Registered number
4302547
Rok Corporation Limited
Consolidated Financial Statements
31 March 2007
Rok Corporation Limited
Independent auditors' report
to the shareholders of Rok Corporation Limited
The Board of Directors and Shareholders of Rok Corporation Limited
We have audited the accompanying consolidated balance sheets of Rok Corporation Limited as of 31 March 2007 and 31 March 2006, and the related consolidated profit and loss account and consolidated cash flow statements for each of the two years ended 31 March 2007. 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 audits.
We conducted our audits 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 of material misstatement. We are not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits 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, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Rok Corporation Limited at 31 March 2007 and 31 March 2006 and the consolidated results of its operations and its cash flows for each of the two years ended 31 March 2007, in conformity with UK GAAP which differ in certain respects from United States generally accepted accounting principles (see note [32] on page [19] of the notes to the consolidated financial statements).
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1 to the financial statements, the Group has suffered trading losses and has net liabilities at 31 March 2007 of £3,907,971 .In the absence of the Group obtaining additional funding there would be substantial doubt about the group's ability to continue as a going concern.
Management's plans in regard to the raising of additional funding and related matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| Baker Tilly UK Audit LLP | 2 Bloomsbury Street |
| Registered auditors | London |
| 14 November 2007 | WC1B 3ST |
Rok Corporation Limited | | | | | | | |
Consolidated Profit and Loss Account | | | | | | | |
| | | | | | | | |
| | | | | Year ended March 31 | |
| | | Notes | | 2007 | | 2006 | |
| | | | | £ | | £ | |
Turnover | | | 2 | | | 1,951,144 | | | 843,874 | |
| Cost of sales | | | | | | (1,011,007 | ) | | (577,842 | ) |
| | | | | | | | | | | |
Gross profit | | | | | | 940,137 | | | 266,032 | |
| | | | | | | | | | | |
| Administrative expenses | | | | | | (1,508,289 | ) | | (1,145,679 | ) |
| | | | | | | | | | | |
Operating loss | | | 3 | | | (568,152 | ) | | (879,647 | ) |
| Exceptional items: | | | | | | | | | | |
| Profit on disposal of subsidiaries | | | 5 | | | - | | | 61,703 | |
| Loan write-off | | | 5 | | | - | | | (722,835 | ) |
| | | | | | | | | | (661,132 | ) |
| | | | | | | | | | | |
| | | | | | | (568,152 | ) | | (1,540,779 | ) |
| | | | | | | | | | | |
| Interest receivable | | | | | | 83 | | | 39 | |
| Interest payable and similar charges | | | 8 | | | 24,811 | | | (122,062 | ) |
| | | | | | | | | | | |
Loss on ordinary activities before taxation | | | | | | (543,258 | ) | | (1,662,802 | ) |
| | | | | | | | | | | |
| Tax on loss on ordinary activities | | | 9 | | | (1,000 | ) | | 36,727 | |
| | | | | | | | | | | |
Loss for the financial year before minority interest | | | | | | (544,258 | ) | | (1,626,075 | ) |
| | | | | | | | | | | |
| Minority interest | | | 26 | | | 61,242 | | | 106,180 | |
| | | | | | | | | | | |
Loss for the financial year after minority interest | | | | | | (483,016 | ) | | (1,519,895 | ) |
All of the activities of the group are continuing with the exception of two discontinued operations disposed of in 2006 which contributed an operating profit of £13,222 to the result in that year.
Statement of total recognised gains and losses
The company has no recognised gains or losses other than the loss for the above two financial years.
The accompanying notes are an integral part of these consolidated financial statements.
Rok Corporation Limited
Consolidated Balance Sheet
| | March 31 |
Notes | | 2007 | | 2006 |
| | | £ | £ | £ | £ |
Fixed assets | | | | | |
| Intangible assets | 10 | | 140,605 | | 150,663 |
| Tangible assets | 11 | | 75,576 | | 130,762 |
| | | | 216,181 | | 281,425 |
Current assets | | | | | |
| Stocks | 13 | 1,207 | | 4,293 | |
| Debtors | 14 | 773,687 | | 362,028 | |
| Cash at bank and in hand | | 55,234 | | 117,819 | |
| | | 830,128 | | 484,140 | |
Creditors: amounts falling due | | | | | |
within one year | 15 | (1,590,349) | | (273,018) | |
| | | | | | |
Net current (liabilities)/assets | | | (760,221) | | 211,122 |
| | | | | | |
Total assets less current | | | | | |
liabilities | | | (544,040) | | 492,547 |
| | | | | | |
Creditors: amounts falling due | | | | | |
after more than one year | 16 | | (3,363,931) | | (3,864,698) |
| | | | | | |
Net liabilities | | | (3,907,971) | | (3,372,151) |
| | | | | | |
Capital and reserves | | | | | |
| Called up share capital | 20 | | 20,469 | | 20,469 |
| Share premium | 21 | | 5,458,145 | | 5,458,145 |
| Capital redemption reserve | 22 | | 49,270 | | 49,270 |
| Profit and loss account | 23 | | (9,716,632) | | (9,410,661) |
| Share based payments | 24 | | - | | 142,475 |
| | | | | | |
Shareholders' funds | 25 | | (4,188,748) | | (3,740,302) |
| | | | | | |
| Minority interests | 26 | | 280,777 | | 368,151 |
| | | | | | |
Total capital employed | | | (3,907,971) | | (3,372,151) |
The accompanying notes are an integral part of these consolidated financial statements.
Rok Corporation Limited
Consolidated Cash Flow Statement
| | | | | Year ended March 31 | |
| | | Notes | | 2007 | | 2006 | |
| | | | | £ | | £ | |
| | | | | | | | |
Operating loss | | | | | | (568,152 | ) | | (879,647 | ) |
| Depreciation charges | | | | | | 69,740 | | | 148,926 | |
| Amortisation of goodwill | | | | | | 10,058 | | | 66,300 | |
| Share based payments | | | | | | 34,570 | | | 59,262 | |
| Decrease/(increase) in stocks | | | | | | 3,086 | | | (3,693 | ) |
| (Increase)/decrease in debtors | | | | | | (411,659 | ) | | 701,544 | |
| Increase/(decrease) in creditors | | | | | | 857,645 | | | (1,062,808 | ) |
| Foreign exchange | | | | | | (26,132 | ) | | 21,251 | |
| | | | | | | | | | | |
Net cash outflow from operating activities | | | | | | (30,844 | ) | | (948,865 | ) |
| | | | | | | | | | | |
CASH FLOW STATEMENT | | | | | | | | | | |
| | | | | | | | | | | |
Net cash outflow from operating activities | | | | | | (30,844 | ) | | (948,865 | ) |
| | | | | | | | | | | |
Returns on investments and servicing of finance | | | 27 | | | (4,758 | ) | | (58,154 | ) |
| | | | | | | | | | | |
Taxation | | | | | | (1,000 | ) | | 36,727 | |
| | | | | | | | | | | |
Capital expenditure | | | 27 | | | (14,554 | ) | | (1,550 | ) |
| | | | | | | (51,156 | ) | | (971,842 | ) |
| | | | | | | | | | | |
Acquisitions and disposals | | | 27 | | | - | | | (47 | ) |
| | | | | | | | | | | |
| | | | | | | | | | | |
Financing | | | 27 | | | (11,429 | ) | | 959,066 | |
| | | | | | | | | | | |
Decrease in cash | | | | | | (62,585 | ) | | (12,823 | ) |
| | | | | | | | | | | |
Reconciliation of net cash flow to movement in net debt | | | | | | | | | | |
| | | | | | | | | | | |
Decrease in cash in the period | | | | | | (62,585 | ) | | (12,823 | ) |
| Decrease in debt and lease financing | | | | | | 11,429 | | | 128,511 | |
| Non-cash debt items | | | 29 | | | 29,652 | | | (63,869 | ) |
| | | | | | | | | | | |
Change in net debt | | | | | | (21,504 | ) | | 51,819 | |
Net debt at 1 April | | | | | | (1,136,371 | ) | | (1,188,190 | ) |
Net debt at 31 March | | | 28 | | | (1,157,875 | ) | | (1,136,371 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
Rok Corporation Limited |
Notes to the Consolidated Financial Statements |
Basis of preparation
The consolidated financial statements of Rok Corporation Limited for the year ended March 31 2007, were authorised for issue by the Board of Directors on November 14 2007.
The financial statements have been prepared under the historical cost convention and in accordance with applicable accounting standards in the United Kingdom.
The group's consolidated balance sheet shows a deficit of shareholders’ funds at 31 March 2007 and has operated at a loss since its incorporation in 2001 having been committed to the development of the group's product portfolio. The financial statements have been prepared on the going concern basis, which assumes that the group will continue in operational existence for the foreseeable future. The directors are sufficiently aware of their duty to present a balanced assessment of the group’s financial position and prospects to enable them to conclude that it is appropriate to adopt the going concern basis of preparation. The following paragraphs summarise the issues and the basis on which the directors have reached their conclusion.
The directors are aware of the need to consider the trading performance and cashflows since the year end and the ability to be able to generate investment and loan monies into the group, in all cases paying particular attention to the period ending twelve months after the date of approval of these financial statements. Since the year end the group has continued to make trading losses and consequently has had to generate cashflows by way of investments and loans to support its continued investment in technology.
On 6 November 2007 Rok Corporation Limited completed a transaction and all the necessary documentation whereby its entire share capital was acquired by Rok Entertainment Group Limited and then the newly created group is expected to reverse into Cyberfund Inc., a US OTC listed company. This reversal has been detailed in the press and disclosed to the necessary authorities by Cyberfund Inc.. Simultaneous to the conclusion of this transaction, which is scheduled to have occurred by mid November 2007, the newly created company (which will include the group) is anticipating receiving up to $20m of investment monies.
Historically the group has received financial support from its founders and shareholders. Consequently, notwithstanding the above, the directors also believe they have received sufficient comfort that, as has previously been the case and as at the date of the signing of these accounts, continued funding is expected to be made available to finance the group’s working capital requirements for the foreseeable future again, paying particular attention to the period ending twelve months after the date of approval of these financial statements. Although there is no legal obligation for any of its founders or shareholders to provide this continued support, the directors are confident that such funding would be available.
Change in accounting policy
During the year ended 31 March 2006, the group adopted FRS 20, "Share based payment". The adoption of FRS 20 is a change in accounting policy which results in a prior year adjustment. The effect on the comparative is an increase in the group's loss for the year ended 31 March 2005 of £83,213, and a recognition of a share option reserve of £83,213.
Basis of consolidation
The consolidated financial statements incorporate those of Rok Corporation Limited and all of its subsidiary undertakings for the year. Subsidiaries acquired during the year are consolidated using the acquisition method. Their results are incorporated from the date that control passes. The difference between the cost of acquisition of shares in subsidiaries and the fair value of the separable net assets acquired is capitalised and written off on a straight line basis over its estimated economic life. Provision is made for impairment where appropriate.
Turnover
Turnover is recognised at the fair value of the consideration received or receivable for sale of goods and/or services delivered to the customer in the ordinary nature of the business. Turnover is shown net of Value Added Tax and any discounts, if applicable. Turnover is generated by the provision of content and entertainment services on mobile telephones and from the sale of diamonds and other jewellery products.
Rok Corporation Limited |
Notes to the Consolidated Financial Statements |
Purchased goodwill
Goodwill representing the excess (or shortfall) of the purchase price compared with the fair value of net assets acquired is capitalised and written off evenly over not more than 20 years as in the opinion of the directors this represents the period over which the goodwill is effective. Purchased goodwill is reviewed for impairment if events or changes in circumstances indicate that the carrying amounts may not be appropriate or as otherwise required by relevant accounting standards.
Finance costs
Finance costs of debt are recognised in the profit and loss account over the term of the debt at a constant rate on the carrying amount. Associated exchange gains and losses are recognised as part of finance costs.
Research and development
All research and other development costs are written off as incurred.
Tangible fixed assets
Fixed assets are stated at historical cost.
Depreciation is provided on all tangible fixed assets at rates calculated to write each asset down to its estimated residual value evenly over its expected useful life, as follows:
Leasehold improvements 20% straight line
Plant and machinery 33⅓% straight line
Impairment
Fixed assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable or as otherwise required by relevant accounting standards.
Shortfalls between the carrying value of fixed assets and their recoverable amounts, being the higher of net realisable value and value-in-use, are recognised as impairments. The group has no revalued assets so any impairment losses are recognised in the profit and loss account.
Investments
Long term investments are classified as fixed assets and are stated at cost in the group's balance sheet.
Provision is made for any impairment in the value of fixed asset investments.
Stocks and work in progress
Stocks and work in progress are valued at the lower of cost and net realisable value.
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 that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the group’s taxable result and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.
Foreign currencies
Assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All differences are taken to the profit and loss account.
Assets, liabilities, and results of overseas subsidiaries are translated at the rate ruling at the balance sheet date.
Rok Corporation Limited |
Notes to the Consolidated Financial Statements |
Leased assets and obligations
Where assets are financed by leasing agreements that give rights approximating to ownership ("finance leases"), the assets are treated as if they had been purchased outright. The amount capitalised is the present value of the minimum lease payments payable during the lease term. The corresponding leasing commitments are shown as obligations to the lessor.
Lease payments are treated as consisting of capital and interest elements, and the interest is charged to the profit and loss account in proportion to the remaining balance outstanding.
All other leases are “operating leases” and the annual rentals are charged to profit and loss on a straight line basis over the lease term.
Share based payments
The financial statements include the application of the requirements of FRS 20 Share-based Payments. In accordance with the transitional provisions, FRS 20 has been applied to all grants of equity instruments after 7 November 2002 that had not yet vested as at the date of transition.
Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the group's estimate of shares that will eventually vest.
The group issues equity-settled share based payments to certain employees. These are measured at fair value at the date of grant and this amount is expensed on a straight-line basis over the vesting period based on the group's estimate of the number of shares that will eventually vest.
The fair value is measured by use of the Black-Scholes option pricing model. The expected life used in the model has been adjusted, based on managements best estimate, for the effect on non transferability, exercise restrictions and behaviourial considerations.
Retirement benefits
The group operates a defined contribution pension scheme. The amount charged to the profit and loss account in respect of pension costs is the contributions payable in the year. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet.
Rok Corporation Limited | | | | | |
Notes to the Consolidated Financial Statements | | | | | |
| | | | | | |
2 Segmental report | | | | | |
| | | 2007 | | 2006 | |
| | | £ | | £ | |
Net liabilities | | | | | |
Class of business: | | | | | |
Continuing operations | | | | | |
Provision of content and entertainment services on mobile telephones | | | (3,714,503 | ) | | (3,268,546 | ) |
Sale of diamonds and other jewellery products | | | (193,468 | ) | | (103,605 | ) |
| | | | | | | | |
| | | | (3,907,971 | ) | | (3,372,151 | ) |
Geographical analysis: | | | | | | | |
United Kingdom | | | (3,498,186 | ) | | (3,126,731 | ) |
Rest of the world | | | (409,785 | ) | | (245,420 | ) |
| | | | | | | | |
| | | | (3,907,971 | ) | | (3,372,151 | ) |
Turnover | | | | | | | |
Class of business: | | | | | | | |
Continuing operations | | | | | | | |
Provision of content and entertainment services on mobile telephones | | | 1,476,087 | | | 715,346 | |
Sale of diamonds and other jewellery products | | | 475,057 | | | 128,528 | |
| | | | | | | | |
| | | | 1,951,144 | | | 843,874 | |
| | | | | | | | |
Geographical analysis: | | | | | | | |
United Kingdom | | | 470,724 | | | 128,528 | |
Other EC countries | | | 3,538 | | | - | |
Rest of the world | | | 1,476,882 | | | 715,346 | |
| | | | | | | | |
| | | | 1,951,144 | | | 843,874 | |
Loss before taxation | | | | | | | |
Class of business: | | | | | | | |
Discontinued operations | | | - | | | 13,222 | |
Continuing operations | | | | | | | |
Provision of content and entertainment services on mobile telephones | | | (453,395 | ) | | (1,622,793 | ) |
Sale of diamonds and other jewellery products | | | (89,863 | ) | | (40,009 | ) |
| | | | | | | | |
| | | | (543,258 | ) | | (1,662,802 | ) |
Geographical analysis: | | | | | | | |
United Kingdom | | | (378,893 | ) | | (1,443,166 | ) |
Rest of the world | | | (164,365 | ) | | (219,636 | ) |
| | | | | | | | |
| | | | (543,258 | ) | | (1,662,802 | ) |
Rok Corporation Limited | | | | | |
Notes to the Consolidated Financial Statements | | | | | |
| | | | | | |
3 Operating loss | | | | | |
| | | 2007 | | 2006 | |
| | | £ | | £ | |
This is stated after charging: | | | | | |
Depreciation of owned fixed assets | | | 55,302 | | | 121,016 | |
Depreciation of assets held under finance leases and hire | | | | | | | |
purchase contracts | | | 14,438 | | | 27,910 | |
Amortisation of goodwill | | | 10,058 | | | 66,300 | |
Operating lease rentals - land buildings | | | 61,650 | | | 62,558 | |
Share based payments | | | 34,570 | | | 59,262 | |
Auditors' remuneration for audit services: | | | | | | | |
Baker Tilly UK Audit LLP | | | 23,000 | | | 12,000 | |
LehmanBrown | | | 5,000 | | | 5,000 | |
Wenham Major Limited | | | - | | | 12,000 | |
Auditors' remuneration for other services: | | | | | | | |
Baker Tilly UK Audit LLP | | | 9,000 | | | 9,000 | |
Wenham Major Limited | | | - | | | 40,000 | |
4 Profit attributable to the members of the parent company
The profit dealt with in the accounts of Rok Corporation Limited was £nil (2006-£nil)
5 Exceptional items
| | | 2007 | | 2006 | |
| | | £ | | £ | |
| Profit on disposal of subsidiaries | | | - | | | 61,703 | |
| Loan write-off | | | - | | | (722,835 | ) |
| | | | - | | | (661,132 | ) |
Rok Corporation Limited
Notes to the Consolidated Financial Statements
6 Directors' emoluments
For the year ended 31 March 2007 the directors of Rok Corporation Limited were remunerated for their services to the group by an affiliated company being Rok Productions Limited, a wholly owned subsidiary of Rok Entertainment Group Limited. Directors' emoluments are charged through the profit and loss account of that affiliated undertaking and there is no recharge of these costs to the group.
| | | 2007 | | 2006 | |
| | | £ | | £ | |
Emoluments | | | - | | | 169,978 | |
Group contributions to money purchase pension schemes | | | - | | | 2,167 | |
| | | | - | | | 172,145 | |
| | | | | | | | |
Highest paid director: | | | | | | | |
Emoluments | | | - | | | 51,500 | |
Group contributions to money purchase pension schemes | | | - | | | 1,500 | |
| | | | - | | | 53,000 | |
| | | | | | | | |
Number of directors in group pension schemes: | | | | | | | |
| | | | 2007 | | | 2006 | |
| | | | Number | | | Number | |
Money purchase schemes | | | - | | | 2 | |
No director received any emoluments during the year in respect of their services to the group. | | | | | | | |
| | | | | | | | |
7 Staff costs | | | | | | | |
| | | | 2007 | | | 2006 | |
| | | £ | | | £ | |
Wages and salaries | | | 255,489 | | | 334,333 | |
Social security costs | | | 12,144 | | | 26,571 | |
Other pension costs | | | 1,593 | | | 4,367 | |
| | | | 269,226 | | | 365,271 | |
| | | | | | | | |
Cost of employee share scheme (see note 32) | | | 34,570 | | | 59,262 | |
| | | | | | | | |
Average number of employees during the year | | | Number | | | Number | |
| | | | | | | | |
Operational development, sales and marketing and | | | | | | | |
administration | | | 59 | | | 44 | |
| | | | | | | | |
8 Interest payable and similar charges | | | | | | | |
| | | | 2007 | | | 2006 | |
| | | | £ | | | £ | |
Interest payable on loans | | | 31,550 | | | 81,087 | |
Finance charges payable under finance leases and hire | | | | | | | |
purchase contracts | | | 2,086 | | | 5,886 | |
Currency exchange on loans | | | (58,447 | ) | | 35,089 | |
| | | | (24,811 | ) | | 122,062 | |
Rok Corporation Limited | | | | | |
Notes to the Consolidated Financial Statements | | | | | |
| | | | | | |
| | | | | | |
9 Taxation | | | | | |
| | | 2007 | | 2006 | |
| | | £ | | £ | |
Analysis of charge in period | | | | | |
Current tax: | | | | | |
Foreign taxes | | | 1,000 | | | - | |
Research and development tax credit | | | - | | | (36,727 | ) |
| | | | 1,000 | | | (36,727 | ) |
| | | | | | | | |
| | | | 2007 | | | 2006 | |
| | | | £ | | | £ | |
Loss on ordinary activities before tax | | | (543,258 | ) | | (1,662,802 | ) |
| | | | | | | | |
Standard rate of corporation tax in the UK | | | 30 | % | | 30 | % |
| | | | | | | | |
| | | | £ | | | | |
Loss on ordinary activities multiplied by the standard rate of | | | | | | | |
corporation tax | | | (162,977 | ) | | (498,841 | ) |
Effects of: | | | | | | | |
Depreciation in excess of capital allowances | | | 14,134 | | | 31,889 | |
Expenses not deductible for tax purposes | | | 25,119 | | | 55,301 | |
Research and development tax credit | | | - | | | (36,727 | ) |
Tax losses carried forward | | | 124,724 | | | 411,651 | |
| | | | | | | | |
Current tax charge/(credit) for period | | | 1,000 | | | (36,727 | ) |
| | | | | | | | |
| | | | | | | | |
10 Intangible fixed assets | | | | | | | |
| | | | | | | £ | |
Goodwill: | | | | | | | |
| | | | | | | | |
Cost | | | | | | | |
At 1 April 2006 | | | | | | 219,112 | |
At 31 March 2007 | | | | | | 219,112 | |
| | | | | | | | |
Amortisation | | | | | | | |
At 1 April 2006 | | | | | | 68,449 | |
Provided during the year | | | | | | 10,058 | |
At 31 March 2007 | | | | | | 78,507 | |
| | | | | | | | |
Net book value | | | | | | | |
At 31 March 2007 | | | | | | 140,605 | |
At 31 March 2006 | | | | | | 150,663 | |
| | | | | | | | |
| Included in the cost as at 1 April 2006 is an amount of £62,527 relating to the acquisition of Rok Diamonds Limited as explained in note 12. | | | | | | | |
Rok Corporation Limited | | | | | | | |
Notes to the Consolidated Financial Statements | | | | | | | |
| | | | | | | | |
11 Tangible fixed assets | | | | | | | |
| | | Leasehold | | Plant and | | | |
| | | improvements | | machinery | | Total | |
| | | £ | | £ | | £ | |
Cost | | | | | | | |
At 1 April 2006 | | | 11,085 | | | 498,544 | | | 509,629 | |
Additions | | | - | | | 14,554 | | | 14,554 | |
At 31 March 2007 | | | 11,085 | | | 513,098 | | | 524,183 | |
| | | | | | | | | | | |
Depreciation | | | | | | | | | | |
At 1 April 2006 | | | 6,675 | | | 372,192 | | | 378,867 | |
Charge for the year | | | - | | | 69,740 | | | 69,740 | |
At 31 March 2007 | | | 6,675 | | | 441,932 | | | 448,607 | |
| | | | | | | | | | | |
Net book value | | | | | | | | | | |
At 31 March 2007 | | | 4,410 | | | 71,166 | | | 75,576 | |
| | | | | | | | | | | |
At 31 March 2006 | | | 4,410 | | | 126,352 | | | 130,762 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | 2007 | | | 2006 | |
| | | | | | | £ | | | £ | |
| Net book value of plant and machinery included above held under finance leases and hirepurchase contracts | | | | | | 14,438 | | | 28,876 | |
Rok Corporation Limited | | | | |
Notes to the Consolidated Financial Statements | | | | |
| | | | | |
| | | | | |
12 Investments | | | | |
| Rok Corporation Limited holds 20% or more of the share capital of the following companies |
| | | | | |
Company | | Shares held | | |
| | Activity | Class | | % |
Beijing New Net Science & Technology Development Limited * | Supply of mobile information | Ordinary | | 50 |
| | and entertainment services | | | |
Beijing Rok - New Net Science & Technology Development | Supply of mobile information | Ordinary | | 70 |
Limited * | and entertainment services | | | |
Rok Bookmakers Limited | Inactive | Ordinary | | 100 |
Rok Card Limited | Inactive | Ordinary | | 100 |
Rok Diamonds Limited | Retailer of diamond bespoke | Ordinary | | 100 |
| | and ready-to-wear jewellery | | | |
Rok Global Gaming Limited | Inactive | Ordinary | | 100 |
Rok Lotteries Limited | Inactive | Ordinary | | 100 |
Rok Management Services Limited | Management services, | Ordinary | | 100 |
| | procurement and research | | | |
| | and development | | | |
Rok MS Limited | Treasury | Ordinary | | 100 |
All of the above companies are registered and/or incorporated in England and Wales except those marked (*) which are registered in the Peoples Republic of China.
On 30 November 2005, Rok Corporation Limited acquired 100% of the called up ordinary share capital of Rok Diamonds Limited for a cash consideration of £1. Rok Diamonds Limited has been accounted for using the acquisition method of accounting. The assets and liabilities of Rok Diamonds Limited have been consolidated at their fair values to the group, as set out below:
| | | | | Fair value | |
| | | Initial book | | at date of | |
| | | value | | acquisition | |
| | | £ | | £ | |
| | | | | | |
| Tangible fixed assets | | | 1,844 | | | 1,844 | |
| Investments | | | 1 | | | 1 | |
| Debtors | | | 8,927 | | | 8,927 | |
| TOTAL ASSETS | | | 10,772 | | | 10,772 | |
| | | | | | | | |
| Bank overdraft | | | (47 | ) | | (47 | ) |
| Creditors | | | (73,251 | ) | | (73,251 | ) |
| TOTAL LIABILITIES | | | (73,298 | ) | | (73,298 | ) |
| | | | | | | | |
| NET LIABILITIES | | | (62,526 | ) | | (62,526 | ) |
Goodwill of £62,527, being the difference between the fair value of the net liabilites acquired and consideration payable, arose from this transaction.
13 Stocks | | | | | |
| | | 2007 | | 2006 | |
| | | £ | | £ | |
Finished goods and goods for resale | | | 1,207 | | | 4,293 | |
Rok Corporation Limited | | | | | |
Notes to the Consolidated Financial Statements | | | | | |
| | | | | | |
| | | | | | |
14 Debtors | | | | | |
| | | 2007 | | 2006 | |
| | | £ | | £ | |
Trade debtors | | | 354,783 | | | 31,025 | |
Other debtors | | | 408,248 | | | 320,309 | |
Prepayments and accrued income | | | 10,656 | | | 10,694 | |
| | | | 773,687 | | | 362,028 | |
Amounts due after more than one year included in: | | | | | | | |
Other debtors | | | 5,677 | | | - | |
| | | | | | | | |
| | | | | | | | |
15 Creditors: amounts falling due within one year | | | | | | | |
| | | | 2007 | | | 2006 | |
| | | | £ | | | £ | |
Obligations under finance lease and hire purchase contracts | | | 1,873 | | | 13,302 | |
Trade creditors | | | 473,514 | | | 177,884 | |
Other taxes and social security costs | | | 16,358 | | | 24,313 | |
Other creditors | | | 1,030,081 | | | 30,397 | |
Accruals and deferred income | | | 68,523 | | | 27,122 | |
| | | | 1,590,349 | | | 273,018 | |
| | | | | | | | |
| | | | | | | | |
16 Creditors: amounts falling due after one year | | | | | | | |
| | | | 2007 | | | 2006 | |
| | | | £ | | | £ | |
Loans and interest (note 17) | | | 1,211,236 | | | 1,240,888 | |
Other creditors | | | 2,080,371 | | | 2,553,626 | |
Accruals and deferred income | | | 72,324 | | | 70,184 | |
| | | | 3,363,931 | | | 3,864,698 | |
Included in Other creditors is £2,072,872 (2006-£2,218,077) due to Rok Entertainment Group Limited. | | | |
Rok Corporation Limited | | | | | |
Notes to the Consolidated Financial Statements | | | | | |
| | | | | | |
| | | | | | |
17 Loans | | | | | |
| | | 2007 | | 2006 | |
| | | £ | | £ | |
Analysis of maturity of debt: | | | | | |
Between one and two years | | | 1,211,236 | | | 1,215,338 | |
Between two and five years | | | - | | | 25,550 | |
| | | | 1,211,236 | | | 1,240,888 | |
| | | | | | | | |
| | | | | | | | |
| | | 2007 | | | 2006 | |
| | | | £ | | | £ | |
| | | | | | | | |
Mr J P DeJoria | | | 543,636 | | | 573,289 | |
Mr J M Kendrick | | | 567,600 | | | 567,600 | |
Mr L Spears | | | 100,000 | | | 100,000 | |
| | | | 1,211,236 | | | 1,240,889 | |
The amount payable to Mr J P DeJoria, co-founder and shareholder of Rok Corporation Limited, is backed by individual Promissory Notes with a fixed term of 5 years from the date of receipt of funds and each accrues interest at 6% per annum.
The amount payable to Mr J M Kendrick, co-founder, shareholder and director of Rok Corporation Limited, accrues interest at 2% above base rate and has no specified contractual terms of repayment but Mr J M Kendrick has agreed that he will not demand any repayment for one year from the date of signing of these accounts.
The amount payable to Mr L Spears has no specified terms of repayment.
18 Obligations under finance leases and hire purchase | | | | | | | | | |
contracts | | | | | | 2007 | | 2006 | |
| | | | | | | £ | | £ | |
Amounts payable within one year | | | | | | | | | 1,873 | | | 13,302 | |
| | | | | | | | | | | | | | |
19 Deferred taxation | | | | | | | | | | | | | |
No provision has been made for deferred taxation. The unprovided deferred tax (liabilites)/assets are as follows: |
| |
| | | | | | | | | | 2007 | | | 2006 | |
| | | | | | | | | | £ | | | £ | |
| | | | | | | | | | | | | | |
Accelerated capital allowances | | | | | | | | | (26,400 | ) | | (51,000 | ) |
Short term timing differences | | | | | | | | | 150,000 | | | 150,000 | |
Share based payments | | | | | | | | | - | | | 18,000 | |
Tax losses carried forward | | | | | | | | | 1,677,700 | | | 1,554,000 | |
Unprovided deferred tax asset | | | | | | | | | 1,801,300 | | | 1,671,000 | |
| | | | | | | | | | | | | | |
20 Share capital | | | | | | | | | | | | | |
| | | | | | | | | | 2007 | | | 2006 | |
| | | | | | | | | | £ | | | £ | |
Authorised: | | | | | | | | | | | | | |
Ordinary shares of £0.01 each | | | | | | | | | 21,801 | | | 21,801 | |
| | | | | | | | | | | | | | |
| | | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| | | | No | | | No | | | £ | | | £ | |
Allotted, called up and fully paid: | | | | | | | | | | | | | |
Ordinary shares of £0.01 each | | | 2,046,911 | | | 2,046,911 | | | 20,469 | | | 20,469 | |
Rok Corporation Limited |
Notes to the Consolidated Financial Statements |
21 Share premium | | | | | |
| | | 2007 | | 2006 | |
| | | £ | | £ | |
| | | | | | |
| At 1 April | | | 5,458,145 | | | 4,373,062 | |
| Shares issued | | | - | | | 1,085,083 | |
| | | | | | | | |
| At 31 March | | | 5,458,145 | | | 5,458,145 | |
Shares were issued during the year ended 31 March 2006 following the receipt of funds to finance the working capital of the group | | | | | | | |
22 Capital reserve | | | | | |
| | | 2007 | | 2006 | |
| | | £ | | £ | |
| | | | | | |
| At 1 April | | | 49,270 | | | 49,270 | |
| | | | | | | | |
| At 31 March | | | 49,270 | | | 49,270 | |
23 Profit and loss account | | | | | |
| | | 2007 | | 2006 | |
| | | £ | | £ | |
| | | | | | |
| As previously reported | | | | | | (7,807,553 | ) |
| Prior year adjustment | | | | | | (83,213 | ) |
| At 1 April - as restated | | | (9,410,661 | ) | | (7,890,766 | ) |
| Loss for the financial year | | | (483,016 | ) | | (1,519,895 | ) |
| Release of Share based payment reserve (note 32) | | | 177,045 | | | - | |
| | | | | | | | |
| At 31 March | | | (9,716,632 | ) | | (9,410,661 | ) |
The group's accounting policy for Share based payments was changed during the year in order to comply with FRS 20. This resulted in an increase in the group's loss for the year ended 31 March 2005 and a recognition of a share option reserve of £83,213.
24 Share based payments reserve | | | | | |
| | | 2007 | | 2006 | |
| | | £ | | £ | |
| | | | | | |
| As previously reported | | | | - | |
| Prior year adjustment | | | | | | 83,213 | |
| At 1 April - as restated | | | 142,475 | | | 83,213 | |
| | | | | | | | |
| Charged in year (note 32 ) | | | 34,570 | | | 59,262 | |
| Released in year | | | (177,045 | ) | | - | |
| | | | | | | | |
| At 31 March | | | - | | | 142,475 | |
Rok Corporation Limited | | | | | |
Notes to the Consolidated Financial Statements | | | | | |
| | | | | | |
| | | | | | |
25 Reconciliation of movement in shareholders' funds | | | | | |
| | | 2007 | | 2006 | |
| | | £ | | £ | |
| | | | | | |
At 1 April | | | (3,740,302 | ) | | (3,450,459 | ) |
Loss for the financial year | | | (483,016 | ) | | (1,519,895 | ) |
Release of Share based payment reserve | | | 177,045 | | | - | |
Shares issued | | | - | | | 1,087,577 | |
Capital reserve | | | - | | | - | |
Share based payments | | | (142,475 | ) | | 142,475 | |
| | | | | | | | |
At 31 March | | | (4,188,748 | ) | | (3,740,302 | ) |
| | | | | | | | |
26 Minority interest | | | | | | | |
| | | | 2007 | | | | |
| | | | £ | | | | |
| | | | | | | | |
At 1 April | | | 368,151 | | | | |
Share of losses in year | | | (61,242 | ) | | | |
Foreign exchange translation | | | (26,132 | ) | | | |
| | | | | | | | |
| | | | 280,777 | | | | |
The minority interest represents the share of net assets in the two Chinese subsidiary undertakings as at 31 March 2007.
Rok Corporation Limited |
Notes to the Consolidated Financial Statements |
27 Gross cash flows | | | | | |
| | | 2007 | | 2006 | |
| | | £ | | £ | |
Returns on investments and servicing of finance | | | | | |
Interest received | | | 83 | | | 39 | |
Interest paid (excluding accrued interest) | | | (2,755 | ) | | (52,307 | ) |
Interest element of finance lease rental payments | | | (2,086 | ) | | (5,886 | ) |
| | | | (4,758 | ) | | (58,154 | ) |
| | | | | | | | |
Capital expenditure | | | | | | | |
Payments to acquire tangible fixed assets | | | (14,554 | ) | | (1,550 | ) |
| | | | | | | | |
Acquisitions and disposals | | | | | | | |
Net overdraft acquired with subsidiary | | | - | | | (47 | ) |
| | | | | | | | |
Financing | | | | | | | |
Issue of share capital | | | - | | | 1,087,577 | |
Capital element of finance lease rental payments | | | (11,429 | ) | | (128,511 | ) |
| | | | (11,429 | ) | | 959,066 | |
| | | | | | | | |
Acquisitions and disposals | | | | | | | |
| | | | | | £ | |
Net assets acquired: | | | | | | | |
Tangible fixed assets | | | | | | 1,844 | |
Investment | | | | | | 1 | |
Debtors | | | | | | 8,927 | |
Overdraft | | | | | | (47 | ) |
Creditors | | | | | | (73,251 | ) |
| | | | | | | | |
| | | | | | | (62,526 | ) |
Goodwill | | | | | | 62,527 | |
| | | | | | | | |
| | | | | | | 1 | |
Satisfied by: | | | | | | | |
Cash (unpaid) | | | | | | 1 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | £ | |
Net assets disposed of: | | | | | | | |
Tangible fixed assets | | | | | | 63,729 | |
Debtors | | | | | | 127 | |
Creditors | | | | | | (125,556 | ) |
| | | | | | | | |
| | | | | | | (61,700 | ) |
Profit on disposal | | | | | | 61,703 | |
| | | | | | | | |
| | | | | | | 3 | |
Satisfied by: | | | | | | | |
Cash (unpaid) | | | | | | 3 | |
Rok Corporation Limited
Notes to the Consolidated Financial Statements
28 Analysis of changes in net debt | | | | | | | | | |
| | | At 1 Apr | | Cash flows | | Non-cash | | At 31 Mar | |
| | | 2006 | | | | changes | | 2007 | |
| | | £ | | £ | | £ | | £ | |
| | | | | | | | | | |
Cash at bank and in hand | | | 117,819 | | | (62,585 | ) | | | | | 55,234 | |
| | | | | | | | | | | | | | |
Debt due after 1 year | | | (1,240,888 | ) | | - | | | 29,652 | | | (1,211,236 | ) |
| | | | | | | | | | | | | | |
Finance leases | | | (13,302 | ) | | 11,429 | | | - | | | (1,873 | ) |
| | | | | | | 11,429 | | | | | | | |
| | | | | | | | | | | | | | |
Total | | | (1,136,371 | ) | | (51,156 | ) | | 29,652 | | | (1,157,875 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
29 Major non-cash transactions | | | | | | | | | 2007 | | | 2006 | |
| | | | | | | | | | £ | | | £ | |
| | | | | | | | | | | | | | |
Foreign exchange translation | | | | | | | | | 58,447 | | | (35,089 | ) |
Accrued interest on borrowings | | | | | | | | | (28,795 | ) | | (28,780 | ) |
| | | | | | | | | | 29,652 | | | (63,869 | ) |
The debt due to Mr J P DeJoria is denominated in US dollars. At the year end an exchange difference arising on translation of £58,447 has been recorded as a non-cash change.
All of the loans of the group accrue interest that will be paid at the date of settlement. Interest accrued, but not paid, during the year amounting to £28,795 has been recorded as a non-cash change.
30 Post balance sheet events
On 17 October 2006, 100% of the called up share capital of Rok Corporation Limited was acquired by Rok Entertainment Group Limited for a cash consideration of £20,469.11 which was financed by the issue of 2,046,911 new Ordinary shares in Rok Entertainment Group Limited. This transaction and all the necessary documentation was completed on 6 November 2007.
31 Other financial commitments
At the year end the group had annual commitments under non-cancellable operating leases as set out below:
| | | Land and | | Land and | | | | | |
| | | buildings | | buildings | | Other | | Other | |
| | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | £ | | £ | | £ | | £ | |
| Operating leases which expire: | | | | | | | | | |
within two to five years | | | 21,650 | | | 22,558 | | | - | | | | |
in over five years | | | 40,000 | | | 40,000 | | | - | | | - | |
| | | | 61,650 | | | 62,558 | | | - | | | | |
Rok Corporation Limited
Notes to the Consolidated Financial Statements
32 Share based payments
The group has adopted FRS 20 Share-based Payments and has accounted for all options as equity-settled share-based payments. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the group's estimate of shares that will eventually vest. It uses the Black-Scholes option pricing model and provides for a grant price equal to the average price paid for shares in the group in the financial year based on the anticipated vesting period of the options.
The vesting period was expected to be 10 years however the share options were modified and have become share options in Rok Entertainment Group Limited.
Expected volatility was determined by calculating the historical volatility of the group's share price over each of the previous two years to 31 March.
The fair value is measured by use of the Black-Scholes option pricing model. The expected life used in the model has been adjusted, based on managements best estimate, for the effect on non transferability, exercise restrictions and behaviourial considerations.
During the year, the movement in options granted over Rok Corporation Limited's shares were as follows:
| | | Company | |
| | | 2007 | | 2006 | |
| | | No. | | No. | |
| | | | | | |
| Outstanding at 1 April | | | 172,000 | | | 92,000 | |
| Granted during the year | | | - | | | 80,000 | |
| Modified during the year | | | (172,000 | ) | | - | |
| | | | | | | | |
| Outstanding at 31 March | | | - | | | 172,000 | |
| | | | | | | | |
| Exercisable at 31 March | | | - | | | - | |
| | | | | | | | |
| | | | | | | | |
| | | | | | Weighted | |
| | | | Options | | | average | |
| | | | number | | | price | |
| Date of grant | | | No. | | | £ | |
| | | | | | | | |
| 3 September 2003 | | | 36,000 | | | 5.79 | |
| 15 September 2003 | | | 20,000 | | | 5.79 | |
| 21 January 2004 | | | 30,000 | | | 5.79 | |
| 2 November 2004 | | | 6,000 | | | 4.53 | |
| 31 August 2005 | | | 30,000 | | | 2.25 | |
| 24 November 2005 | | | 50,000 | | | 0.00 | |
| | | | | | | | |
| As at 31 March 2006 | | | 172,000 | | | | |
| | | | | | | | |
| Modification during the year | | | (172,000 | ) | | | |
| | | | | | | | |
| As at 31 March 2007 | | | - | | | | |
Rok Corporation Limited | | | | | |
Notes to the Consolidated Financial Statements | | | | | |
| | | £ | | £ | |
| | | | | | |
Weighted average price per share | | | 4.86 | | | 4.86 | |
| | | | | | | | |
Charge in year | | | 34,570 | | | 59,262 | |
| | | | | | | | |
Share based payment reserve | | | - | | | 142,475 | |
The above options are generally conditional upon an employee or individual retaining their involvement with the group. The subscription prices per option share are £0.01 each and if options remain unexercised after a period of 10 years from the date of grant, the options expire.
On 17 October 2006 the options granted over Rok Corporation Limited's shares to date were modified following the transaction detailed in note 30. Each option holder was compensated by receiving options in the shares of Rok Entertainment Group Limited. On modification the share based payment reserve was released to the profit and loss reserve.
All the options outstanding at 31 March 2007 and 31 March 2006 have an exercise price of £0.01 and had a weighted average price per share of £4.86 in both years. The options outstanding at 31 March 2007 were all charged in the year of grant whereas the options outstanding at 31 March 2006 and prior were charged over ten years being the expected vesting period.
33 Contingent liabilities
Rok Corporation Limited has provided a guarantee and indemnity on behalf of Rok Productions Limited, a wholly owned subsidiary of Rok Entertainment Group Limited. This arrangement, for the lease of plant and machinery, commenced in May 2006 and lasts for up to three years. The amount repayable by Rok Productions Limited as at 31 March 2007 was £192,326.
Rok Corporation Limited
Notes to the Consolidated Financial Statements
34 Related parties
Under FRS 8 “Related Party Disclosures” the group is exempt from disclosing related party transactions with entities over which it has 90% control or more.
During the period Rok Corporation Limited and it's subsidiary undertakings made funds available to one another to enable the group to meet its day to day working capital requirements. Rok Corporation Limited and the group also made funds available to companies related by virtue of common control through the directors. The amount owed to/(by) each reportable party was as follows:
| | | 2007 | | 2006 | |
| | | £ | | £ | |
| Beijing New Net Science & Technology Development Limited | | | 321,406 | | | 321,406 | |
| Rok Entertainment Group Limited | | | 2,072,872 | | | 2,218,077 | |
| Rok Media Limited | | | 1,020 | | | - | |
| Just Drunk Limited | | | (1,091 | ) | | - | |
| | | | | | | | |
| Included within creditors/(debtors) are the following amounts payable to/(repayable by) related parties: | | | | | | | |
| | | | | | | | |
| | | | 2007 | | | 2006 | |
| | | | £ | | | £ | |
| Mr J P DeJoria | | | 87,075 | | | 573,288 | |
| Mr J M Kendrick | | | 567,600 | | | 567,600 | |
| Mr M M Kendrick | | | (5,677 | ) | | 49,997 | |
| Mr J L Kendrick | | | 7,500 | | | 7,500 | |
The amount payable to Mr J P DeJoria, co-founder and beneficial shareholder of Rok Corporation Limited, is backed by individual Promissory Notes with a fixed term of 5 years from the date of receipt of funds and each accrues interest at 6% per annum.
The amount payable to Mr J M Kendrick, co-founder, shareholder and director of Rok Corporation Limited, accrues interest at 2% above base rate and has no specified contractual terms of repayment but Mr J M Kendrick has agreed that he will not demand any repayment for one year from the date of signing of these accounts.
The amount payable to Mr M M Kendrick, brother of Mr J M Kendrick, accrues interest at 2% above base rate and has no specified terms of repayment.
The amount payable to Mr J L Kendrick, shareholder and director of the company, does not accrue interest and has no specified terms of repayment.
35 Controlling party
The directors consider that there is no individual party exercising overall control.
Rok Corporation Limited
Notes to the Consolidated Financial Statements
36 Reconciliation to United States Generally Accepted Accounting Principals |
| |
| The consolidated financial statements have been prepared in accordance with UK GAAP which differs in certain material respects from accounting policies generally accepted in the United States ("US GAAP"). |
| |
| | | Profit and Loss Account | | Shareholders' Funds | |
| | | Year ended March 31 | | March 31 | |
| | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | £ | | £ | | £ | | £ | |
Under UK GAAP: | | | | | | | | | |
Loss for the year | | | (543,258 | ) | | (1,662,802 | ) | | | | | | |
Shareholders' funds | | | | | | | | | (4,188,748 | ) | | (3,740,302 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Reconciling items: | | | | | | | | | | | | | |
(a) Amortisation | | | 10,058 | | | 68,449 | | | 78,507 | | | 68,449 | |
(b) Employee vacation accrual | | | (5,385 | ) | | (7,305 | ) | | (5,385 | ) | | (7,305 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Under US GAAP: | | | | | | | | | | | | | |
Loss for the year | | | (538,585 | ) | | (1,601,658 | ) | | | | | | |
Shareholders' funds | | | | | | | | | (4,115,626 | ) | | (3,679,158 | ) |
| (a) | | Under UK GAAP goodwill arising on acquisition may be capitalised and amortised over its economic life. Under US GAAP it is a requirement that goodwill arising on acquisition is not amortised but an annual impairment review should be performed. The group does not consider that any impairment be provided and accordingly the amortisation charged in the respective periods has been added-back as shown in the above table. |
| (b) | | Under UK GAAP there is no requirement to make financial provision for employees' accrued vacation entitlement at the balance sheet dates. Under US GAAP it is a requirement that this entitlement is monetised and the above table reflects the restatement of the UK GAAP results in this respect. |
The group accounts for taxes in accordance with SFAS 109, “Accounting for Income Taxes” (“SFAS 109”) under US GAAP and in accordance with FRS 19, “Deferred Tax” (“FRS 19”) for UK GAAP. The impact of the differences between SFAS 109 and FRS 19 are described below.
Deferred tax assets and liabilities
SFAS 109 requires the recognition in full of deferred tax assets or liabilities for temporary differences between the reported carrying amount of an asset or liability and its corresponding tax basis. Deferred taxes are measured at the enacted tax rates. To the extent that it is more likely than not that all or a portion of the group’s deferred tax assets will not be realised, a valuation allowance is recorded. Such assessment is based on the availability of both positive and negative evidence about future taxable profits. Under UK GAAP, deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallize based on enacted or substantially enacted tax rates. Net deferred tax assets are recognized to the extent that it is regarded as more likely than not that they will be recovered. The group provides for deferred taxation in respect of timing differences, subject to certain exceptions, between the recognition of gains and losses in the financial statements and for tax purposes. Under US GAAP, deferred taxation is computed on all temporary differences between the tax bases and book values of assets and liabilities which will result in taxable or tax deductible amounts arising in future years. Temporary differences recognized mostly relate to differences between the carrying values of assets under US GAAP following the implementation of fresh start accounting and the carrying value for tax purposes of assets in respect of which tax relief is available. Deferred taxation assets under UK GAAP and US GAAP are recognized only to the extent that it is more likely than not that they will be realized. At March 31, 2006 and 2007, the group has approximately £5.6 million and £2.1 million, respectively, of net deferred tax assets and liabilities under US GAAP prior to valuation allowance. Included in these amounts are deferred tax assets on gross tax losses of £3.4 million and £1.8 million, respectively, which have an indefinite carry forward life. Due to the group’s history of losses, no asset was recognized on the consolidated balance sheet at March 31, 2006 or 2007 due to the uncertainty of future taxable profits.
