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Interim Results

Home > News > Interim Results

(RNS) 31 December 2007

Interim Results for the six months ended 30 September 2007

Clarity Commerce Solutions plc ("Clarity", the "Company" or the "Group")

Clarity Commerce Solutions plc, a leading provider of management software and services to the leisure, hospitality, retail and ticketing sectors, announces it's Interim Results for the six months ended 30 September 2007.

Basis of Reporting

Results have been reported under International Financial Reporting Standards ("IFRS") for the first time, including comparatives where appropriate.

Contact:

Clarity:
Ken Smith, Group Managing Director
(contact Jacquie Mitchell Tel: 01932 778001)

SVS Securities plc (Broker):
Jon Cable, Director
Tel: 020 7638 5600

Grant Thornton (Nominated Adviser):
Fiona Kindness, Director
Tel: 020 7728 3414

Chairman's statement

I am delighted to announce that, following severe difficulties in the earlier months of 2007/8, resulting in a first half loss before tax of £(1,355,000), under IFRS reporting, Clarity has made excellent progress in its planned recovery. The Group has achieved a return to healthy profitable trading across recent months (Sept to Nov inclusive). This has reduced the losses sustained across the first half of the year and will be reflected in the full year results.

The reported losses in the first half were in line with recent published research. The Company currently believes its performance for the second half of the year and the year as a whole remains in line with market expectations.

The first half loss may be summarised as follows:

• UK GAAP loss before tax of £(1,076,000)
• IFRS adjustments of £(279,000)
• Revised IFRS loss before tax of £(1,355,000)

The IFRS adjustments of £279,000 represent a change of policy in respect of software rights attributed to recent acquisitions, resulting in an amortisation charge. This policy of amortisation will continue with subsequent charges being applied to the income statement in future periods.

The loss resulted from a combination of factors. The events surrounding the Extraordinary General Meeting held on 31 May 2007 undoubtedly caused management distraction and low staff morale, as well as material additional costs. Furthermore it raised concerns across the client base, resulting in order delays and, in some instances, cancellations. All of this resulted in a period of uncertainty affecting the Company's trading performance, and it is only now that restored confidence is being evidenced.

The Group had entered into an over-ambitious programme of software development projects which resulted in additional cost and inefficiency. The development of new products had become unfocused, poorly-resourced and unstructured, resulting in a number of projects running well behind plan, and the associated effects of low-quality deliveries.

As a result performance in the first half suffered. I am pleased to be able to report that, with the establishment of our divisional structure, software development is now under strong direction and control with associated expenditure determined by clear customer requirements.

The restructuring of the core business into four software divisions each with its own divisional head, reporting to Ken Smith, Group Managing Director, has achieved a return to profitable trading over recent months and improved the outlook for the future. Staff motivation has recovered, and excess costs have been substantially reduced. Furthermore, we are experiencing a good rate of conversion from prospects to orders, and the Board is confident that this trend will continue. The Board expects to deliver a strong performance across the second half of the year.

Board changes

Across the first half of the year, various Board changes were reported.

Tim Bittleston and Peter Walker retired as Chairman and Executive Director respectively.

Sir Colin Chandler was appointed a non-executive director on 26 April 2007. Sir Colin's role was changed to non-executive Deputy Chairman on 26 June 2007.

John O'Hara and Ken Smith were appointed to the Board on 26 June 2007 as non-executive Chairman and part-time CFO respectively. Ken Smith subsequently became full-time Group Managing Director on 27 September 2007.

At the same time, Graham York, who had been Chief Executive Officer, changed his role to concentrate on strategic and M&A activities. More recently, in November 2007, Graham stepped down from his Executive duties, and on 23 December 2007, was removed as a Director by the remaining members of the Board.

Operating review

Structural changes

During the first half of the year, certain key changes to the structure of the business were implemented. Costs have been reduced and a divisional structure introduced to manage the Group's software products and solutions. Each of the four resulting divisions; Hospitality, Ticketing, Leisure and Retail, are now led by accountable business unit managers, who are motivated and given incentives to maximise turnover, drive down costs and deliver profits resulting in cash generation.

Along with the divisional structure the software development and quality assurance departments were restructured to ensure that projects were focused in the future, only undertaken to deliver profit and generate cash and with product direction determined by divisional management in accordance with customer requirements.

Cost reductions

Prior to the reorganisation software development had become fragmented, with too many expensive projects being run concurrently. In order to attempt to complete these projects, expensive sub-contract labour had been employed, which had a significant adverse impact on the first half of the year. The restructure and refocus of software development has seen the removal of this costly sub-contract development.

Cost control and reduction will remain a key focus for divisional heads who are accountable for their division's profitability.

First half costs are inclusive of exceptional items all relating to the EGM held on 31 May 2007.

Research and development

As explained above, the structure of the Group's development function has been considerably changed. Costs were running at excessive levels, particularly with regard to the use of expensive sub-contractors.A fundamental review was carried out and strong management and procedural controls initiated, with development projects being a function of divisional management who, in turn, have the direct feedback of their customers and prospects.

Many problems and projects needed close attention and, although a great deal has been achieved over recent months, further work remains to be completed over the coming months. Key to the process, however, has been the acceptance that projects be addressed realistically in terms of timescale and cost, with interim releases of key product elements and a clearly-defined programme to address customer requirements.

This new realism and professionalism has already borne fruit, and previously dissatisfied customers are again turning to Clarity for business solutions.

Contract wins

Whilst the Board acknowledges that the business has had a difficult first half, we have nevertheless secured some valuable orders across the period.

The Company has issued a series of announcements, inclusive of:

• Schuitema
  Point of Sale ("POS") systems for Dutch grocer across their estate of approximately 450 supermarkets.
• Co-op Denmark
  Successful completion of deployment of POS solution.
• Flytoget
  Refresh of entire ticketing infrastructure.
• Movie Park, Germany
  Installation of ticketing and POS solution for 1.2m per annum visitor theme park.

Furthermore, I am pleased to bring to your attention the following positive news:

• Europalaces
  Signing of $1m contract to supply ATMs across the estate.
• Parisienne MK2 cinema chain
  $600k maintenance contract commenced in October 2007.
• CineAlpes Group
  Initial implementation of ticketing software in four multiplex cinemas.
• Warren Theatres
  Contract win for Clarity's ticketing and reservations software suites in a 20 screen cinema complex.
• Broxtowe Borough Council
  First delivery of the recently developed .NET Clarity Flex Leisure Software across four sites.
• Forest of Dean District Council
  Second Clarity Flex Leisure Software contract signed for five sites.
• FitSpace
  Order received and delivered for online membership and customer records solution.

Total Hospitality Solutions ("THS") acquisition

THS was acquired in May 2007 for an initial consideration of £2.2m, satisfied by the issue of Clarity shares. There is a two year earn out and the total consideration will not exceed £4m.

Since acquisition, this unit has yet to perform in line with expectations and has had a relatively difficult period of trading. The distractions of the acquisition process itself and the wider Group issues resulted in a climate of uncertainty which served to slow the signing of new orders. These problems were further compounded by the requirement to integrate the company's products and services with those already existing in Clarity. I am pleased, however, to confirm that these issues have now been addressed, and THS is now displaying positive signs of securing new business, and is in discussions with a number of interesting prospects. The THS management is working hard to get benefit from the obvious synergies between itself and other product offerings throughout the Group. A number of key orders have been secured over recent weeks and prospects of further orders are promising.

Although the post-acquisition period has seen a slow start, the Board acknowledges that THS needs to establish itself in its UK marketplace. The THS product is, however, widely regarded and the Board is therefore confident that THS will have a positive contribution to make to the Group.

Financial Review

The first half of the current financial year produced the following summary results.

• Turnover for the period increased by £145,000 to £9,725,000 (2006: £9,580.000)
• Gross profits generated of £6,394,000, with operating costs of £7,570,000 (inclusive of IFRS amortisation of software rights of £279,000)
• This resulted in a first half loss before amortisation and taxation of £1,076,000
• At the half year close the Group reported net assets of £13,014,000 (2006: £12,652,000)
• Trade receivables closed at £4,309,000 (2006: £4,143,000), trade payables closed at £1,978,000 (2006: £1,452,000)
• The Group's closing net overdrawn cash position was £1,033,000, (2006: £635,000)

In order to address the Company's cash constraints, the Company has considered a number of initiatives, with one being the disposal of its freehold property in Gravesend. The Company entered into a Deed of Sale with a purchaser for the property during September 2007. The sale proceeds amounted to £340,000, contributing to the Group's working capital facilities.

Other fundraising initiatives are also being considered.

IFRS conversion

The Group has adopted International Financial Reporting Standards (IFRS) for the first time in 2007. The condensed consolidated interim financial statements have been prepared on the basis of the accounting policies that will be adopted in the year end 31 March 2008 Annual Report.

Comparative results for the six months ended 30 September 2006 and the year ended 31 March 2007 are reported in accordance with IFRS.

The policies have changed from the previous year when the financial statements were prepared under applicable United Kingdom Generally Accepted Accounting Principles (UK GAAP). The date of transition to IFRS was 1st April 2006.

The Group has taken advantage of an exemption available under IFRS 1 First-time Adoption of International Financial Reporting Standards, and has elected not to apply IFRS 3 to the business combinations that took place before the date of transition. As a result, the carrying value of goodwill at 31 March 2006 is frozen, subject to impairment reviews after then in accordance with IFRS 3.

An explanation of the basis of preparation and the accounting policies that will be adopted are included in the notes to the accounts together with reconciliations explaining the impact of the transition.

Overall, the profit before tax has decreased by £279,000 in the first half year under IFRS with the main impact arising from the amortisation of software rights attributed to the acquisitions of MATRA Systems (Holdings) Limited and both Total Hospitality Solutions Limited and Total Hospitality Solutions (NZ) Limited, which both fall within the relevant transition period. The increased amortisation charge for the first half year amounts to £279,000.

The Board have considered the issue of capitalisation of development costs, and are of the opinion that the Group largely satisfy the conditions, however, the Group's internal systems need to evolve further in order that the expenditure attributable to the intangible asset during its development can be measured reliably. All development costs incurred across the first half year have been charged to the income statement as they have been incurred. The Board will keep this area of policy, along with its internal control and monitoring systems under regular review.

Outlook

Although the Group reported losses for the full year to 31 March 2007 as well as for the first half of the 2008 financial year, the Board is encouraged by the Group's return to profitable trading over the past three months and plans to build on this performance across the remainder of the second half of the year, and beyond.

Revenues have shown a strong improvement in recent months and the Board is confident of continued progress which will continue to reduce cumulative current year losses.

The Board is mindful that recent losses have put pressure on the Group's working capital. Whilst the sale of the Gravesend freehold property was helpful, further cash-raising initiatives are urgently required. The Board is currently working on a proposed fundraising which will enhance the Group's working capital position, and provide a firm foundation for the immediate future. It is expected that the fund-raising will be completed before the Company's year end.

The Board notes that, in the past, communication with investors has been poor and intermittent, and intends to maintain regular, closer contact in the future via a structured investor relations programme. We are planning to meet with a number of the Company's investors during January. We also plan to further strengthen the Board with the appointment of an additional non-executive Director during January 2008.

The Board is very grateful to SVS Securities plc (as the Company's Broker) and Grant Thornton UK LLP (as the Company's Nominated Adviser), both of whom were appointed during the first half of the year. Their assistance and support has been invaluable. We have also been the recipients of excellent legal advice in a number of areas, and are grateful to our two advisers in this regard, Faegre & Benson and Hammonds.

Finally, none of the recent progress within the Group would have been possible without the outstanding commitment shown by Clarity personnel across the Company's operating units and the continuing support of our customers and suppliers. The Board would also like to formally acknowledge the outstanding performance and leadership shown by Ken Smith, who has demonstrated consistently sound judgement and leadership in often difficult circumstances and has maintained a clear focus on managing the operations of the business.

We believe we have turned a corner and the Board looks forward to consolidating the Company's position as a successful and profitable high technology company.

John O'Hara
Chairman

Date: 31 December 2007

Officers and advisers

Officers

John O'Hara
Chairman

Sir Colin Chandler
Deputy Chairman

Ken Smith
Group Managing Director

Richard Arnold
Group Financial Controller and Company Secretary

All of registered office:

Hooper House
Hatch Warren Farm
Hatch Warren Lane
Hatch Warren
Basingstoke
RG22 4RA

Registered number: 3914814

Advisers

Nominated Adviser
Grant Thornton UK LLP
Melton Street
London
NW1 2EP

Stock Brokers
SVS Securities plc
2 London Wall Buildings
London Wall
London
EC2M 5PP

Auditors
Smith & Williamson Solomon Hare Audit LLP
Oakfield House
Oakfield Grove
Clifton, Bristol
BS8 2BN

Registrars
Capita Registrars Limited
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU

Bankers
Bank of Scotland
55 Temple Row
Birmingham
B2 5LS

Consolidated income statement for the six months ended 30 September 2007

	Notes	Unaudited six months ended 30 September 2007 £'000	Unaudited six months ended 30 September 2006 £'000	Unaudited twelve months ended 31 March 2007 £'000
Revenue		9,725	9,580	20,803
Cost of sales		(3,331)	(2,964)	(7,919)
Gross profit		6,394	6,616	12,884
Operating costs
Operating expenses		(7,159)	(6,260)	(13,092)
Exceptional expenses		(132)	-	-
Amortisation of acquired intangible assets		(279)	(163)	(357)
		(7,570)	(6,423)	(13,449)
Operating (loss)/profit		(1,176)	193	(565)
Operating (loss)/profit is analysed between:
Operating (loss)/profit from continuing operations		(765)	356	(208)
Exceptional expenses		(132)	-	-
Amortisation of acquired intangible assets		(279)	(163)	(357)
		(1,176)	193	(565)
Finance income		309	167	560
Finance costs		(488)	(305)	(870)
(Loss)/profit before taxation		(1,355)	55	(875)
Taxation expense		(120)	(41)	(332)
(Loss)/profit for the period		(1,475)	14	(1,207)
(Loss)/earnings per share
Basic		(6.20)p	0.07p	(6.05)p
Diluted		(6.20)p	0.07p	(6.05)p
Dividends per share		-	-	-

Consolidated statement of recognised income and expense for the six months ended 30 September 2007

	Notes	Unaudited six months ended 30 September 2007 £'000	Unaudited six months ended 30 September 2006 £'000	Unaudited twelve months ended 31 March 2007 £'000
Profit/(loss) for the period		(1,475)	14	(1,207)
Exchange differences on translation of foreign operations		(3)	1	(230)
Total recognised income and expense for the period		(1,478)	15	(1,437)

Consolidated balance sheet as at 30 September 2007

	Notes	Unaudited six months ended 30 September 2007 £'000	Unaudited six months ended 30 September 2006 £'000	Unaudited twelve months ended 31 March 2007 £'000
ASSETS
Non current assets
Property, plant and equipment		389	579	556
Goodwill		15,620	15,449	14,506
Intellectual property rights		2,595	1,848	1,633
Software intangibles		24	-	27
Trade and other receivables		-	-	24
Total non current assets		18,628	17,876	16,746
Current assets
Inventories		865	598	711
Trade receivables		4,309	4,143	4,449
Other current assets		1,623	1,507	1,258
Cash and cash equivalents		234	273	416
Blocked cash collateral accounts		427	1,034	716
Total current assets		7,458	7,555	7,550
Total assets		26,086	25,431	24,296
LIABILITIES
Non current liabilities
Bank loans		1,526	1,819	1,519
Loan notes		124	671	326
Deferred consideration		1,839	4,213	1,800
Obligations under finance lease and hire purchase contracts		24	19	29
Other provisions		41	34	41
Total non current liabilities		3,554	6,756	3,715
Current liabilities
Trade payables		1,978	1,452	2,238
Other current liabilities		3,124	2,099	2,636
Other taxes and social security		1,772	683	1,302
Corporation tax		578	205	484
Bank loans and overdrafts		1,752	1,393	1,266
Loan notes		300	181	300
Obligations under finance lease and hire purchase contracts		14	10	14
Deferred consideration		-	-	503
Total current liabilities		9,518	6,023	8,743
Total liabilities		13,072	12,779	12,458
Net Assets		13,014	12,652	11,838
EQUITY
Shareholders equity
Share capital		6,228	4,835	5,271
Shares to be issued		-	500	-
Share premium		9,439	7,040	7,742
Profit and loss account
Retained earnings		(2,103)	593	(628)
Translation reserve		(550)	(316)	(547)
Total equity		13,014	12,652	11,838

Consolidated cash flow statement for the six months ended 30 September 2007

	Notes	Unaudited six months ended 30 September 2007 £'000	Unaudited six months ended 30 September 2006 £'000	Unaudited twelve months ended 31 March 2007 £'000
Cash flows from operating activities
Operating (loss)/profit		(1,176)	193	(565)
Depreciation		78	85	194
Amortisation
Intelectual property rights		296	185	400
Software		3	-	-
Taxation		(21)	(95)	(51)
(Increase)/decrease in inventories		(154)	38	(75)
(Increase)/decrease in trade and other receivables		(193)	2,123	1,984
Increase/(decrease) in trade and other payables		653	(3,078)	(1,200)
Share based payments expense
Net cash (outflow)/inflow from operating activities		(514)	(549)	687
Cash flows from investing activities
Proceeds on disposal of property, plant and equipment		125	-	8
Purchase of software		-	-	(27)
Purchase of property, plant and equipment		(36)	(36)	(111)
Interest received		309	167	528
Payment of deferred consideration		(10)	-	-
Purchase of subsidiary undertakings		(172)	(2,875)	(3,151)
Cash at bank acquired with subsidiary		-	370	374
Net cash generated/(absorbed) from investing activities		216	(2,374)	(2,379)
Cash flows from financing activities
Issue of share capital		-	1,817	1,817
Repayment of loan notes		(201)	(473)	(699)
New bank loans		-	2,425	2,425
Repayment of bank loans		-	(1,039)	(1,339)
Capital element of finance leases		(6)	(2)	(7)
Interest element of finance leases		(1)	(2)	(4)
Interest paid		(448)	(257)	(772)
Net cash generated/(absorbed) from financing activities		(656)	2,469	1,421
Net increase/(decrease) in cash and cash equivalents		(954)	(454)	(271)
Cash and cash equivalents at the beginning of the period:
Group cash		(365)	(446)	(446)
Blocked cash collateral account		716	1,298	1,298
Cash and cash equivalents at the beginning of the period		351	852	852
Foreign exchange rate adjustments		(3)	1	(230)
Cash and cash equivalents at the end of the period:
Group cash		(1,033)	(635)	(365)
Blocked cash collateral account		427	1,034	716
Cash and cash equivalents at the end of the period		(606)	399	351

Notes to the condensed consolidated interim financial statements

1. Reporting entity

   Clarity Commerce Solutions plc is a public limited company incorporated and domiciled in England and Wales (registration number 3914814). The Company's registered address is Hooper House, Hatch Warren Farm, Hatch Warren Lane, Hatch Warren, Basingstoke, Hampshire, RG22 4RA.

   The Company's ordinary shares are traded on the AIM market of the London Stock Exchange plc. The condensed consolidated interim financial statements of the Company for the six months ended 30 September 2007 comprise the Company and its subsidiaries. The condensed consolidated interim financial statements were authorised for issue in accordance with a resolution of the Directors on 31 December 2007.

   The Group is primarily involved in the provision of software solutions for ticketing, leisure, hospitality, retail, business intelligence and support services with offices in the United Kingdom, United States, France and New Zealand.

2. Basis of preparation

   The Group's date of transition is 1 April 2006. The accounting policies used for IFRS are set out in note 3 (Accounting Policies).

   The Group has taken advantage of an exemption available under IFRS 1 First-time Adoption of International Financial Reporting Standards, and has elected not to apply IFRS 3 to the business combinations that took place before the date of transition. As a result, the carrying value of goodwill at 31 March 2006 is frozen, subject to impairment reviews after then in accordance with IFRS 3.

   Descriptions of the reconciling items between UK GAAP and IFRS are listed in the attached notes. The amounts of the reconciling items are detailed in the tables set out beneath each of the reconciliations.

   The interim financial statements are un-audited and do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985.

   Intangible assets

   On transition the Group has reclassified separately identifiable computer software assets from tangible to intangible assets following the provisions of IAS38.

   Expenditure on development activities resulting in new or substantially improved products which will generate future economic benefit is now capitalised and amortised over the products useful life. Previously under UK GAAP all such development costs were expensed.

   Holiday pay accruals and provisions

   Under UK GAAP the Group has not recognised any accruals or provisions made for holiday pay owed to its employees in overseas subsidiaries which are required to make such accruals and provisions under local/national GAAP.

   In the transition from UK GAAP to IFRS the Group has recognised these accruals and provisions in the financial statements and the adjustments are set out under the relevant income statement reconciliations.

   The Group has never recognised the need to make provisions for holiday pay owed to its UK employees. From time to time, holiday pay is paid to employees when they leave a subsidiary company. The amounts are small and are not considered materially sufficient to require a provision during or at the end of an accounting period, therefore no provision has been made in the financial statements.

3. Accounting policies

   The following accounting policies have been consistently applied in arriving at the consolidated financial information set out in this report.

   Basis of accounting

   The consolidated financial information has been prepared under the historical cost convention, in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union.

   Basis of consolidation

   The Group financial statements consolidate the unaudited financial statements of the Company and all its subsidiaries made up to 30th September 2007. The acquisition method of accounting is used and the results of subsidiary undertakings are included from the date of acquisition.

   Turnover and revenue recognition

   Turnover, which excludes value added tax and sales between Group companies, represents amounts derived from the provision of goods and services which fall within the Group's ordinary activities.

   The Group derives its income from the following revenue streams; the sale of software licences, bespoke development projects for clients and fees derived from support services, installation and training. Each sales stream is separately identifiable and treated in the following manner:

   Software Licences
   Licence fees are recognised following delivery of software to the client.

   Services
   Revenue streams from installation, consultancy and training are recognised at the point at which the service or product is delivered.

   Software development
   Revenue is recognised upon staged completion of the software project.

   Maintenance income
   Income is recognised evenly across the duration of the contractual period.

   Property, plant and equipment

   The cost of tangible fixed assets less estimated residual value is written off using the reducing balance method at the following annual rates:

   Motor vehicles
   25% on reducing balance

   Office equipment
   20 - 25% on reducing balance

   Leasehold properties
   25% reducing balance

   Freehold property is depreciated on a straight line basis over 50 years.

   Intangible software rights

   In accordance with IFRS 3, value has been attributed to software rights acquired since 1st April 2006, which incorporate the acquisitions of MATRA Systems (Holdings) Limited, and both Total Hospitality Solutions Limited and Total Hospitality Solutions (NZ) Limited.

   A value has been identified and attributed to software rights; no value has been attributed to other intangible assets such as customer lists or contracts.

   The value of the software rights is then amortised over the estimated useful life of the software, which is considered to be five years.

   Business combinations

   Under the acquisition accounting treatment, upon initial recognition the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their fair values, which are also used as the bases for subsequent measurement in accordance with the Group's accounting policies. Goodwill is stated after separating out identifiable intangible assets.

   Goodwill

   Goodwill represents the excess of acquisition cost over the fair value of the Group's share of the identifiable net assets of the acquired subsidiary at the date of acquisition, and is capitalised and reviewed annually for impairment. Goodwill is carried at cost less accumulated impairment losses. Negative goodwill is recognised immediately after acquisition in the income statement.

   Goodwill written off to reserves prior to the date of transition to IFRS remains in reserves. There is no re-instatement of goodwill that was amortised prior to the transition to IFRS. Goodwill previously written off to reserves is not written back to profit or loss on subsequent disposal.

   Impairment of assets

   Goodwill, other intangible assets with an indefinite useful life, and those intangible assets not yet available for use, are tested for impairment at least annually. All other individual assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

   Impairment of goodwill is evaluated by comparing the present value of the expected future cash flows, excluding finance and tax (the "value in use"), to the carrying value of the underlying net assets and goodwill.

   If the net assets and goodwill were to exceed the value in use, an impairment would have deemed to have occurred and the resultant write down in the goodwill would be charged to the income statement immediately.

   Financial instruments

   Investments held as fixed assets are carried at cost less any provision required for impairment.

   Inventory

   Inventory is valued at lower of cost and net realisable value, after due allowances for obsolete and slow moving items.

   Taxation

   Current tax is the tax currently payable based on taxable profit for the year.

   Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit.

   Deferred tax on temporary differences associated with shares in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

   Deferred tax liabilities are provided in full. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.

   Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity, in which case the related deferred tax is also charged or credited directly to equity.

   Leased assets

   Assets held under hire purchase agreements are capitalised and disclosed under tangible fixed assets at their fair value. The capital element of the future payments is treated as a liability and the interest is charged to the profit and loss account in equal proportions over the period of the lease.

   Where the Group enters into a finance lease which entails taking substantially all the risks and rewards of ownership of an asset, the lease is treated as a finance lease. The asset is recorded in the balance sheet as a tangible fixed asset and is depreciated in accordance with the above depreciation policies. Future instalments under such leases, net of finance charges, are included with creditors. Rentals payable are apportioned between the finance element, which is charged to the income statement in equal proportions over the period of the lease, and the capital element which reduces the outstanding obligation for future instalments.

   Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged against the income statement as incurred.

   Capital instruments

   Capital instruments are recorded at the fair value of the consideration received less issue costs in accordance with IAS 39.

   Research and development

   Development costs incurred are capitalised when all the following conditions are satisfied:

   • completion of the intangible asset is technically feasible so that it will be available for use or sale;
   • the Group intends to complete the intangible asset and use or sell it;
   • the Group has the ability to use or sell the intangible asset;
   • the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits;
   • there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
   • the expenditure attributable to the intangible asset during its development can be measured reliably.

   Development costs not meeting the criteria for capitalisation are expensed to the income statement as incurred.

   The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by the Group.

   Directly attributable costs include employee (except Directors) costs incurred on software development, together with associated overheads.

   Amortisation commences in the month that costs are incurred, and the amortisation period is five years (being the estimated useful life of the assets). Amortisation of development costs is included within operating costs in the income statement.

   Blocked cash collateral accounts

   The Group has blocked cash collateral accounts which are sums of money that are specifically set aside to meet known future liabilities in respect of acquisition consideration and earn out arrangements entered into at completion.

   These sums are available to the Company exclusively for this purpose.

   Foreign exchange

   Assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are taken into account in arriving at the operating profit.

   For the purposes of the consolidation, assets and liabilities of overseas subsidiary undertakings are translated at exchange rates ruling at the balance sheet date. Trading results are translated at the rates of exchange ruling at the end of each month. Differences arising on the retranslation of opening assets are dealt with through equity.

4. Earnings/(loss) per share

   The calculations of earnings per share are based on the (loss)/profit after tax for the financial period and the following numbers of shares:

   	Unaudited six months ended 30 September 2007 Number of shares	Unaudited six months ended 30 September 2006 Number of shares	Unaudited twelve months ended 31 March 2007 Number of shares
   Weighted average number of shares:
   For basic earnings/(loss) per per share	23,796,400	18,895,463	19,955,595
   For diluted earnings/(loss) per share	23,796,400	18,872,251	19,955,595
   	Unaudited six months ended 30 September 2007 £'000	Unaudited six months ended 30 September 2006 £'000	Unaudited twelve months ended 31 March 2007 £'000
   (Loss)/earnings for period	(1,475)	14	(1,207)
   (Loss)/earnings per share:
   Basic	(6.20)p	0.07p	(6.05)p
   Diluted	(6.20)p	0.07p	(6.05)p

   As a result of the loss for the period there is no difference between the basic and diluted loss per share, or for the year ended 31 March 2007.

   Earnings per share previously reported under UK GAAP were as follows

   	Unaudited six months ended 30 September 2006 £'000	Unaudited twelve months ended 31 March 2007 £'000
   (Loss)/earnings for period	230,000	(790,000)
   (Loss)/earnings per share:
   Basic	1.22p	(3.96)p
   Diluted	1.12p	(3.96)p

5. Segment Information

   Revenue by geographic region

   	six months ended 30 September 2007 £'000	six months ended 30 September 2006 £'000	twelve months ended 31 March 2007 £'000
   United Kingdom	6,704	6,424	13,947
   Europe excluding United Kingdom	1,205	1,513	3,898
   United States of America	1,461	1,468	2,620
   Rest of World	355	175	338
   	9,725	9,580	20,803

6. Acquisition of subsidiary undertaking (THS)

   On 22 May 2007 the company acquired the entire share capital of Total Hospitality Solutions Limited and Total Hospitality Solutions (NZ) Limited. The consideration payable at completion of £2.2m was entirely satisfied by the issue of ordinary shares in the Company.

   The following table sets out the book values of the identifiable assets and liabilities acquired and their values to the group:

   	Book value £'000	Fair value adjustments £'000	Provisional fair value to the group £'000
   ASSETS
   Property, plant and equipment	14		14
   Other intangible assets		1,258	1,258
   Trade receivables	112		112
   Other current assets	11		11
   	137	1,258	1,395
   LIABILITIES
   Trade and other payables	(178)		(178)
   Bank overdraft	(10)		(10)
   Deferred income	(6)		(6)
   Other taxes	(26)		(26)
   	(220)		(220)
   Net liabilties	(83)	1,258	1,175
   Goodwill			1,197
   Costs of acquisition			(172)
   Consideration			2,200
   Satisfied by shares issued			2.200

   The intangible asset recognised in the fair value adjustments relates to the software rights.

   The goodwill is attributable to the significant synergies which are expected to arise from the integration of the business with the Hospitality and othe divisions of the Group and those intangibles such as the workforce which are not recognised seperately.

7. Exceptional expenses

   Exceptional expenses of £132,000 were incurred during the first half of the year and are recognised in the consolidated income statement. These expenses all relate to the Extraordinary General Meeting held on 31 May 2007.

8. Consolidated interim statement of changes in equity

   	Share capital £'000	Share premium account £'000	Profit and loss account £'000	Translation reserve £'000	Total £'000
   At 31 March 2006 and 1 April 2006	4,084	5,974	579	(317)	10,320
   Issue of shares	751	1,066			1,817
   Shares to be issued	500				500
   Consolidated (loss) for the period			14		14
   Exchange differences on translation of foreign operations				1	1
   At 30 September 2006 and 1 October 2006	5,335	7,040	593	(316)	12,652
   Issue of shares	436	702			1,138
   Shares to be issued	(500)				(500)
   Consolidated (loss) for the period			(1,221)		(1,221)
   Exchange differences on translation of foreign operations				(231)	(231)
   At 31 March 2007 and 1 April 2007	5,271	7,742	(628)	(547)	11,838
   Issue of shares	957	1,697			2,654
   Consolidated (loss) for the period			(1,475)		(1,475)
   Exchange differences on translation of foreign operations				(3)	(3)
   At 30 September 2007	6,228	9,439	(2,103)	(550)	13,014

9. Post balance sheet events

   There have been no events following the balance sheet date of 30th September 2007 that have had any material impact or effect on the reported interim results.

Appendix to the interim report

To explain the impact of the transition, reconcilations have been included that show the changes made to the statements previously reported under UKGAAP. The following unaudited reconcilations are included:

• Reconcilation of Group income statement for the 6 months ended 30 September 2007 from UK GAAP to IFRS
• Reconcilation of Group balance sheet at 30 September 2007 from UK GAAP to IFRS
• Reconcilation of Group income statement for the 6 months ended 30 September 2006 from UK GAAP to IFRS
• Reconcilation of Group balance sheet at 30 September 2006 from UK GAAP to IFRS
• Reconcilation of Group income statement for the 12 months ended 31 March 2007 from UK GAAP to IFRS
• Reconcilation of Group balance sheet at 31 March 2007 from UK GAAP to IFRS
• Reconcilation of Group balance sheet at 31 March 2006 from UK GAAP to IFRS
• The Group's date of transition is 1 April 2006. The accounting policies used for IFRS are set out in note 3.
• Descriptions of the reconciling items between UK GAAP and IFRS are listed.
• The amounts of the reconciling items are detailed in the tables set out beneath each of the reconcilations.

Reconciliation of consolidated income statement for the six months ended 30 September 2007 from UK GAAP to IFRS

	Notes	UK GAAP 30 September 2007 £'000	IFRS adjustments 30 September 2007 £'000	IFRS 30 September 2007 £'000
Revenue
Continuing operations		9,571		9,571
Acquisitions		154		154
		9,725		9,725
Cost of sales		(3,331)		(3,331)
Gross profit		6,394		6,394
Operating costs	1	(7,291)	(279)	(7,570)
Operating profit/(loss)
Continuing operations		(853)	(195)	(1,048)
Acquisitions		(44)	(84)	(128)
		(897)	(279)	(1,176)
Operating loss is analysed between:
Operating loss from continuing operations		(853)	(195)	(1,048)
Operating profit from acquired operations before amortisation of acquired intangibles		(44)		(44)
Amortisation of acquired intangibles			(84)	(84)
		(897)	(279)	(1,176)
Finance income		309		309
Finance costs		(488)		(488)
Loss before taxation		(1,076)	(279)	(1,355)
Taxation expense		(120)		(120)
Loss for the period		(1,196)	(279)	(1,475)
Earnings/(loss) per share
Basic		(5.03)p		(6.03)p
Diluted		(5.03)p		(6.03)p
Dividends per share		-		-

Notes

Note	Conversion effects comprise:	UK GAAP 30 September 2007 £'000	IFRS adjustments 30 September 2007 £'000	IFRS 30 September 2007 £'000
1	IAS 38 - Amortisation of software rights in acquired company reclassified from goodwill		(279)
	Profit/(loss) for the period attributable to equity shareholders		(279)

Reconciliation of group balance sheet as at 30 September 2007 from UK GAAP to IFRS

	Notes	UK GAAP 30 September 2007 £'000	Reclassification 30 September 2007 £'000	IFRS adjustments 30 September 2007 £'000	IFRS 30 September 2007 £'000
ASSETS
Non current assets
Property, plant and equipment	1	413	(24)		389
Goodwill	3	18,827		(3,207)	15,620
Intellectual property rights	4	24		2,571	2,595
Software intangibles	2	-	24		24
Total non current assets		19,264	-	(636)	18,628
Current assets
Inventories		865			865
Trade receivables		4,309			4,309
Other current assets		1,623			1,623
Cash and cash equivalents		234			234
Blocked cash collateral accounts		427			427
Total current assets		7,458			7,458
Total assets		26,722		(636)	26,086
LIABILITIES
Non current liabilities
Bank loans		1,526			1,526
Loan notes		124			124
Deferred consideration		1,839			1,839
Obligations under finance lease and hire purchase contracts		24			24
Other provisions		41			41
Total non current liabilities		3,554			3,554
Current liabilities
Trade payables		1,978			1,978
Other current liabilities	5	3,064		60	3,124
Other taxes and social security		1,772			1,772
Corporation tax		578			578
Bank loans and overdrafts		1,752			1,752
Loan notes		300			300
Obligations under finance lease and hire purchase contracts		14			14
Total current liabilities		9,458		60	9,518
Total liabilities		13,012		60	13,072
Net Assets		13,710		(696)	13,014
EQUITY
Shareholders equity
Share capital		6,228			6,228
Shares to be issued
Share premium		9,439			9,439
Profit and loss account
Retained earnings		(1,407)		(696)	(2,103)
Translation reserve		(550)			(550)
Total equity		13,710		(696)	13,014

Notes

Note	Conversion effects comprise:	£'000	Shareholder's equity £'000
	Non-current assets
1	Reclassification of software from tangible assets to software intangible assets	(24)
2	Reclassification of software from tangible assets to software intangible assets	24
3	Recognition of software rights acquired reclassified from goodwill to intelectual property rights less amortisation	(3,207)
4	Recognition of software rights acquired reclassified from goodwill to intelectual property rights less amortisation	2,571	(636)
	Current liabilities
5	Recognition of non UK employee benefits	(60)	(60)
	Net movement	(696)	(696)

Reconciliation of consolidated income statement for the six months ended 30 September 2006 from UK GAAP to IFRS

	Notes	UK GAAP 30 September 2006 £'000	IFRS adjustments 30 September 2006 £'000	IFRS 30 September 2006 £'000
Revenue
Continuing operations		7,730		7,730
Acquisitions		1,850		1,850
		9,580		9,580
Cost of sales		(2,964)		(2,964)
Gross profit		6,616		6,616
Operating costs	1, 2	(6,207)	(216)	(6,423)
Operating profit/(loss)
Continuing operations		337	(53)	284
Acquisitions		72	(163)	(91)
		409	(216)	193
Operating profit/(loss) is analysed between:
Operating profit/(loss) from continuing operations		337	(53)	284
Operating profit from acquired operations before amortisation of acquired intangibles		72		72
Amortisation of acquired intangible assets			(163)	(163)
		409	(216)	193
Finance income		167		167
Finance costs		(305)		(305)
Profit/(loss) before taxation		271	(216)	55
Taxation expense		(41)		(41)
Profit/(loss) for the period		230	(216)	14
Earnings/(loss) per share
Basic		1.22p		0.07p
Diluted		1.12p		0.07p
Dividends per share		-		-

Notes

Note	Conversion effects comprise:	UK GAAP 30 September 2006 £'000	IFRS adjustments 30 September 2006 £'000	IFRS 30 September 2006 £'000
1	IAS 19 - Employee benefits relating holiday accruals in overseas subsidiaries		(53)
2	IAS 38 - Amortisation of software rights in acquired company reclassified from goodwill		(163)
	Profit/(loss) for the period attributable to equity shareholders		(216)

Reconciliation of group balance sheet as at 30 September 2006 from UK GAAP to IFRS

	Notes	UK GAAP 30 September 2006 £'000	Reclassification 30 September 2006 £'000	IFRS adjustments 30 September 2006 £'000	IFRS 30 September 2006 £'000
ASSETS
Non current assets
Property, plant and equipment		579			579
Goodwill	1	17,398		(1,949)	15,449
Intellectual property rights	2	62		1,786	1,848
Total non current assets		18,039		(163)	17,876
Current assets
Inventories		598			598
Trade receivables		4,143			4,143
Other current assets		1,507			1,507
Cash and cash equivalents		273			273
Blocked cash collateral accounts		1,034			1,034
Total current assets		7,555			7,555
Total assets		25,594		(163)	25,431
LIABILITIES
Non current liabilities
Bank loans		1,819			1,819
Loan notes		671			671
Deferred consideration		4,213			4,213
Obligations under finance lease and hire purchase contracts		19			19
Other provisions		34			34
Total non current liabilities		6,756			6,756
Current liabilities
Trade payables		1,452			1,452
Other current liabilities	3	2,046		53	2,099
Other taxes and social security		683			683
Corporation tax		205			205
Bank loans and overdrafts		1,393			1,393
Loan notes		181			181
Obligations under finance lease and hire purchase contracts		10			10
Total current liabilities		5,970		53	6,023
Total liabilities		12,726		53	12,779
Net Assets		12,868		(216)	12,652
EQUITY
Shareholders equity
Share capital		4,835			4,835
Shares to be issued		500			500
Share premium		7,040			7,040
Profit and loss account
Retained earnings		809		(216)	593
Translation reserve		(316)			(316)
Total equity		12,868		(216)	12,652

Notes

Note	Conversion effects comprise:	£'000	Shareholder's equity £'000
	Non-current assets
1	Recognition of software rights acquired reclassified from goodwill to intelectual property rights less amortisation	(1,949)
2	Recognition of software rights acquired reclassified from goodwill to intelectual property rights less amortisation	1,786	(163)
	Current liabilities
3	Recognition of non UK employee benefits	(53)	(53)
	Net movement	(216)	(216)

Reconciliation of consolidated income statement for the twelve months ended 31 March 2007 from UK GAAP to IFRS

	Notes	UK GAAP 31 March 2007 £'000	IFRS adjustments 31 March 2007 £'000	IFRS 31 March 2007 £'000
Revenue
Continuing operations		16,401		16,401
Acquisitions		4,402		4,402
		20,803		20,803
Cost of sales		(7,919)		(7,919)
Gross profit		12,884		12,884
Operating costs	1, 2	(13,032)	(417)	(13,449)
Operating profit/(loss)
Continuing operations		(581)	(60)	(641)
Acquisitions		433	(357)	76
		(148)	(417)	(565)
Operating (loss)/profit is analysed between:
Operating (loss)/profit from continuing operations		(581)	(60)	(641)
Operating profit from acquired operations before amortisation of acquired intangibles		433		433
Amortisation of acquired intangible assets			(357)	(357)
		(148)	(417)	(565)
Finance income		560		560
Finance costs		(870)		(870)
Loss before taxation		(458)	(417)	(875)
Taxation expense		(332)		(332)
Loss for the period		(790)	(417)	(1,207)
Earnings/(loss) per share
Basic		(3.96)p		(6.05)p
Diluted		(3.96)p		(6.05)p
Dividends per share		-		-

Notes

Note	Conversion effects comprise:	UK GAAP 31 March 2007 £'000	IFRS adjustments 31 March 2007 £'000	IFRS 31 March 2007 £'000
1	IAS 19 - Employee benefits relating holiday accruals in overseas subsidiaries		(60)
2	IAS 38 - Amortisation of software rights in acquired company reclassified from goodwill		(357)
	Profit/(loss) for the period attributable to equity shareholders		(417)

Reconciliation of group balance sheet as at 31 March 2007 from UK GAAP to IFRS

	Notes	UK GAAP 31 March 2007 £'000	Reclassification 31 March 2007 £'000	IFRS adjustments 31 March 2007 £'000	IFRS 31 March 2007 £'000
ASSETS
Non current assets
Property, plant and equipment	1	583	(27)		556
Goodwill	3	16,455		(1,949)	14,506
Intellectual property rights	4	41		1,592	1,633
Software intangibles	2	-	27		27
Trade and other receivables	5	-	24		24
Total non current assets		17,079	24	(357)	16,746
Current assets
Inventories		711			711
Trade receivables	6	4,473	(24)		4,449
Other current assets		1,258			1,258
Cash and cash equivalents		416			416
Blocked cash collateral accounts		716			716
Total current assets		7,574	(24)		7,550
Total assets		24,653	-	(357)	24,296
LIABILITIES
Non current liabilities
Bank loans		1,519			1,519
Loan notes		326			326
Deferred consideration		1,800			1,800
Obligations under finance lease and hire purchase contracts		29			29
Other provisions		41			41
Total non current liabilities		3,715			3,715
Current liabilities
Trade payables		2,238			2,238
Other current liabilities	7	2,576		60	2,636
Other taxes and social security		1,302			1,302
Corporation tax		484			484
Bank loans and overdrafts		1,266			1,266
Loan notes		300			300
Obligations under finance lease and hire purchase contracts		14			14
Deferred consideration		503			503
Total current liabilities		8,683		60	8,743
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