 June 2003 ImageState continued its development as a
digital based stock photography company in a difficult market environment.
Under the adverse market conditions, the focus of the group has been to continue
to reduce costs and rationalise operations. In addition, the Board reviewed the
management structure and asked a team of industry experts to review the progress
of the business. As a consequence, an interim management team was appointed to
drive operational changes and further cost reductions. In July 2003, Michael
Cornish stepped down as Chairman and Chief Executive and I assumed the role of
Non-Executive Chairman to oversee the rationalisation of the group. The Board
continued its search for a permanent CEO, with industry experience across all
the areas of ImageState's operations. I am pleased to say that following that
process the Board appointed Leslie Hughes as Group Chief Executive Officer
effective 17th November 2003.
OVERVIEW OF OPERATIONS
The Group has two operating businesses based in New York and London currently
employing a total of 40 staff (compared with 79 as at 30 June 2002). The Group's
web portal is now established under the name of www.imagestate.com.
Over the forthcoming months we will be looking at ways of enhancing our presence
in the market place as well as building on the existing product content by
forging stronger relationships with our photography suppliers. This will allow
the Group to make the best use of its marketing efforts to support the sales
strategy.
The London based business employs 22 people and includes the UK domestic direct
sales team as well as the international agent network team. Cost reductions have
taken place in the London office as part of a consolidation of administrative
services.
The New York based business, had a more difficult year with depressed market
conditions continuing in the US. Since June significant progress has been made
in further reducing the operating cost base of the US office and further
positive steps are being taken to enable the US operation to improve
performance. There are now 18 staff in the New York office.
The remaining group operation is the head office department, which includes the
Board, all the other corporate costs associated with being a public company on
AIM and the interest charges on the Group's borrowings.
FINANCIAL RESULTS
The results for the group for the period from 1 July 2002 to 30 June 2003 were
disappointing. A significant part of the operational under performance can be
attributed to the general market environment. The Board made significant changes
to the executive management team in the UK and US. This has been reflected in
improved operational performance and tighter cost control across the Group.
During the period from 1 July 2002 to 30 June 2003, Group turnover amounted to
#5.5 million, (year ended June 2002 #7.0 million). The gross margin was
approximately 56 per cent.
The split of turnover by region was approximately US 37 per cent. and Rest of
World 63 per cent., including the Group's international sales. The Group's
products are sold by agents in over 50 countries worldwide and this broad
international spread of sales has provided some insulation for the Group from
the drop in advertising expenditure in the US and the UK.
The Group operating loss before write-down of investments, interest and tax was
#2.4 million compared to a loss of #21.6 million for the year ended 30 June
2002.
In addition, the Directors have reviewed the levels of goodwill, which relate to
the prior acquisitions made by the Group. Following that review, the Directors
have concluded that no further write-down is required.
FINANCIAL RESULTS (continued)
The Group loss before taxation was #3.5 million compared to a loss of #22.1
million for the year ended 30 June 2002. The Group made a loss per share of
1.4p.
The Directors do not propose to pay a dividend. The Group had net liabilities of
#6.0 million as at 30 June 2003, with all investments carried in the balance
sheet at the lower of cost or net realisable value.
CURRENT TRADING
Trading since the year-end shows an improvement over the prior period. The US
has reduced losses, although current trading is still below expectations and
further action is being taken to address this. Overall the focus has and will
continue to remain on cost reduction, however, we have also begun to make
inroads into improving the sales operations and have engaged client focused
marketing partners to assist us in delivering our product offering.
The Group continues to rely on the support of its remaining funding shareholder
and its bankers. There are no clear signs yet that the advertising market will
improve in the short term and trading conditions are likely therefore to remain
challenging throughout 2004. However, the changes made over the last months,
and, in particular the changes in management and the cost rationalisation,
should put the Group in a better position to go forward.
Chris Adamson
Chairman
24 December 2003
DIRECTORS' REPORT
The Directors present their report and the Group accounts for the year ended 30
June 2003.
RESULTS AND DIVIDENDS
The Group loss for the year, after taxation, amounted to #3.5 million (year
ended June 2002 - #22.1 million).
The Directors do not recommend the payment of a dividend.
PRINCIPAL ACTIVITIES
The Group's principal activities during the year continued to be the provision
of digitally based stock photography and rights development as further described
in the Chairman's Statement set out on pages 2 and 3.
REVIEW OF THE BUSINESS AND FUTURE DEVELOPMENTS
The results for the year are detailed on page 11. A commentary for the results
for the year and the future prospects for the group is provided in the
Chairman's Statement set out on pages 2 and 3.
EVENTS SINCE THE BALANCE SHEET DATE
On 10 October 2002 the Group entered into a convertible debt facility jointly
provided by its largest shareholders: OVP 2 Limited - a subsidiary of Pacific
Investments PLC, a company ultimately controlled by Sir John Beckwith; Mike
Luckwell (a Director of ImageState PLC); and, Mark Johnson, (a Director of
Pacific Investments PLC and ImageState PLC).
On the 17 June 2003, in consideration of OVP 2 Limited providing additional
funding, Mike Luckwell and Mark Johnson assigned their convertible loans over to
OVP 2 Limited for a nominal initial consideration together with a further
payment the amount of which is contingent on the proceeds received by OVP 2
Limited in due course on repayment of the convertible loans whether in cash or,
if so elected by OVP 2 Limited, in new ImageState ordinary shares. Following the
assignment of the convertible loans OVP 2 Limited agreed terms with the Group to
increase the facility to #5,025,000.
On 21 October 2003 the facility was extended by a further #700,000. OVP2 Limited
remains the sole ongoing source of finance for the Group and the Group continues
to rely on the support of its remaining funding shareholder.
The facility has been structured as a convertible loan repayable, at the lenders
option, either in cash or, if permissible, shares of 1p each at a price of 1p
per share. The repayment of the convertible loan through the issue of new shares
is dependent on it being permissible under the rules of the Panel on Takeovers
and Mergers and the approval by independent shareholders to issue the additional
shares. The maximum number of shares which could be issued would amount to
320,000,000. The lenders have provided the convertible loan on the basis that
they expect to be repaid in shares. Accordingly, in the event that they wish to
do so, but the Group is unable to comply and repays the convertible loan in
cash, then there will be a redemption premium payable of 20 per cent. of the
principal amount of the loan outstanding at the repayment date. Drawings under
the loan bear an interest cost of LIBOR plus 3 per cent.
DISABLED EMPLOYEES
The Group gives full consideration to applications for employment from disabled
persons where the requirements of the job can be adequately fulfilled by a
handicapped or disabled person.
Where existing employees become disabled, it is the group's policy wherever
practicable to provide continuing employment under normal terms and conditions
and to provide training and career development and promotion wherever
appropriate.
DIRECTORS AND THEIR INTERESTS
On 1 July 2003 Michael Cornish resigned as Chairman / Chief Executive Officer
and a Director of the company.
The Directors as at 30 June 2003 and their beneficial interests in the share
capital of the company, were as follows:
At 30 June 2003 At 30 June 2002
Ordinary shares Ordinary shares
J L Beckwith 73,509,029 73,509,029
M Luckwell 73,346,238 73,346,238
M Cornish 736,963 736,963
C W Adamson 2,015,426 2,015,426
M C Johnson 1,679,522 1,679,522
At 30 June 2003 At 30 June 2002
Warrants Warrants
Number of Exercise Number of Exercise
warrants Price warrants Price
J L Beckwith - - - -
M Luckwell 1,975,872 10p 1,975,872 10p
M Cornish 2,325,581 (see below) 2,325,581 -
C W Adamson 400,000 150p 400,000 150p
M C Johnson 3,653,305 2,149,003 at 10p 3,653,305 2,149,003 at 10p
1,504,302 at 15p 1,504,302 at 15p
The warrants are exercisable at any time between the third and seventh
anniversaries of the date of the warrant instruments. Warrants were issued to M
Luckwell and MC Johnson on 11 February 2000 and to CW Adamson on 31 October 2001
JL Beckwith is a director of OVP 2 Limited. OVP 2 Limited had 72,166,955
ordinary shares as at 30 June 2003.
At 30 June 2003 At 30 June 2002
Warrants Warrants
Number of Exercise Number of Exercise
warrants Price warrants Price
Odyssey Venture Partners Ltd 1,975,872 10p 1,975,872 10p
Global Media Limited 120,000 150p 120,000 150p
Global Media Limited is a non-trading dormant entity, owned by Sheldon Marshall,
a former director of ImageState PLC.
Odyssey Venture Partners Ltd is a company in which J L Beckwith and Mark Johnson
are directors.
DIRECTORS AND THEIR INTERESTS (continued)
The warrants are exercisable at any time between the third and seventh
anniversaries of the date of the warrant instruments. Warrants were issued to
Odyssey Venture Partners Limited on 11th February 2000 and to Global Media
Limited. on 31st October 2000. Michael Cornish has options over 2,325,581
ordinary shares. The company is obliged to allot and issue such number as set
out below.
Percentage entitlement to option shares Date of vesting
20% 15 August 2000
40% 15 August 2001
60% 15 August 2002
100% 15 August 2003
The exercise price for each share is 20p per share in respect of the first
581,395 shares, 30p per share in respect of the next 1,162,790 shares and 40p
per share in respect of the remaining 581,396 shares.
MAJOR INTERESTS IN SHARES
The following persons have notified an interest in the ordinary shares of the
company required to be disclosed to the company in accordance with sections 198
to 208 of the Companies Act 1985.
At 30 June 2003 At 30 June 2002
Number of Percentage Number of Percentage
ordinary of ordinary ordinary of ordinary
shares shares shares shares
OVP 2 Limited 72,166,955 28.7 72,166,955 28.7
Euroclear Nominees Limited 24,775,000 9.8 24,775,000 9.8
Mike Luckwell 73,346,238 29.2 73,346,238 29.2
In addition, as at 30 June 2003 and 30 June 2002 Odyssey Venture Partners held
1,975,872 warrants with an exercise price of 10p each.
CREDITOR PAYMENT POLICY AND PRACTICE
It is the Group's policy that payments to suppliers are made in accordance with
those terms and conditions agreed between the Group and its suppliers, provided
that all trading terms and conditions have been complied with.
As at 30 June 2003, the Group had an average of 93 days (2002 - 60 days)
purchases outstanding in trade creditors.
GOING CONCERN
At 30 June 2003, the Group had net current liabilities of #10,303,000, including
a bank loan of #4,047,000 and shareholder loans of #4,477,000 from OVP 2
Limited. The bank loan facility made available to the Group by its bankers is
repayable on demand. The facility is subject to a number of covenants, which the
group has not met. The bankers have not demanded repayment and the Directors
anticipate the covenants to be reset in due course. The convertible loan
facility from OVP 2 Limited expires on 31 March 2004
Continuing financial support from the shareholders and the Group's bankers is
required to enable the Group to meet its liabilities as they fall due and to
continue operating without immediate realisation of all its assets. The
Directors have discussed the Group's financing arrangements with its remaining
funding shareholder, OVP 2 Limited, who has confirmed that it is their present
intention to provide limited financial support. In the period since 30 June
2003, an additional facility of #0.7m has been made available by this
shareholder. This is discussed further in note 25. Whilst the Directors believe
that sufficient ongoing financial support will be made available to the company,
there can be no certainty in relation to such matters. In particular, ongoing
financial support will depend on satisfactory trading during 2004. During the
year ended 30 June 2003, the Group incurred an operating loss of #2,436,000 and
a net cash outflow from operating activities of #2,436,000.
The Directors have reviewed cash flow forecasts for the Group for the period to
30 June 2004 and on the basis of these and the undertakings from the
shareholders above, believe that the Group has adequate cash resources to meet
its commitments for the foreseeable future, and therefore that it is appropriate
to prepare the financial statements on the going concern basis.
The financial statements do not reflect any adjustments, which would be
required, if the going concern assumption was not appropriate. Given the
uncertainty described above it is not currently possible to determine the extent
and quantification of such adjustments but these might include the write down of
the carrying value of goodwill to the best estimate of its net realisable value
on disposal, the write down of certain assets and the disclosure of, or
provision for additional liabilities.
AUDITORS
On 5th December 2003 Ernst & Young LLP resigned as the Group's auditors and the
directors appointed BDO Stoy Hayward to fill the vacancy. BDO Stoy Hayward has
advised the directors of its intention to transfer its business to BDO Stoy
Hayward LLP, a limited liability partnership incorporated under the Limited
Liability Partnership Act 2000, on 31 December 2003.
A resolution to appoint BDO Stoy Hayward LLP as the Group's auditor will be put
to the forthcoming Annual General Meeting.
By order of the Board.
Chris Adamson
Chairman
24 December 2003
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
Company law requires the directors to prepare financial statements for each
financial year, which give a true and fair view of the state of affairs of the
group and company and the profit or loss of the group for that year. In
preparing those financial statements, the directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and estimates that are reasonable and prudent;
* state whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the accounts; and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the group will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
group and company to enable them to ensure that the financial statements comply
with the Companies Act 1985. They are also responsible for safeguarding the
assets of the Group and Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
REPORT OF THE INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF IMAGESTATE PLC
We have audited the financial statements of ImageState PLC for the year ended 30
June 2003 on pages 11 to 37. These financial statements have been prepared under
the accounting policies set out on pages 18 to 20.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report and the
financial statements in accordance with applicable law and United Kingdom
Accounting Standards are set out in the Statement of Directors'
Responsibilities.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and United Kingdom Auditing
Standards.
We report to you our opinion as to whether the financial statements give a true
and fair view and whether the statements have been properly prepared in
accordance with the Companies Act 1985. We also report to you if, in our
opinion, the Directors' Report is not consistent with the financial statements,
if the Group has not kept proper accounting records, if we have not received all
the information and explanations we require for our audit, or if the information
specified by law regarding directors' remuneration and transactions with the
company and the other members of the group is not disclosed.
We read other information contained in the Annual Report and consider whether it
is consistent with the audited financial statements. This other information
comprises the Chairman's Statement and Directors' Report. We consider the
implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the financial statements. Our responsibilities do
not extend to any other information.
Our report has been prepared pursuant to the requirements of the Companies Act
1985 and for no other purpose. No person is entitled to rely on this report
unless such a person is a person entitled to rely on this report by virtue of
and for the purpose of the Companies Act 1985 or has been expressly authorised
to do so by our prior written consent. Save as above, we do not accept
responsibility for this report to any other person or for any other purpose and
we hereby disclaim any and all such liability.
Basis of audit opinion
We conducted our audit in accordance with United Kingdom Auditing Standards
issued by the Auditing Practices Board. An audit includes examination, on a test
basis, of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and
judgments made by the directors in the preparation of the financial statements,
and of whether the accounting policies are appropriate to the group's
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Fundamental uncertainty - going concern
In forming our opinion, we have considered the adequacy of the disclosures made
in the financial statements concerning the availability to the Group of
continuing finance. The Group is dependent on continuing finance being made
available by its shareholders and its bankers to enable it to continue
Basis of audit opinion (continued)
operating and to meet its liabilities as they fall due.
Further details of this fundamental uncertainty are included in note 1 to the
financial statements. In view of the significance of the fact that the
preparation of the financial statements on the going concern basis assumes such
ongoing provision of funds, we consider that these disclosures should be brought
to your attention but our opinion is not qualified in this respect.
Opinion
In our opinion the financial statements give a true and fair view of the state
of affairs of the company and of the group as at 30 June 2003 and of the Group's
loss for the year then ended and have been properly prepared in accordance with
the Companies Act 1985.
BDO STOY HAYWARD
Chartered Accountants
and Registered Auditors
London
24 December 2003
GROUP PROFIT AND LOSS ACCOUNT
for the year ended 30 June 2003
Year ended Year ended
30 June 30 June
2003 2002
Total Total
Notes #000 #000
TURNOVER 3 5,484 7,032
Cost of sales (2,407) (2,201)
GROSS PROFIT 3,077 4,831
OPERATING EXPENSES:
Excluding exceptional items 4 (5,818) (11,160)
Operating exceptional items
- credit/(charge) for reorganisation
and restructuring 6 305 (1,167)
- impairment of goodwill 6 - (14,090)
TOTAL OPERATING EXPENSES 4 (5,513) (26,417)
OPERATING LOSS 5, 7 (2,436) (21,586)
Interest receivable 16 34
Amounts written off investments 6 (216) -
Interest payable and similar charges 8 (901) (558)
------ ------
LOSS ON ORDINARY ACTIVITIES BEFORE
TAXATION (3,537) (22,110)
Tax on loss on ordinary activities 9 (12) -
------ ------
RETAINED LOSS FOR THE YEAR 23 (3,549) (22,110)
----------- -----------
Loss per share - basic & diluted 11 (1.4p) (9.64p)
All amounts relate to continuing activities.
The notes on pages 18 to 37 form part of these financial statements.
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 30 June 2003
2003 2002
#000 #000
Loss for the financial year (3,549) (22,110)
Exchange difference on retranslation of
net assets of subsidiary undertakings (108) (197)
Total recognised losses (3,657) (22,307)
RECONCILIATION OF GROUP SHAREHOLDERS' FUNDS
2003 2002
#000 #000
Total recognised losses (3,657) (22,307)
Other movements:
New shares issued - 3,262
Share issue costs - (127)
Shares allotted not issued in the year - 51
Total movements during the year (3,657) (19,121)
Shareholders' (deficit ) / funds at 1 July 2002 (2,354) 16,767
------ ------
Shareholders' deficit at 30 June 2003 (6,011) (2,354)
The notes on pages 18 to 37 form part of these financial statements.
GROUP BALANCE SHEET
for the year ended 30 June 2003
2003 2002
Notes #000 #000 #000 #000
FIXED ASSETS
Intangible assets 12 4,362 5,000
Tangible assets 13 45 179
Investments 14 100 316
4,507 5,495
CURRENT ASSETS
Debtors 15 1,258 1,532
Cash at bank and in hand 427 791
------ ------
1,685 2,323
CREDITORS: amounts falling due
within one year 16 7,045 8,215
Convertible debt 18 4,943 1,060
NET CURRENT LIABILITIES (10,303) (6,952)
TOTAL ASSETS LESS CURRENT LIABILITIES (5,796) (1,457)
CREDITORS: amounts falling due after
more than one year 17 - 537
Convertible debt 18 - 360
PROVISIONS FOR LIABILITIES AND
OTHER CHARGES 19 (215) -
------ ------
NET LIABILITIES (6,011) (2,354)
CAPITAL AND RESERVES
Called up share capital 22 19,277 19,277
Share premium account 23 8,848 8,848
Shares allotted not yet issued 23 195 195
Merger relief reserve 23 6,055 6,055
Profit and loss account 23 (40,191) (36,729)
------ ------
EQUITY SHAREHOLDERS' DEFICIT (6,011) (2,354)
Chris Adamson
Chairman
24 December 2003
The notes on pages 18 to 37 form part of these financial statements.
COMPANY BALANCE SHEET
for the year ended 30 June 2003
2003 2002
Notes #000 #000 #000 #000
FIXED ASSETS
Intangible assets 12 142 100
Tangible assets 13 - 3
Investments 14 5,000 5,216
------ ------
5,142 5,319
CURRENT ASSETS
Debtors 15 6 2,615
Cash at bank and in hand 155 579
------ ------
161 3,194
CREDITORS: amounts falling due within
one year 16 5,643 6,151
Convertible debt 18 4,943 1,060
NET CURRENT LIABILITIES (10,425) (4,017)
TOTAL ASSETS LESS CURRENT LIABILITIES (5,283) 1,302
CREDITORS: amounts falling due
after more than one year
Convertible debt 18 - 360
------ ------
NET (LIABILITIES) / ASSETS (5,283) 942
CAPITAL AND RESERVES
Called up share capital 22 19,277 19,277
Share premium account 23 8,848 8,848
Shares allotted not yet issued 23 - 195
Profit and loss account 23 (33,408) (27,378)
------ ------
EQUITY SHAREHOLDERS' (DEFICIT) / FUNDS (5,283) 942
Chris Adamson
Chairman
22 December 2003
The notes on pages 18 to 37 form part of these financial statements.
RECONCILIATION OF COMPANY SHAREHOLDERS' FUNDS
for the year ended 30 June 2003
2003 2002
#000 #000
Total recognised losses (6,225) (15,567)
---- ----
Total movements during the year (6,225) (15,567)
Shareholders' funds at 1 July 2002 942 16,509
------ ------
Shareholders' (deficit) / funds at 30 June 2003 (5,283) 942
---- ----
The notes on pages 18 to 37 form part of these financial statements.
GROUP STATEMENT OF CASH FLOWS
for the year ended 30 June 2003
2003 2002
Notes #000 #000
NET CASH OUTFLOW FROM OPERATING ACTIVITIES 24(a) (2,436) (5,353)
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 16 34
Interest paid (340) (264)
Interest element of finance lease rental payments (4) (11)
------ ------
(328) (241)
------ ------
TAXATION
Overseas tax (paid) / recovered (12) 47
------ ------
(12) 47
------ ------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Proceeds from sale of tangible fixed assets 14 -
Payments to acquire tangible fixed assets (34) (63)
------ ------
(20) (63)
------ ------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings - (732)
Net cash acquired with subsidiary undertakings - 35
Purchase of trade assets (57) (100)
------ ------
(57) (797)
------ ------
NET CASH OUTFLOW BEFORE USE OF
LIQUID RESOURCES AND FINANCING (2,853) (6,407)
FINANCING
Issue of ordinary share capital - 3,200
Share issue costs - (127)
Bank loans 24(b) (600) 2,960
New convertible loan notes-made up of:
Loan notes issued 24(b) 3,423 700
Loan notes repaid 24(b) (252) -
Finance lease payments 24(b) (18) -
------ ------
2,553 6,733
------ ------
(DECREASE)/INCREASE IN CASH 24(b) (300) 326
The notes on pages 18 to 37 form part of these financial statements.
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
for the year ended 30 June 2003
Year ended Year ended
30 June 30 June
2003 2002
Notes #000 #000
(Decrease) / Increase in cash (300) 326
Cash outflow / (inflow) from decrease/(increase) in bank loans 600 (2,960)
Payments in respect of finance leases 18 50
Convertible loan notes issued for cash consideration (3,423) (700)
Convertible loan notes repaid 252 -
------ ------
Change in net debt resulting from cash flows 24(b) (2,853) (3,284)
Additions to capital element of finance leases and
hire purchase contracts - (54)
Premium in respect of convertible loan notes (352)
------ ------
MOVEMENT IN NET DEBT 24(b) (3,205) (3,338)
NET DEBT AT 1 JULY 2002 24(b) (5,374) (2,036)
------ ------
NET DEBT AT 30 JUNE 2003 24(b) (8,579) (5,374)
------ ------
NOTES TO THE FINANCIAL STATEMENTS
at 30 June 2003 (continued)
1. GOING CONCERN
At 30 June 2003, the Group had net current liabilities of #10,303,000, including
a bank loan of #4,047,000 and shareholder loans of #4,477,000 from OVP 2
Limited. The bank loan facility made available to the Group by its bankers is
repayable on demand. The facility is subject to a number of covenants, which the
group has not met. The bankers have not demanded repayment and the Directors
anticipate the covenants to be reset in due course. The convertible loan
facility from OVP 2 Limited expires on 31 March 2004
Continuing financial support from the shareholders and the Group's bankers is
required to enable the Group to meet its liabilities as they fall due and to
continue operating without immediate realisation of all its assets. The
Directors have discussed the Group's financing arrangements with its remaining
funding shareholder, OVP 2 Limited, who has confirmed that it is their present
intention to provide limited financial support. In the period since 30 June
2003, an additional facility of #0.7m has been made available by this
shareholder. This is discussed further in note 25. Whilst the Directors believe
that sufficient ongoing financial support will be made available to the company,
there can be no certainty in relation to such matters. In particular, ongoing
financial support will depend on satisfactory trading during 2004. During the
year ended 30 June 2003, the Group incurred an operating loss of #2,436,000 and
a net cash outflow from operating activities of #2,436,000.
The Directors have reviewed cash flow forecasts for the Group for the period to
30 June 2004 and on the basis of these and the undertakings from the
shareholders above, believe that the Group has adequate cash resources to meet
its commitments for the foreseeable future, and therefore that it is appropriate
to prepare the financial statements on the going concern basis.
The financial statements do not reflect any adjustments, which would be
required, if the going concern assumption was not appropriate. Given the
uncertainty described above it is not currently possible to determine the extent
and quantification of such adjustments but these might include the write down of
the carrying value of goodwill to the best estimate of its net realisable value
on disposal, the write down of certain assets and the disclosure of, or
provision for additional liabilities.
2. ACCOUNTING POLICIES
The principal accounting policies are summarised below. They have all been
applied consistently throughout the year.
Basis of accounting
The accounts have been prepared under the historical cost convention and in
accordance with applicable accounting standards.
Basis of consolidation
The Group accounts consolidate the accounts of ImageState PLC and its subsidiary
undertakings' up to 30 June 2003. No profit and loss account is presented for
ImageState PLC as permitted by section 230 of the Companies Act 1985. The
results of subsidiaries acquired or sold are consolidated for the periods from
or to the date on which control passed. Acquisitions are accounted for under the
acquisition method.
Goodwill
Goodwill arising on the acquisition of subsidiary undertakings and businesses,
representing any excess of the fair value of the consideration given over the
fair value of the identifiable assets and liabilities acquired, is capitalised
and written off on a straight line basis over its useful economic life, which is
10 years in the opinion of the Directors. Goodwill is reviewed for impairment at
the end of the first full financial year following acquisition and in other
periods if events or changes in circumstances indicate the carrying value may
not be recoverable.
2. ACCOUNTING POLICIES (continued)
Tangible fixed assets
Tangible fixed assets are stated at cost or valuation, net of depreciation and
any provision for impairment. Depreciation is provided on all tangible fixed
assets, at rates calculated to write off the cost or valuation, less estimated
residual value, of each asset on a straight-line basis over its expected useful
life, as follows:
Fixtures, fittings and equipment 3 - 7 years
Residual value is calculated on prices prevailing at the date of acquisition.
Deferred taxation
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events have occurred at that date that will result in an obligation to pay more,
or a right to pay less or to receive more, tax, with the following exceptions:
* Provision is made for deferred tax that would arise on
remittance of the retained earnings of overseas subsidiaries, associates and
joint ventures only to the extent that, at the balance sheet date, dividends
have been accrued as receivable;
* Deferred tax assets are recognised only to the extent that the
directors consider that it is more likely than not that there will be
suitable taxable profits from which the future reversal of the underlying
timing differences can be deducted.
Foreign currency
Transactions in foreign currencies are recorded at the rate of exchange at the
date of the transaction or, if hedged, at the forward contract rate. Monetary
assets and liabilities denominated in foreign currencies at the balance sheet
date are reported at the rates of exchange prevailing at that date or, if
appropriate, at the forward contract rate.
The results of overseas operations are translated at average rates of exchange
during the year and their balance sheets at the rates ruling at the balance
sheet date. Exchange differences arising on the translation of the opening net
assets and results of foreign subsidiary undertakings are dealt with through
reserves. All other exchange differences are included in the profit and loss
account.
Leases
Assets held under finance leases, which confer rights and obligations similar to
those attached to owned assets, are capitalised as tangible fixed assets and are
depreciated over the shorter of the lease terms and their useful lives. The
capital elements of future lease obligations are recorded as liabilities, while
the interest elements are charged in the profit and loss account over the period
of the leases to produce a constant rate of charge on the balance of capital
repayments outstanding. Hire purchase transactions are dealt with similarly,
except that assets are depreciated over their useful lives.
Rentals under operating leases are charged on a straight-line basis over the
lease term, even if the payments are not made on such a basis. Benefits received
and receivable as an incentive to sign an operating lease are similarly spread
on a straight line basis over the lease term, except where the period to the
review date on which the rent is first expected to be adjusted to the prevailing
market rate is shorter than the full lease term, in which case the shorter
period is used.
2. ACCOUNTING POLICIES (continued)
Capital instruments
Shares are included in shareholders' funds. Other instruments are classified as
liabilities if they contain an obligation to transfer economic benefits and if
not they are included in shareholders' funds. The finance cost recognised in the
profit and loss account in respect of capital instruments other than equity
shares is allocated to periods over the term of the instrument at a constant
rate on the carrying amount.
Convertible loan notes which can be settled in shares or cash at the option of
the Company is classified as a liability if: there is a genuine commercial
possibility to transfer economic benefit; or, the Company does not have the
necessary ability at the balance sheet date to issue shares.
Any premium on the repayment of debt is allocated to the profit and loss account
from the date of issue or draw down of the loan note to the earliest date at
which the loan note holders can demand payment.
Investments
Investments are recorded at historical cost less any provision for a permanent
diminution in value. Unlisted investments have been written down to Directors
estimate of net realisable value.
Turnover
Turnover represents amounts receivable for goods and services provided in the
normal course of business, net of trade discounts, VAT and other sales related
taxes.
Turnover consists primarily of licensing fees derived from licensing of
photographs. Revenue is recognised once a licensing contract is signed and
artwork is provided to the customer. Revenue from sales through agents is
recognised on notification of the sale by the agent.
Other revenues primarily consist of fees for lost artwork and contract fees for
specific pieces of artwork.
3. TURNOVER AND SEGMENTAL ANALYSIS
The group's principal area of activity during the year involved the provision of
pre-edited off and online still images for creative professional users
worldwide. Turnover, group operating loss and net assets are analysed as
follows:
For the year ended 30 June 2003 For the year ended 30 June 2002
Turnover Loss Net Turnover Loss Net
before Tax Liabilities before Tax Liabilities
#000 #000 #000 #000 #000 #000
Continuing operations:
Ongoing 5,484 (3,537) (6,011) 7,032 (21,586) (2,354)
------- ------- ------- ------- ------- -------
Geographical area:
United States 2,046 (1,522) (5,191) 3,624 (8,709) (4,258)
UK 1,351 (1,073) (426) 1,566 (5,923) 875
Rest of World 2,087 (942) (394) 1,842 (6,954) 1,029
------- ------- ------- ------- ------- -------
5,484 (3,537) (6,011) 7,032 (21,586) (2,354)
------- ------- ------- ------- ------- -------
4. OPERATING EXPENSES
Total Total
2003 2002
#000 #000
Marketing and distribution (233) (464)
Administrative expenses (5,369) (25,940)
Other operating income and expenditure 89 (13)
------ ------
(5,513) (26,417)
---------- ---------
5. OPERATING LOSS
This is stated after charging:
2003 2002
#000 #000
Auditors' remuneration - audit 40 60
- non-audit services 117 59
----------- -----------
In the year to June 2003 fees of #10,000 were charged for the audit of the
Company compared with #15,000 in the prior year.
#000 #000
Depreciation of owned assets 164 233
----------- -----------
#000 #000
Amortisation of goodwill 590 2,245
Operating lease rentals - land and buildings 245 343
- plant and machinery 7 7
----------- -----------
2003 2002
#000 #000
Taxation and social security on share options - (396)
------ ------
During the prior year #396,168 in respect of social security charges provided
for in previous years on share options granted were credited to administrative
expenses on the basis that in the opinion of the Directors share options would
not be subscribed for in the foreseeable future.
6. EXCEPTIONAL ITEMS
2003 2002
Operating exceptional items: #000 #000
Costs of reorganising and restructuring
charge/(credit) (305) 1,167
Impairment write down of intangible assets - 14,090
----------- -----------
(305) 15,257
----------- -----------
During the prior year the Group was re-positioned as a focused operating group
providing digital content to the user both on and off line. The reorganising and
restructuring costs relate to the integration of acquisitions including
redundancy, relocation and other closure costs. The reversal of provision during
the year reflects the positive impact of the transition to a lower cost base
with fewer costs than previously expected, while retaining both London and New
York offices. The costs of restructuring were lower than expected.
Included in the profit and loss account for the year ended June 2003 under
'Amounts written off investments' was #216,000 in respect of Bridge Investment
Holdings (formerly known as Korea Online) which was written down to the
directors valuation of #100,000.
7. STAFF COSTS AND DIRECTORS' REMUNERATION REMUNERATION
2003 2002
#000 #000
Wages and salaries 2,563 3,222
Social security costs 274 314
Pension - 4
Redundancy 47 71
----------- -----------
2,884 3,611
----------- -----------
The average monthly number of employees during the year was made up as follows:
2003 2002
No. No.
New media content 69 84
Administration 4 5
----------- -----------
73 89
----------- -----------
7. STAFF COSTS AND DIRECTORS' REMUNERATION (continued)
The aggregate remuneration of the Directors of the Company are analysed as
follows:
2003 2002
#000 #000
Emoluments 250 360
----------- -----------
Compensation for loss of office - 60
------- -------
Amounts payable to third parties 15 20
------- -------
Amounts payable to third parties of #10,000 per annum in respect of the services
of Directors J Beckwith and M Johnson are payable to Pacific Investments PLC.
Pacific investments terminated this agreement on 31st March 2003.
The amounts in respect of the highest paid Director were as follows:
2003 2002
#000 #000
Emoluments 150 150
----------- -----------
The Group pays no pension contributions on behalf of directors.
8. INTEREST PAYABLE AND SIMILAR CHARGES
2003 2002
#000 #000
Bank loans and overdrafts 298 336
Other convertible loan notes 215 70
Finance charges payable under finance leases
and hire purchase contracts 4 11
Arrangement fees and non-utilisation charges 32 141
Premium in respect of convertible loan notes 352 -
----------- -----------
Interest payable and similar charges 901 558
----------- -----------
9. TAXATION ON PROFIT ON ORDINARY ACTIVITIES
(a) The tax charge is made up as follows:
2003 2002
#000 #000
Current tax:
UK corporation tax - -
Adjustments in respect of prior year - UK (5) -
Adjustments in respect of prior year - overseas 17 -
------- -------
Total tax charge 12 -
----------- -----------
(b) Factors affecting current tax charge
The tax assessed on the loss on ordinary activities for the year is lower than
the weighted rate of corporation tax of 30% (2001 31.7%). The differences are
reconciled below:
2003 2002
#000 #000
Loss on ordinary activities before tax (3,537) (22,110)
----------- -----------
Loss on ordinary activities multiplied by
the weighted rate of corporation tax of
30% (2001 31.7%) (1,061) (7,009)
Effects of:
Expenses not deductible for tax purposes 326 5,178
Short term timing differences and related items 10 1,831
UK tax losses 284 -
Excess management expenses 139 -
Over provision in respect of prior year - UK (5) -
Under provision in respect of prior year
- overseas 17 -
Overseas tax losses 302 -
----------- -----------
Total current tax charge 12 -
----------- -----------
(c) Factors that may affect future tax charges
No deferred tax has been recognised for losses of #12.3m (2002 #9.9m) as it is
more likely than not that they will not be recovered in the foreseeable future.
10. LOSS ATTRIBUTABLE TO MEMBERS OF THE PARENT COMPANY
The loss dealt with in the accounts of the parent company was #6,225,000 (2002
loss of #18,752,000).
11. LOSS PER ORDINARY SHARE
The calculation of basic loss per share is based on a loss of #3,549,000 (2002
loss of #22,110,000), and on 251,485,178 (2002 - 229,319,972) ordinary shares,
being the weighted average number of ordinary shares in issue during the year.
12. INTANGIBLE FIXED ASSETS
Goodwill:
2003 2002
#000 #000
Cost:
At 1 July 22,553 21,934
Additions (see table below) 57 962
Exchange adjustment (112) (343)
----------- -----------
At 30 June 22,498 22,553
----------- -----------
Amortisation:
At 1 July 17,553 1,246
Provided during the year 590 2,245
Impairment write down of intangible assets - 14,090
Foreign exchange adjustment (7) (28)
----------- -----------
At 30 June 18,136 17,553
----------- -----------
Net book value at 30 June 4,362 5,000
----------- -----------
In accordance with FRS 10 "Goodwill and Intangible Assets", goodwill is reviewed
for impairment at the end of the first full financial year following acquisition
and in other periods if events or changes in circumstances indicate the carrying
value may not be recoverable.
Additions to goodwill during the year represent the following acquisitions:
2003 2002
#000 #000
International Stock Photography - 700
Pictor International Limited 57 100
Goodwill adjustments on prior year acquisitions - 162
------- -------
57 962
------- -------
12. INTANGIBLE FIXED ASSETS (continued)
Company 2003 2002
#000 #000
Cost:
At 1 July 100 -
Additions 57 100
Amortisation of goodwill (15) -
----------- -----------
At 30 June 142 100
----------- -----------
13. TANGIBLE FIXED ASSETS
Group Fixtures,
fittings and
equipment
#000
Cost:
At 1 July 2002 460
Exchange adjustment (47)
Additions 34
Disposals (55)
-----------
At 30 June 2003 392
-----------
Depreciation:
At 1 July 2002 281
Exchange adjustment (43)
Provided during the year 164
Disposals (55)
-----------
At 30 June 2003 347
-----------
Net book value at 30 June 2003 45
-----------
Net book value at 30 June 2002 179
-----------
The net book value of assets held under finance leases is #nil (2002 - #34,057).
Depreciation charged on these assets in the year amounted to #34,057 (2002 -
#31,313).
13. TANGIBLE FIXED ASSETS (continued)
Company Fixtures,
fittings and
equipment
#000
Cost:
At 1 July 2002 5
-----------
At 30 June 2003 5
-----------
Depreciation:
At 1 July 2002 2
Provided during the year 3
-----------
At 30 June 2003 5
-----------
Net book value at 30 June 2003 -
-----------
Net book value at 30 June 2002 3
-----------
14. FIXED ASSET INVESTMENTS
Group Company Company
unlisted subsidiary unlisted Company
investments undertakings investments Total
#000 #000 #000 #000
Cost:
At 1 July 2002 1,371 14,459 1,371 15,830
Additions - - - -
------- ------- ------- -------
At 30 June 2003 1,371 14,459 1,371 15,830
------- ------- ------- -------
Amounts Provided:
At 1 July 2002 1,055 9,559 1,055 10,614
Provided during the year 216 - 216 216
----------- ----------- ----------- -----------
At 30 June 2003 1,271 9,559 1,271 10,830
----------- ----------- ----------- -----------
Net Book Value at 30 June 2003 100 4,900 100 5,000
------------ ------------ ------------ ------------
Net Book Value at 30 June 2002 316 4,900 316 5,216
------- ------- ------- -------
The Group and Company unlisted investments have been written down to the
Directors' estimates of their net realisable value.
14. FIXED ASSET INVESTMENTS (continued)
Details of the investments in which the Group or the Company (unless indicated)
holds 20% or more of the nominal value of any class of share capital are as
follows:
Country of Proportion
incorporation of voting
or principal Principal rights and
Name of company business address activity Holding shares held
Subsidiary undertakings
Convergence Holdings Limited* England Holding company Ordinary shares 100%
GlobalState Limited England New media content Ordinary shares 100%
ImageState Holdings Limited England Holding company Ordinary shares 100%
ImageState Europe Limited England New media content Ordinary shares 100%
ImageState Inc. USA Photographic & Ordinary shares 100%
transparency
distribution
Adventure Photo & Film, LLC USA Photographic & Ordinary shares 100%
transparency
distribution
Zephyr Images, Inc. USA Photographic & Ordinary shares 100%
transparency
distribution
ImageState Royalty Free Inc.
(formerly known as Photolink, Inc.) USA Photographic & Ordinary shares 100%
transparency
distribution
ImageState North America, Inc.
(formerly known as Weststock, Inc.) USA Photographic & Ordinary shares 100%
transparency
distribution
International Stock Photography Ltd. USA Photographic & Ordinary shares 100%
transparency
distribution
ImageState BV Netherlands New media content Ordinary shares 100%
Images 4 Communications, BV. Netherlands New media content Ordinary shares 100%
(formerly known as John Foxx
Images BV)
14. FIXED ASSET INVESTMENTS (continued)
Country of Proportion
incorporation of voting
or principal Principal rights and
Name of company business address activity Holding shares held
MusicState Limited England New media content Ordinary shares 100%
VideoState Limited England New media content Ordinary shares 100%
VideoState, Inc. USA New media content Ordinary shares 100%
* Held directly by ImageState Plc
15. DEBTORS
Group Company
2003 2002 2003 2002
#000 #000 #000 #000
Trade debtors 981 834 - -
Amounts owed by group undertakings - - - 2,368
Other debtors 69 442 6 247
Prepayments and accrued income 208 256 - -
----------- ----------- ----------- -----------
1,258 1,532 6 2,615
----------- ----------- ----------- -----------
16. CREDITORS: amounts falling due within one year
Group Company
2003 2002 2003 2002
#000 #000 #000 #000
Bank loans and overdraft 4,047 4,712 4,000 4,600
Trade creditors 2,111 2,248 139 145
Amounts owed to group undertakings - - 942 996
Other taxes and social security costs 51 52 - -
Other creditors 112 97 - 2
Obligations under finance leases and
hire purchase contracts 15 21 - -
Accruals and deferred income 710 1,085 562 408
Convertible debt 4,943 1,060 4,943 1,060
----------- ----------- ----------- -----------
11,988 9,275 10,586 7,211
----------- ----------- ----------- -----------
The bank loans and overdraft are secured by a fixed and floating charge over the
group's assets.
17. CREDITORS: amounts falling due after more than one year
Group Company
2003 2002 2003 2002
#000 #000 #000 #000
Convertible debt - convertible unsecured
loan notes - 360 - 360
Obligations under finance leases and
hire purchase contracts - 12 - -
Accruals and deferred income - 525 - -
----------- ----------- ----------- -----------
- 897 - 360
----------- ----------- ----------- -----------
18. LOANS
Group Company
2003 2002 2003 2002
#000 #000 #000 #000
Amounts falling due:
Within one year or less or on demand 8,990 5,772 8,943 5,660
After more than one year but not more
than two years - 360 - 360
----------- ----------- ----------- -----------
8,990 6,132 8,943 6,020
----------- ----------- ----------- -----------
Analysed as:
Bank loans and overdraft 4,047 4,712 4,000 4,600
Cumulative unsecured loan notes 466 720 466 720
Convertible loan notes 4,477 700 4,477 700
----------- ----------- ----------- -----------
8,990 6,132 8,943 6,020
----------- ----------- ----------- -----------
18. LOANS (CONTINUED)
Cumulative Unsecured Loan Notes
Cumulative Unsecured Loan notes ("CULs") with a face value of #720,000 were
issued as part of the consideration for Images Colour Library. These originally
fell due as follows:
(a) If the company had received proceeds from the placing of shares of at least
#12,500,000 by the 30 April 2002 then the note holders were entitled to redeem
all their notes for cash immediately (subject to giving the company correct
notice).
(b) If the company did not receive proceeds from the placing of shares of at
least #12,500,000 by the 30 April 2002 then the note holders are entitled to
redeem their notes for cash as follows:
50% on 30 April 2002
50% on 31 October 2002
Alternatively to (b) a note holder may choose to convert some or all of their
loan notes to ordinary shares, at the exercise price of 30p per share. The
remainder were redeemable for cash on 31 August 2002.
On 21 March 2002 following an Extraordinary General Meeting of the noteholders,
the terms under (b) above were amended as follows:
If the company has not received proceeds from the placing of shares of at least
#12,500,000 by the 30 April 2002 then the noteholders are entitled to redeem
their notes for cash as follows:
50% on 31 October 2002
50% on 30 April 2003
Subsequent agreement has been reached with the majority of the CULs holders,
such that monthly repayments have been rescheduled. It is unlikely that any
significant capital amounts will be paid before 1 July 2004.
Convertible Loan Notes
On 10 October 2002 the Company entered into a debt facility jointly provided by
its largest shareholders OVP2 Limited (a subsidiary of Pacific Investments PLC,
a company ultimately controlled by Sir John Beckwith), Mike Luckwell (both
Directors of the Company) and Mark Johnson, (a Director of ImageState PLC and
Pacific Investments PLC).
On the 17 June 2003, in consideration of OVP2 Limited providing additional
funding, Mike Luckwell and Mark Johnson assigned their convertible loans over to
OVP2 Limited for a nominal initial consideration together with a further payment
the amount of which is contingent on the proceeds received by OVP 2 Limited in
due course on repayment of the convertible loans whether in cash or if so
elected by OVP2 Limited in new ImageState
ordinary shares. Following the assignment of the convertible loan to OVP2
Limited agreed terms with the Company to increase the facility to #5,025,000
On 21 October 2003 the facility was extended by a further #700,000. OVP2 Limited
remains the sole ongoing source of finance for the Company and the Company
continues to rely on the support of its major
shareholder.
The repayment of the convertible loan through the issue of new shares is
dependent on it being permissible under the rules of the Panel on Takeovers and
Mergers and the approval by independent shareholders to issue the additional
shares. The lenders have provided the convertible loan on the basis that they
expect to be repaid in shares. Accordingly, in the event that they wish to do
so, but the Company is unable to comply and repays the loan in cash, then there
will be a redemption premium payable to the lenders of 20 per cent. of the
principal amount of the loan outstanding at the repayment date. Drawings under
the convertible loan bear an interest cost of LIBOR plus 3 per cent.
19. PrOVISIONS FOR LIABILITIES AND OTHER CHARGES
Group
2003
#000
At 1 July 2002 -
Charged to profit and loss account 215
At 30th June 2003 215
---
The provision has been made in respect of product related costs.
20. OBLIGATIONS UNDER LEASES AND HIRE PURCHASE CONTRACTS
Amounts due under finance leases and hire purchase contracts:
Group Company
2003 2002 2003 2002
#000 #000 #000 #000
Amounts payable:
In one year or less 16 25 - -
In more than one year but not more than two - 14 - -
----------- ----------- ----------- -----------
16 39 - -
Less: finance charges allocated to
future periods (1) (6)
----------- ----------- ----------- -----------
15 33
----------- ----------- ----------- -----------
Annual commitments under non-cancellable operating leases are as follows:
Group Land and Land and Plant & Plant &
buildings buildings Machinery Machinery
2003 2002 2003 2002
#000 #000 #000 #000
Operating leases which expire:
Within one year 24 2 1 -
In two to five years 352 353 5
After more than five years - 82 - -
----------- ----------- ----------- -----------
376 437 6 -
----------- ----------- ----------- -----------
21. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
Financial instruments policies and strategies
During the period since its incorporation, the Group has financed its business
with the cash it has raised through the issue of shares and loans. It has used
these funds to acquire and develop businesses, in the UK and the U.S. The main
risks arising from the group's financial instruments are interest rate risk,
foreign currency risk, and liquidity risk.
21. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (continued)
At 30 June 2003, the Group's financial instruments comprised cash, investments,
convertible loan notes, non convertible loans, bank borrowings, short-term
debtors and creditors arising directly from its operations, and finance leases.
The group's primary treasury activity has been the management of cash. This has
been held so as to maximise interest earned without compromising the group's
need for flexibility in meeting its cash needs. The group's objective for
investments is to hold the assets until their value can be realised. The group
is not currently actively pursuing a strategy of acquiring investments.
Although the group is based in the UK, it has significant investments in the US.
As a result the group's sterling balance sheet can be significantly affected by
movements in the US Dollar / Sterling exchange rates. The group finances these
operations through sterling borrowing and therefore the group faces structural
currency exposure.
Financial instruments policies and strategies
The group does not have significant transactional currency exposures. Sales and
purchases are primarily denominated in local currency.
The group has not entered into any derivative transactions during the year.
The group policy is primarily to use floating interest rates.
Short-term debtors and creditors have been excluded from the numerical
disclosures below.
Interest rate risk
Interest rate risk profile of financial assets
Currency
Floating rate
2003 2002
#000 #000
Sterling 297 1,036
US Dollar - 24
Euro 130 47
----------- -----------
427 1,107
----------- -----------
Interest rate risk profile of financial liabilities
Currency Floating Fixed
rate rate Total
#000 #000 #000
Sterling 8,929 - 8,577
US Dollar - 61 61
----------- ----------- -----------
30 June 2003 8,929 61 8,638
----------- ----------- -----------
30 June 2002 5,445 720 6,165
----------- ----------- -----------
21. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (continued)
The floating rate financial liabilities comprise: sterling denominated bank
borrowings and overdrafts at rates based on the six month LIBOR; and,
convertible loan notes that bear interest based on LIBOR plus 3%. The weighted
average interest rate is 6.8% and the weighted average period until maturity is
seven months. The fixed rate loans comprise short term rolling loans. These
loans are renewed periodically and are fixed rate for the period of the
rollover.
Financial liabilities
Maturity of financial liabilities
2003 2002
#000 #000
Within one year or less, or on demand 9,005 5,793
After more than one year but not more than two years - 372
----------- -----------
9,005 6,165
----------- -----------
Borrowing Facilities
The group has an un-drawn committed borrowing facility. The facilities available
at 30 June 2003, in respect of which all conditions precedent had been met, were
as follows:
2003 2002
#000 #000
Expiring after more than one year but not
more than two years 825 150
----------- -----------
Fair values
The directors have considered the difference between the book and fair value of
the group's financial assets and liabilities. Due to the current position of the
company the fair value of its debt is likely to be significantly less than its
carrying amount.
22. SHARE CAPITAL
Authorised 2003 2002
#000 #000
5,000,000,000 ordinary shares of 10p each - -
5,000,000,000 ordinary shares of 1p each 5,000 5,000
5,000,000,000 deferred shares of 9p each 45,000 45,000
----------- -----------
50,000 50,000
----------- -----------
Allotted, called up and fully paid 2003 2002 2003 2002
No.000 No.000 #000 #000
Ordinary shares of 10p each - - - -
Ordinary shares of 1p each 251,485 251,485 2,515 2,515
Deferred shares of 9p each 186,253 186,253 16,762 16,762
----------- -----------
19,277 19,277
----------- -----------
Allotted, called up but not paid 2003 2002
#000 #000
Ordinary shares of 10p each - -
Ordinary shares of 1p each - 57
----------- -----------
- 57
----------- -----------
Warrants
The company has issued the following warrants to subscribe for ordinary shares:
Number Number Number Number Number Number
at 10p at 15p at 20p at 30p at 40p 150p Total
'000 '000 '000 '000 '000 '000 '000
At 1 July 2001
and 30 June 2002 9,950 1,801 872 1,744 872 2,000 17,239
--------------------------------- ---------------------- ----------- -----------
The warrants in issue are all exercisable at any time between the third and
seventh anniversaries of the date of the warrant issue. 11,301,000 warrants were
issued on 4 February 2000. A further 5,938,000 warrants were issued on 31
October 2000. The outstanding options and warrants were not affected by the
sub-division of the share capital on 11 December 2001.
23. RESERVES
Group Merger Shares Share Profit
relief allotted premium and loss
reserve not issued account account
#000 #000 #000 #000
At 1 July 2002 6,055 195 8,848 (36,729)
Exchange differences on retranslation of
net assets of subsidiary undertakings - - - (108)
Transfer - (195) - 195
Retained loss for the year - - - (3,549)
----------- ----------- ----------- -----------
At 30 June 2003 6,055 - 8,848 (40,191)
----------- ----------- ----------- -----------
Company Shares Share Profit
allotted premium and loss
not issued account account
#000 #000 #000
At 1 July 2002 195 8,848 (27,378)
Transfer (195) - 195
Retained loss for the year - - (6,225)
----------- ----------- -----------
At 30 June 2003 195 8,848 (33,408)
----------- ----------- -----------
24. NOTES TO THE STATEMENT OF CASH FLOWS
(a) Reconciliation of operating profit to net cash inflow from operating
activities
2003 2002
#000 #000
Operating loss (2,436) (21,586)
Depreciation 164 233
Amortisation of goodwill 590 2,245
Amounts written off tangible and intangible assets - 14,090
Profit on disposal of tangible fixed assets (14) -
Decrease in debtors 174 300
(Decrease) in creditors (890) (415)
Exchange differences (24) 120
---------- -----------
(2,436) (5,013)
Exceptional items - (340)
------ ------
Net cash outflow from operating activities (2,436) (5,353)
---------- ----------
24. NOTES TO THE STATEMENT OF CASH FLOWS (continued)
(b) Analysis of net debt
Other
At non-cash At
2002 Cashflow movements 2003
#000 #000 #000 #000
Cash at bank and in hand 791 (365) - 426
Bank overdrafts (112) 65 - (47)
----------- ----------- ----------- -----------
Cash 679 (300) - 379
Loan notes issued (700) (3,423) (352) (4,475)
Loan notes repaid (720) 252 - (468)
Bank loans (4,600) 600 - (4,000)
Finance leases (33) 18 - (15)
----------- ----------- ----------- -----------
(5,374) (2,853) - (8,579)
----------- ----------- ----------- -----------
Short-term deposits are included within cash at bank and in hand in the balance
sheet.
25. POST BALANCE SHEET EVENTS AND RELATED PARTY TRANSACTIONS
On the 17 June 2003, in consideration of OVP 2 Limited providing additional
funding, Mike Luckwell and Mark Johnson assigned their convertible loans over to
OVP 2 Limited for a nominal initial consideration together with a further
payment the amount of which is contingent on the proceeds received by OVP 2
Limited in due course on repayment of the convertible loans whether in cash or
if so elected by OVP 2 Limited in new ImageState ordinary shares. Following the
assignment of the loan to OVP 2 Limited agreed terms with the Company to
increase the facility to #5,025,000
On 21 October 2003 the facility was extended by a further #700,000. OVP2 Limited
remains the sole ongoing source of finance for the Company and the Company
continues to rely on the support of its major
shareholder.
The facility has been structured as a loan repayable, at the lenders option,
either in cash or, if permissible, shares of 1p each at a price of 1p per share.
The repayment of the convertible loan through the issue of new shares is
dependent on it being permissible under the rules of the Panel on Takeovers and
Mergers and the approval by independent shareholders to issue the additional
shares. The maximum number of shares, which could be issued, would amount to
320,000,000. The lenders have provided the convertible loan on the basis that
they expect to be repaid in shares. Accordingly, in the event that they wish to
do so, but the Company is unable to comply and repays the loan in cash, then
there will be a redemption premium payable of 20 per cent. of the principal
amount of the convertible loan outstanding at the repayment date. Drawings under
the convertible loan bear an interest cost of LIBOR plus 3 per cent.
A lease, on a property previously occupied by ImageState, is sublet to an
associated company of OVP 2 Limited on an arms length basis. There is no gain or
loss to the Group on this transaction.
Of the amounts payable in respect of Directors J Beckwith and M Johnson #5,000
was paid to Pacific Investments PLC during the year. The balance owing to
Pacific Investments PLC at 30 June 2003 was #5,000.
Pacific Investments PLC is the ultimate holding company of OVP 2 Limited, which
owns 28.7% of the Company.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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