Morgans Hotel (MHGC) 10-K 2008 FY Annual report

Exhibit 99.1

Registered No. 3203996

Morgans Hotel Group Europe Limited

Annual report

For the year ended 31 December 2008

Morgans Hotel Group Europe Limited

Annual report
for the year ended 31 December 2008

	Pages
Directors and advisers		1
Independent auditors’ report		2
Consolidated Profit and loss account		3
Consolidated Balance sheet		4 – 5
Consolidated Cash flow Statement		6
Notes to the financial statements		7 – 20

Morgans Hotel Group Europe Limited

Directors and advisers

Directors
R Bloom
J Quicksilver
F Kleisner
D Smail

Secretary and registered office
Bibi Ali
MacFarlanes
10 Norwich Street
London EC4A 1BD

Solicitors
MacFarlanes
10 Norwich Street
London EC4A 1BD

Registered auditors
BDO Stoy Hayward LLP
55 Baker Street
London W1U 7EU

Bankers
National Westminster Bank PLC
135 Bishopsgate
London EC2M 3UR

1

Independent auditors’ report to the members of Morgans Hotel Group Europe Limited

Report of the Independent Registered Public Accounting Firm To the Board of Directors of Morgans Hotel Group Europe Limited

We have audited the accompanying consolidated balance sheets and company balance sheet of Morgans Hotel Group Europe Limited as of December 31, 2008 and 2007 and the related consolidated profit and loss account and consolidated cash flow statement for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements and company balance sheet referred to above present fairly, in all material respects, the financial position of Morgans Hotel Group Europe Limited as at December 31, 2008 and, 2007, and the results of its operations and its cash flows for the years ended December 31, 2008, 2007 and 2006, in conformity with generally accepted accounting principles in the United Kingdom. Accounting principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in note 24 to the financial statements.

BDO Stoy Hayward LLP
Chartered Accountants and Registered Auditors
London, UK

February 23, 2009

2

Morgans Hotel Group Europe Limited

Consolidated profit and loss account
for the year ended 31 December 2008

			2008			2007			2006
	Notes		£000			£000			£000
Turnover				30,998			31,967			30,118
Cost of sales				(7,739	)		(7,909	)		(7,560	)
Gross profit				23,259			24,058			22,558
Administrative expenses				(14,367	)		(13,240	)		(13,988	)
Operating profit		3		8,892			10,818			8,570
Interest receivable				750			705			397
Interest payable and similar charges		4		(6,562	)		(7,043	)		(6,721	)
Net interest payable				(5,812	)		(6,338	)		(6,324	)
Profit on ordinary activities before taxation				3,080			4,480			2,246
Tax on profit on ordinary activities		5		(165	)		(412	)		—
Profit for the financial year				2,915			4,068			2,246

All profits arises from continuing operations.

The group has no recognised gains or losses other than the profit for the year.

The historical cost profit and reported profit are the same.

3

Morgans Hotel Group Europe Limited

Consolidated balance sheet
At 31 December 2008

			2008			2008			2007			2007
	Notes		£000			£000			£000			£000
Fixed assets
Tangible assets		8					101,151						102,898
Current assets
Stock		9		249						222
Debtors		11		2,104						2,254
Cash at bank and in hand				2,032						15,019
				4,385						17,495
Creditors: amounts falling due within one year		12		(5,383	)					(5,793	)
Net current assets							(998	)					11,702
Total assets less current liabilities							100,153						114,600
Creditors: amounts falling due after more than one year		13					(99,774	)					(101,636	)
Net assets							379						12,964
Capital and reserves
Called up share capital		15					5,000						5,000
Share premium account		16					10,000						10,000
Other capital reserve		16					1,582						9,460
Profit and loss account		16					(16,203	)					(11,496	)
Shareholders’ funds		18					379						12,964

The financial statements on pages 6 to 22 were approved by the board of directors and authorised for issue on February 23, 2009

F Kleisner
Director

4

Morgans Hotel Group Europe Limited

Company balance sheet
At 31 December 2008

			2008			2008			2007			2007
	Notes		£000			£000			£000			£000
Fixed assets
Investment in subsidiary		10					35,000						35,000
Current assets
Debtors		11		400						400
Cash at bank and in hand				5						5
				405						405
Creditors:amounts falling due within one year		12		(12,634	)					(12,634	)
Net current liabilities							(12,229	)					(12,229	)
Net assets							22,771						22,771
Capital and reserves
Called up share capital		15					5,000						5,000
Share premium account		17					10,000						10,000
Other capital reserve		17					1,582						9,460
Profit and loss account		17					6,189						(1,689	)
Shareholders’ funds		18					22,771						22,771

5

Morgans Hotel Group Europe Limited

Consolidated cash flow statement
for the year ended 31 December 2008

			2008			2007			2006
	Notes		£000			£000			£000
Net cash inflow from operating activities		21		11,395			14,198			12,067
Returns on investments and servicing of finance		22		(5,812	)		(6,338	)		(6,324	)
Capital expenditure		22		(874	)		(3,507	)		(671	)
Net Cash inflow before taxation and financing				4,709			4,353			5,072
Equity Dividend Paid to Shareholders				(15,500	)		(99	)		—
Taxation				(113	)		—			—
Financing		22		(2,083	)		(1,500	)		(1,250	)
(Decrease)/Increase in cash and cash equivalents				(12,987	)		2,754			3,822

Reconciliation of net debt
for the year ended 31 December 2008

			2008			2007			2006
	Notes		£000			£000			£000
(Decrease)/Increase in cash in the year				(12,987	)		2,754			3,822
Net cash outflow from decrease in debt		23		2,083			1,500			1,242
Non cash movements		23		(338	)		(339	)		(339	)
Movements in net debt in the year				(11,242	)		3,915			4,725
Net debt at the start of the year				(88,700	)		(92,615	)		(97,340	)
Net debt at the end of the year		23		(99,942	)		(88,700	)		(92,615	)

6

Morgans Hotel Group Europe Limited

Notes to the financial statements
for the year ended 31 December 2008

1. Principal accounting policies

The consolidated financial statements have been prepared under the historical cost convention and in accordance with applicable Accounting Standards in the United Kingdom. A summary of the more important accounting policies is set out below.

Basis of consolidation

The consolidated financial statements include financial statements of the company and its subsidiary undertaking made up to 31 December 2008.

Investments

Investments are stated at cost or cost less provision where there is a permanent diminution in value.

Fixed assets and depreciation

Tangible fixed assets are stated at cost less depreciation and any provision for impairment. Assets are depreciated to their residual values on a straight line basis over their estimated useful lives as follows:

Freehold buildings (Included in Freehold Buildings are assets for building surface finishes which are depreciated over 25 – 38 years)	50 years
Building surface finishes	25 – 38 years
Plant and machinery	15 years
Fixtures, fittings and equipment	5 – 10 years

No depreciation is provided on freehold land. No residual values are ascribed to building surface finishes.

Interest paid on fixed assets purchases is capitalised up until the time the asset is available for use.

Foreign currency transactions

Translations into sterling are made at the average of rates ruling throughout the period for profit and loss items and at the rate ruling at 31 December 2008 for assets and liabilities. Exchange differences arising in the ordinary course of trading are included in the profit and loss account.

Deferred taxation

Deferred taxation is provided in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events have occurred which result in an obligation to pay more or less tax in the future.

Deferred tax is measured at the average tax rates which apply in the period in which the timing differences are expected to reverse. Deferred tax is measured on a non-discounted basis.

Deferred tax assets are regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it is more likely than not that there will be adequate future taxable profits against which to recover carried forward tax losses.

7

Morgans Hotel Group Europe Limited

Finance costs

Finance costs are included within the carrying value of the loan and are amortised over the term of the loan.

Stocks

Stocks are stated at the lower of cost and net realisable value.

Turnover

Turnover represents the amounts (excluding value added tax) derived from the provision of goods and services to customers. Turnover arises wholly in the United Kingdom.

Pension scheme

The group operates a defined contribution pension scheme. Contributions are charged to the profit and loss account in the period in which they are incurred.

Dividends

Equity dividends are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final equity dividends are recognised when approved by the shareholders at an annual general meeting.

2. Staff numbers and costs

	2008		2007		2006
	Number		Number		Number
The average number of employees in the year was:
Hotel operating staff		149		151		141
Management/administration		31		33		31
Sales and marketing		12		14		11
Maintenance		17		18		20
Total		209		216		203

The aggregate payroll costs for these persons were as follows:

	2008		2007		2006
	£000		£000		£000
Wages and salaries		6,553		6,303		5,730
Social security costs		480		497		444
Pension costs		70		70		44
		7,103		6,870		6,218

None of the directors received any remuneration during the year (2007: Nil).

8

Morgans Hotel Group Europe Limited

Funded defined contribution scheme for employees (group scheme)

Pension costs of £70,000 (2007: £44,000) were charged to the profit and loss account of which £nil (2007: nil) was outstanding at the balance sheet date.

The pension scheme is held with Standard Life and is administered by Origen.

3. Operating profit

This is arrived at after charging:

	2008		2007		2006
	£000		£000		£000
Auditors’ remuneration:
Group — audit		43		54		50
Company – audit		10		10		10
Group — Non-audit services		12		—		—
Depreciation of tangible fixed assets		2,621		2,437		2,778
Loss on disposal of fixed assets		—		—		274

4. Interest payable and similar charges

	2008		2007		2006
	£000		£000		£000
Amounts payable on bank loans and overdrafts		6,562		6,658		6,721
Finance charges		—		385		—
		6,562		7,043		6,721

5. Taxation

(a) Analysis of charge in the year

	2008			2007		2006
	£000			£000		£000
United Kingdom corporation tax at 28.5% (2007:30%, 2006:30%)		174			200		—
Adjustments in respect of prior years		(9	)		212		—
Total tax charge (note 5 (b))		165			412
Deferred taxation (note 14)		—			—		—
Tax on profit on ordinary activities		165			412		—

9

Morgans Hotel Group Europe Limited

There is no movement on the deferred tax asset from 2007.

(b) Factors affecting tax charge for the year

	2008			2007			2006
	£000			£000			£'000
Profit on ordinary activities before tax		3,080			4,480			2,246
Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 28.5% (2007 : 30%, 2006:30%)		878			1,343			674
Effects of:
Expenses not deductible for tax purposes		162			62			171
Capital allowances in excess of depreciation		(308	)		(552	)		695
Tax losses		(558	)		(653	)		(1,540	)
Adjustment in respect of prior years		(9	)		212			—
Tax charge for the period		165			412			—

6. Dividends

	2008		2007
	£000		£000
Amounts recognised as distributions to equity holders during the year
The dividend payment recognised during 2008 was for the dividend declared in respect of the period ended 31 December 2008 of £15,500,000		15,500		—

7. Profit for the financial year

The company has taken advantage of the exemption allowed under section 230 of the Companies Act 1985 and has not presented it’s own profit & loss account, in these financial statements. The profit before dividend for the year is £15,500,000 (2007: £Nil, 2006:£ Nil)

10

8. Fixed assets — Group

					Fixtures,
	Land and		Plant and		fittings and
	buildings		machinery		equipment			Total
	£000		£000		£000			£000
Cost
At 1 January 2008		102,018		8,426		13,544			123,988
Additions		94		142		638			874
Disposal		—		—		(11	)		(11	)
At 31 December 2008		102,112		8,568		14,171			124,851
Depreciation
At 1 January 2008		7,822		4,286		8,982			21,090
Charge for the year		1,093		589		939			2,621
Disposals		—		—		(11	)		(11	)
At 31 December 2008		8,915		4,875		9,910			23,700
Net book value
At 31 December 2008		93,197		3,693		4,261			101,151
At 31 December 2007		94,196		4,140		4,562			102,898

Included in total net book value of land and buildings is £41,091,000 (2007: £41,955,000) of long leasehold property and £4,193,000 (2007: £4,219,000) of capitalised interest (net of accumulated depreciation).

All tangible fixed assets of the group are held by the subsidiary undertaking, Morgans Hotel Group London Limited.

9. Stock

	Group		Group
	2008		2007
	£000		£000
Consumables		249		222

11

Morgans Hotel Group Europe Limited

10. Investment in subsidiary company

	Company		Company
	£000		£000
At 1 January 2008 and 31 December 2008		35,000		35,000

The company owns 100% of the ordinary shares of Morgans Hotel Group London Limited, a company incorporated in England and Wales, whose principal activity is the operation of two Morgans Hotel Group hotels in London.

11. Debtors: amounts due within one year

	Group		Company		Group		Company
	2008		2008		2007		2007
	£000		£000		£000		£000
Trade debtors		918		—		1,072		—
Amounts due from related parties		569		400		418		400
Prepayments and accrued income		617		—		764		—
		2,104		400		2,254		400

12. Creditors: amounts falling within one year

	Group		Company		Group		Company
	2008		2008		2007		2007
	£000		£000		£000		£000
Bank loans		2,200		—		2,083		—
Trade creditors		529		—		596		—
Amounts due to group undertakings and related parties		407		12,634		605		12,634
Taxation and social security		485		—		559		—
Accruals and deferred income		1,387		—		1,638		—
Corporation Tax		375		—		312		—
		5,383		12,634		5,793		12,634

12

Morgans Hotel Group Europe Limited

13. Creditors: amount falling due after more than one year

	Group		Group
	2008		2007
	£000		£000
Bank loans net of unamortised costs		99,774		101,636
		99,774		101,636

Bank loans are repayable as follows:

	2008		2007
	£000		£000
In one year or less, or on demand		2,200		2,083
In more than one year, but not more than two years		99,774		2,200
In more than two years, but not more than five years		—		99,436
		101,974		103,719

Bank loans are as follows:

	2008		2007
	£000		£000
Sterling bank loans: 6.280%		101,974		103,719
		101,974		103,719

Bank loans are repayable in monthly instalments, are denominated in sterling and bear interest at a fixed rate as noted above.

The bank loan is secured by way of a first ranking legal charge over the properties including fixtures, fittings and property management agreements, and an assignment over all revenues due from operation of the properties.

13

Morgans Hotel Group Europe Limited

14. Deferred taxation

	2008			2007
	£000			£000
Accelerated capital allowances		(5,887	)		(6,182	)
Short term timing differences		29			19
Losses		5,858			6,163
Total deferred tax asset		—			—

In 2008 a retrospective capital allowances claim was agreed with the HMRC, this has resulted in a reduction in the tax written down value of the assets and therefore a provision for accelerated capital allowances has been recognised in the 2008 Financial Statements.

15. Called up share capital

	31 December		31 December
	2008		2007
	£000		£000
Authorised
1,000 ordinary shares of £1 each		1		1
2,499,999 A ordinary shares of £1 each		2,500		2,500
2,499,999 B ordinary shares of £1 each		2,500		2,500
2 preferred non-voting ordinary shares of £1 each		—		—
		5,001		5,001
Allotted, called up and fully paid
2 ordinary shares of £1 each		—		—
2,499,999 A ordinary shares of £1 each		2,500		2,500
2,499,999 B ordinary shares of £1 each		2,500		2,500
1 preferred non-voting ordinary shares of £1 each		—		—
		5,000		5,000

Both the A and B ordinary shares carry equal voting rights, equal rights to dividends and equal rights on winding up and rank pari passu with each other. The preferred ordinary shares carry non-voting rights and rank pari passu with the A and B ordinary shares.

14

Morgans Hotel Group Europe Limited

16. Reserves — group

	Share		Other capital			Profit and
	premium		Reserve			loss account
	£000		£000			£000
At 1 January 2008		10,000		9,460			(11,496	)
Transfer of reserve		—		(7,878	)		7,878
Profit for the financial year		—		—			2,915
Dividend Distribution		—		—			(15,500	)
At 31 December 2008		10,000		1,582			(16,203	)

17. Reserves — company

	Share		Other capital			Profit and
	Premium		Reserve			loss account
	£000		£000			£000
At 1 January 2008		10,000		9,460			(1,689	)
Transfer of reserve		—		(7,878	)		7,878
Profit for the financial year		—		—			15,500
Dividend Distribution		—		—			(15,500	)
At 31 December 2008		10,000		1,582			6,189

18. Reconciliation of movements in shareholders’ funds

	Group			Company			Group		Company
	2008			2008			2007		2007
	£000			£000			£000		£000
Profit for the financial year		2,915			15,500			4,068		—
		(15,500	)		(15,500	)		—		—
Net movement in shareholders’ funds
Opening shareholders’ funds		(12,585	)		—			4,068		—
Closing shareholders’ funds		12,964			22,771			8,896		22,771
		379			22,771			12,964		22,771

In November 2008 Morgans Hotel Group London Limited undertook a re-purchase of shares out of capital. This transaction resulted in Morgans Hotel Group Europe Limited recognising a profit of £15,500,000 which has been distributed to the shareholders. Also £7,878,000 was transferred from other capital reserves to the profit and loss account in accordance with a court order obtained for this purpose.

15

Morgans Hotel Group Europe Limited

19. Immediate and ultimate controlling parties

Morgans Hotel Group Europe Limited is owned 50% by Walton MG Hotels Investors V, LLC, an affiliate of Walton Street Capital LLC., a company incorporated in the state of Delaware in the USA.

The other 50% is owned by Royalton Europe Holdings LLC, a wholly owned subsidiary of Morgans Hotel Group Co, a company incorporated in the USA, whose principal place of business is 475 10^th Avenue New York, NY 10018 USA.

20. Related party transactions

Morgans Hotel Group UK Management Limited

Morgans Hotel Group UK Management Limited is 100% owned by Morgans Hotel Group Co.

Morgans Hotel Group UK Management Limited charge Morgans Hotel Group Europe Limited a management fee and staff costs relating to hotel management, which totalled £2,897,000 (2007: £3,242,000).

SC London Limited

SC London Limited is indirectly owned 50% by Morgans Hotel Group Co and 50% by Chodorow Ventures LLC.

SC London Limited pays rent and recharged expenditure to Morgans Hotel Group Europe Limited, which totalled £3,773,000 (2007: £3,669,000).

	2008		2007
Related party balances and transactions	£000		£000
Debtors: amounts falling within one year
SC London Limited		136		—
Morgans Hotel Group Co		400		400
Other Morgans Hotel Group Co companies		33		18
		569		418

	2008		2007
	£000		£000
Creditors: amounts falling due within one year
Morgans Hotel Group UK Management Limited		258		306
SC London Limited		—		215
Other Morgans Hotel Group Co companies		149		84
		407		605

16

Morgans Hotel Group Europe Limited

The directors confirm that there were no related party transactions other than those disclosed in these financial statements and that all transactions were undertaken on an arms length basis.

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

	2008			2007			2006
	£000			£000			£000
Operating profit		8,892			10,818			8,570
Depreciation and Amortisation		2,970			2,804			2,778
Loss on disposal of assets		—			—			274
(Increase) in stock		(28	)		(14	)		(62	)
Decrease / (Increase) in debtors		150			515			(431	)
(Decrease) / increase in creditors		(589	)		75			938
Net cash inflow from operating activities		11,395			14,198			12,067

22. Analysis of cash flows

	2008			2007			2006
	£000			£000			£000
Return on Investment and servicing of finance
Interest received		750			705			397
Interest on bank loan		(6,562	)		(6,658	)		(6,721	)
Finance charges		—			(385	)		—
		(5,812	)		(6,338	)		(6,324	)
Capital expenditure
Purchase of tangible fixed assets		(874	)		(3,507	)		(671	)
Financing
Repayment of bank loan		(2,083	)		(1,500	)		(1,250	)
		(2,083	)		(1,500	)		(1,250	)

17

Morgans Hotel Group Europe Limited

23. Analysis of changes in net debt

							Other			At 31
	At 1 January						non-cash			December
	2008			Cash flows			movements			2008
	£000			£000			£000			£000
Cash at bank and in hand		15,019			(12,987	)		—			2,032
Debt due within one year		(2,083	)		2,083			(2,200	)		(2,200	)
Debt due after more than one year		(102,623	)		—			2,200			(100,423	)
Deferred finance costs		987			—			(338	)		649
Net debt		(88,700	)		(10,904	)		(338	)		(99,942	)

18

Morgans Hotel Group Europe Limited

24. Summary of differences between United Kingdom Generally Accepted Accounting Practice (“UK GAAP”) and United States Generally Accepted Accounting Principles (“US GAAP”)

The following table contains a summary of the material adjustments to consolidated profit for the financial year between UK GAAP and US GAAP:

			Year Ended			Year Ended			Year Ended
			31 December			31 December			31 December
			2008			2007			2006
	Note		£000			£000			£000
Profit for the financial year as reported under UK GAAP				2,915			4,068			2,246
US GAAP adjustments:
Depreciation of tangible fixed assets		a		(864	)		(864	)		(988	)
Financial instruments		b		(6,565	)		(1,341	)		2,454
Total US GAAP adjustments				(7,429	)		(2,205	)		1,466
Net income as reported under US GAAP				(4,514	)		1,863			3,712

The following table contains a summary of the material adjustments to consolidated shareholders’ funds between UK GAAP and US GAAP:

			Year Ended			Year Ended			Year Ended
			31 December			31 December			31 December
			2008			2007			2006
	Note		£000			£000			£000
Total shareholders’ funds as reported under UK GAAP				379			12,964			8,896
US GAAP adjustments
Depreciation of tangible fixed assets		a		(8,777	)		(7,913	)		(7,157	)
Financial instruments		b		(5,451	)		1,113			2,454
Total US GAAP adjustments				(14,228	)		(6,800	)		(4,703	)
Shareholders’ (deficit)/ funds under US GAAP				(13,849	)		6,164			4,193

19

Morgans Hotel Group Europe Limited

A summary of the principal differences between United Kingdom Generally Accepted Accounting Practice and United States Generally Accepted Accounting Principles is set out below:

(a) Depreciation of tangible fixed assets

Under UK GAAP, the freehold buildings are depreciated on a straight line basis over 50 years to their residual values. Under US GAAP, the freehold building are depreciated on a straight line basis over 40 years and there is considered to be no residual value. The result of this is an accelerated depreciation charge under US GAAP.

(b) Financial instruments

Under US GAAP an entity recognises all of its derivative instruments as either assets or liabilities depending on the rights or obligations under the contracts. All derivative instruments are measured at fair value in accordance with Financial Accounting Standards Board Statement No. 133 “Accounting for Derivative Instruments and Hedging Contracts”. The equivalent UK GAAP is not required to be applied by the Company for the periods under audit. This adjustment reflects the impact of revaluing all the Company derivative financial instruments.

(c) Financial statement presentation

The balance sheet prepared in accordance with UK GAAP differs in certain respects from US GAAP. Under UK GAAP, current assets are netted against current liabilities in the balance sheet whereas US GAAP requires the separate presentation of total assets and total liabilities. UK GAAP requires assets to be presented in ascending order of their liquidity, whereas under US GAAP assets are presented in descending order of liquidity.

(d) Cash flow statement

The cash flow statement presented under UK GAAP has been presented in accordance with FRS1 (revised). “cash flow statements”. There are certain differences from UK GAAP to US GAAP with regard to the classification of items within the cash flow statement and with regard to the definition of cash and cash equivalents. In accordance with FRS1, cash flows are prepared separately for operating activities, returns on investment and servicing of finance, taxation, capital expenditure and financial investment, acquisitions and disposals, equity dividends paid, management of liquid resources and financing.

US GAAP, however, requires only three categories of cash flow activity to be reported. Under SFAS No. 95, “Statement of Cash Flows”, cash flows are classified under operating activities (including cash flows from taxation and returns on investment and servicing of finance), investing activities and financing activities.

A summary of the Company’s operating, investing and financing activities classified in accordance with US GAAP is presented below:

	2008			2007			2006
	£000			£000			£000
Net cash provided by operating activities		5,470			7,761			5,743
Net cash used in investing activities		(874	)		(3,507	)		(671	)
Net cash used in provided by financing activities		(17,583	)		(1,500	)		(1,250	)
Net (decrease) / increase in cash and cash equivalents		(12,987	)		2,754			3,822
Cash and cash equivalents at beginning of period		15,019			12,265			8,443
Cash and cash equivalents at end of period		2,032			15,019			12,265

20