Mercator Gold PLC - Interim Results

RNS Number:0951R
Mercator Gold PLC
31 March 2008

MERCATOR GOLD PLC
("Mercator Gold" or the "Company")

Interim Results (unaudited) for the Six Months to 31 December 2007

Highlights

• Commercial gold production commenced in October 2007;

• Gold sold during period 7,028 ounces, yielding revenue of A$6.4m at an
average price realised per ounce of A$912 (US$806);

• Vigorous exploration programme continues to produce promising results;

• ASX listing expected to take place in next 12 weeks;

• Technical due diligence completed on sale of non-core assets for shares
(approximately 30%) in Silver Swan Group Ltd (ASX: SSW).

"These results cover a landmark period in Mercator's development that has seen
the Company commence commercial gold production and continue to lay the
groundwork for considerable growth in its output over the coming years. The
Company is in excellent shape, focusing on production, growth and exploration in
Meekatharra according to plan.

I look forward to reporting progress on various fronts in the coming months."

Patrick Harford, Managing Director

For further information please contact:

Mercator Gold plc
Terry Strapp, Chairman Tel: +61 (0) 412 228 422
Patrick Harford, Managing Director Tel: +44 (0) 20 7929 1010
Email: info@mercatorgold.com
Website: www.mercatorgold.com

Bankside Consultants Ltd Tel: +44 (0) 20 7367 8888
Simon Rothschild, Keith Irons, Oliver Winters

AIM: MCR

MANAGING DIRECTOR'S REPORT

Mercator Gold plc is pleased to provide interim results for the six month
period to 31 December 2007. These results cover a landmark period in
Mercator's development that has seen the Company commence commercial gold
production and continue to lay the groundwork for considerable growth in
its output over the coming years.

The Company sold a total of 7,028 ounces during the period, generating
total receipts of A$6.4m. The average price realised was A$912 per ounce
(US$806), while the spot gold price ranged between A$858 (US$758) and A$942
(US$ 795) per ounce. Actual gold produced equated to 9,510 ounces taking
account for gold-in-circuit and remaining unsold as of 31 December 2007.

The Company intends to list its shares on the Australian Stock Exchange in
the next 12 weeks.

The loss for the period of £3.5m was in line with expectations and reflects
the cost of establishing commercial gold production at Meekatharra,
encompassing the re-commissioning of the Bluebird mill. The Group is
adopting IFRS for the first time in compliance with best practice and
international regulations. The loss includes the write-off of approximately
£468,000 of goodwill, which has taken place as a result of the adoption of
IFRS accounting rules, and a foreign exchange loss of £1.2 million, both of
which are non-cash items.

Exploration

Throughout the period under review the Company has maintained a vigorous
exploration programme on its tenements. Promising drilling results at the
Euro Project, Fenian West and the Macquarie prospect were announced on 26
February 2008.

Sale of Non-Core Assets to Silver Swan

The Company received notice earlier this month of the successful completion
of technical Due Diligence by Silver Swan Group ('Silver Swan') on the
package of Mercator's non-core exploration tenements that it is proposed
Silver Swan will acquire (see announcement dated 20 February 2008). Silver
Swan shareholders will vote on the transaction on 21 April 2008. On
completion of the transaction, Mercator will hold approximately 30% of
Silver Swan.

Prospects

Mine planning and costing is underway for our underground operation at
Paddy's Flat. The Company is in excellent shape, notwithstanding increasing
cost pressures within the sector, with production in place and growing
according to plan.

Information Flow

Mercator plans to release a quarterly report covering the period 1
January-31 March 2008 by the end of April 2008.

Patrick Harford
Managing Director
31 March 2008

Consolidated Profit and Loss Account
For the six months ended 31 December 2007
6 months to 6 months to 12 months
to
31 December 31 December 30 June
2007 2006 2007
(unaudited) (unaudited) (audited)
£ £ £

Revenue from continuing operations 3,378,469 - -
Other income 143,590 417,963 728,642

Total revenue 3,522,059 417,963 728,642
Finance costs (45,503) (92,022) (199,747)
Administration and other expenses (7,040,427) (1,341,210) (3,344,664)

(Loss) before income tax expense (3,563,871) (1,015,269) (2,815,769)
Tax Expense - - (60,116)

(Loss) after income tax expense (3,563,871) (1,015,269) (2,875,885)
Loss attributable to equity holders of (3,563,871) (1,015,269) (2,875,885)
the legal parent

Loss per share (6)p (1.9)p (5.18)p

Unaudited Consolidated Balance Sheet
For the six months ended 31 December 2007
6 months to 6 months 12 months
to to
31 December 31 December 30 June
2007 2006 2007
(unaudited) (restated) (restated)
Note £ £ £

Fixed assets
Intangible 22,664,039 14,168,042 16,016,099
Property, plant and equipment 6,767,288 3,738,268 6,798,177

Total fixed assets 29,431,327 17,906,310 22,814,276

Current assets
Derivative financial instruments 917,173 - -
Inventories 1,319,425 91,810 163,766
Trade and other receivables 3,663,594 390,017 437,237
Cash and cash equivalents 808,788 7,406,500 6,647,665

Total current assets 6,708,980 7,888,327 7,248,668

Current Liabilities
Trade and other payables (6,064,420)
Derivative financial instruments (1,888,047) (672,155) (1,242,737)

Net current assets (1,243,487) 7,216,172 6,005,931

Total assets less current 28,187,840 25,122,482 28,820,207
liabilities
Non-Current Liabilities
Financial liabilities (2,528,501) (900,681) -
Provisions (1,323,208) (1,207,200) (1,270,380)

Net assets 24,336,131 23,014,601 27,549,827

Capital and reserves
Issued capital 6,050,158 5,158,765 6,024,658
Share premium account 26,782,056 22,232,895 26,650,806
Reserves 1,775,811 470,348 1,622,600
Retained losses (10,271,894) (4,847,407) (6,748,237)

Total equity 24,336,131 23,014,601 27,549,827

Unaudited Consolidated Statement of Changes in Equity

Issued Share Accumulated Share Foreign Options Other Cash Flow Total
capital Premium losses based exchange reserve reserves Hedge
Account payments reserve reserve
reserve
£ £ £ £ £ £ £ £ £

At 1 July 2006 5,155,382 22,215,983 (3,832,138) 1,239,720 (929,394) 1,153 128,773 - 23,979,479
Exchange Differences on - - - - 30,094 - - - 30,095
translation of foreign
operations
Total income and expense - - - - 30,094 - - - 30,095
for the period recognised
directly in equity
Profit for the period - - (1,015,269) - - - - - (1,015,269)
Total recognised income/ - - (1,015,269) - - - - - (1,015,269)
expense for the period
Cost of share-based payment - - - - - - - - -
Share Issuances 3,383 16,912 - - - - - - -
Equity dividends - - - - - - - - -
At 31 December 2006 5,158,765 22,232,895 (4,847,407) 1,239,720 (899,300) 1,153 128,773 - 23,014,600

At 1 July 2006 5,155,382 22,215,983 (3,832,138) 1,239,720 (929,394) 1,153 128,773 - 23,979,479
Exchange Differences on - - - - 1,311,121 - - - 1,311,121
translation of foreign
operations
Total income and expense - - - - 1,311,121 - - - 1,311,121
for the period recognised
directly in equity
Profit for the period - - (2,875,885) - - - - - (2,875,885)
Total recognised income/ - - (2,875,885) - - - - - (2,875,885)
expense for the period
Cost of share-based payment - - - - - - - - -
Share Issuances 869,276 4,434,823 - - - - (128,773) - 5,175,326
Equity dividends - - - - - - - - -
At 30 June 2007 6,024,658 26,650,806 (6,708,023) 1,239,720 381,727 1,153 - - 27,590,041

At 1 July 2007 6,024,658 26,650,806 (6,708,023) 1,239,720 381,727 1,153 - - 27,590,041
Exchange Differences on - - - - 945,820 - - - -
translation of foreign
operations
Loss on cash flow hedges, - - - - - - - - -
net of tax
Total income and expense - - - - 945,820 - - (970,874) (25,053)
for the period recognised
directly in equity
Profit for the period - - - - - - - - -
Total recognised income/ - - - - - - - - -
expense for the period
Cost of share-based payment - - - 178,265 - - - - 178,265
Share Issuances 25,500 131,250 (3,563,871) - - - - - 3,407,121
Equity dividends - - - - - - - - -
At 31 December 2007 6,050,158 26,782,056 (10,271,894) 1,417,985 1,327,547 1,153 - (970,874) 24,336,132

Unaudited Consolidated cash flow statement
For the six months ended 31 December 2007

6 months to 6 months to 12 months
31 December 31 December to 30 June
2007 2006 2007
(restated) (restated)
£ £ £
Revenue from sale of goods and
services 3,739,554 - 179,530
Payments to suppliers (6,659,188) (1,605,35) (3,204,439)
Other income 143,590 289,269 549,112
Interest paid (45,508) - (41,422)

Net cash (outflow) from operating
activities (2,821,552) (1,316,086) (2,517,219)

Cash flow from investing activities
Payments for property, plant and
equipment (737,126) (947,930) (2,959,430)
Payments for exploration and
development (6,438,452) (3,639,028) (5,956,926)

Net cash (outflow) from investing
activities (7,175,578) (4,586,958) (8,916,356)

Financing
Proceeds from borrowings 2,481,280 - -
Proceeds from issue of ordinary
share capital 156,750 - 4,162,217

Net cash inflow from financing 2,638,030 - 4,163,217

Net increase/(decrease) in cash
and cash equivalents (7,359,100) (5,903,044) (7,271,358)
Cash and cash equivalents at
beginning 6,647,665 13,297,216 13,297,216
Effects of exchange rates on cash
and cash equivalents 200,194 12,328 621,807

Cash and cash equivalents at end
of year (511,241) 7,406,500 6,647,665

Note:
Cash and cash equivalents consists
of the following:
Cash and Cash Equivalents 808,788 7,406,500 6,647,665
Bank Overdraft (included within
trade and other payables) (1,320,029) - -
Cash and cash equivalents (511,241) 7,406,500 6,647,665

The consolidated cash flow has been presented in the presentation format as
required by IAS 7

1 BASIS OF PREPARATION OF INTERIM REPORT

Reverse acquisition accounting and IFRS

The Interim financial report has been prepared using accounting policies
consistent with International Financial Reporting Standards (IFRS) for the first
time. For all affected years, the trading results, assets and liabilities have
been re-presented under the reverse acquisition rules as required by IFRS 3,
this is explained more fully in note 2 below.

The information for the period ended 31 December 2007 is not audited and does
not constitute statutory accounts as defined in section 240 of the Companies Act
1985. The interim accounts for the six month period to 31 December 2006 were
also unaudited.

The information for the year ended 30 June 2007, even though unaudited, is taken
from the unqualified statutory accounts for the year then ended, modified for
the transition to IFRS, in particular the application of reverse acquisition
accounting, as explained in note 2 and the reconciliation table in note 4.

2 ACCOUNTING POLICIES

Basis of Accounting

The interim financial report has been prepared using accounting policies
consistent with International Financial Reporting Standards (IFRS) for the first
time. The consolidated Group has chosen not to apply any transition exemptions
under IFRS 1 therefore has applied full IFRS retrospectively. The financial
statements have been prepared under the historical cost basis, as modified by
the fair value through profit and loss or equity in relation to derivative
instruments. The Group has not decided to adopt any other IFRS accounting
standards. The principal accounting policies adopted are set out below.

Basis of Consolidation

The acquisition of Mercator Gold Australia Pty Ltd by Mercator Gold PLC meets
the definition of a reverse acquisition as defined by IFRS 3. As a result,
although the accounts are issued under the name of the legal parent (Mercator
Gold PLC), the accounts presented are a continuation of the accounts of Mercator
Gold Australia Pty Ltd.

Fair Value Consideration

The fair value of the Mercator Gold Australia Pty Ltd shares at the date of the
business combination was not clearly evident. As a consequence the fair value of
the legal parent's share was used prior to the business combination to calculate
the initial share for share exchange on 8 August 2004. Included within the Heads
of Agreement was deferred consideration payable to the vendors upon the Group
making the election to earn a 45% equity interest in the Annean Joint Venture.

The consideration for the Acquisition was satisfied by the issue of 2,000,000
shares on 8 August 2004, 2,000,000 options on 29 September 2004 and issue of
2,000,000 deferred share considerations on 26 January 2005.

Fair Value Attribution of Net Assets

There were no fair value attributions to the legal parent's net assets as it has
been presumed by management that the book value of assets equated to its fair
values.

At the date of business combination, there was goodwill of £467,694 which was
written off against opening accumulated loss reserves.

As a result of applying reverse acquisition accounting, the consolidated IFRS
financial information of Mercator Gold PLC is a continuation of the financial
information of Mercator Gold Australia Pty Ltd and its subsidiaries. The
retained earnings shown for all affected periods are those for Mercator Gold
Australia Pty Ltd and its subsidiaries.

Translation of financial statements of foreign entities

Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ('the functional currency'). The consolidated financial
statements are presented in Pounds Sterling, which is the legal parent's
functional and presentational currency.

Transactions and Balances

Foreign currency transactions are translated into the functional currency using
the exchange rates ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are retranslated at the rate of
exchange ruling at the balance sheet date. Foreign exchange gains and losses
resulting from settling foreign currency transactions, as well as from restating
foreign currency denominated monetary assets and liabilities, are recognised in
the income statement, except for differences on foreign currency borrowings that
provide a hedge against a net investment in a foreign entity. These are
recognised directly in equity.

Non-monetary items measured at fair value in a foreign currency are translated
using the exchange rates at the date when fair value was determined.

Group Companies

The results and financial position of all group companies that have a functional
currency different from the presentation currency are translated into the
presentational currency as follows:

a) Assets and liabilities for each balance sheet are translated at the
closing rate of exchange at the date of each balance sheet

b) Income and expenses for each income statement are translated at average
rate of exchange (unless the average rate is not a reasonable approximation
of the cumulative effects of rates prevailing at the dates of the
transactions); and

c) All resulting exchange differences are recognised directly in equity.

On consolidation, exchange differences arising from the translation of a net
investment in foreign operations, are taken to shareholder's equity. When a
foreign operation is disposed of or sold, exchange differences recognised in
equity will be recycled to the income statement to form part of the gain or loss
on sale.

All intra-group transactions, balances, income and expenses are eliminated on
consolidation.

The minority interest in the net assets and net results are shown separately in
the consolidated balance sheet and consolidated income statement.

Revenue recognition

Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods and services provided in
the normal course of business, net of discounts, VAT and other sales-related
taxes.

Impairment of tangible and intangible assets excluding goodwill

At each balance sheet date, the Group reviews the carrying amounts of its
intangible assets to determine whether there is any indication that those assets
have suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent of the
impairment loss (if any). Where the asset does not generate cash flows that are
independent from other assets, the Group estimates that recoverable amount of
the cash-generated unit to which the asset belongs. An intangible asset with
indefinite useful life is tested for impairment annually and whenever there is
an indication that the asset may be impaired.

Recoverable amount is the higher of fair values less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimate of future cash flows have not been adjusted.

In the recoverable amount of an asset (or cash-generated unit) is estimated to
be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately, unless the relevant asset is carried at
a re valued amount, in which case the impairment loss is treated as a
revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset
(cash-generating unit) is increased to the revises estimate of its recoverable
amount, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been recognised by
the asset (cash-generating unit) in prior years. A reversal of an impairment
loss is recognised as income immediately, unless the relevant asset is carried
at a re valued amount, in which case the reversal of the impairment loss is
treated as a revaluation increase.

Trade receivables

Trade receivables do not carry any interest and are stated at their nominal
value as reduced by appropriate allowances for estimated irrecoverable amounts.

Cash and Cash Equivalents

"Cash and cash equivalents" includes cash on hand, deposits held at call with
financial institutions, other short-term highly liquid investments that are
readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are
shown within borrowings in current liabilities on the balance sheet.

Derivatives

Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently re-measured to their fair value at
each reporting date. The accounting for subsequent changes in fair value depends
on whether the derivative is designated as a hedging instrument, and if so, the
nature of the item being hedged. The Group designates certain derivatives as:

Hedges of the cash flows of recognised assets and liabilities and highly
probable forecast transactions (cash flow hedges).

The Group documents at the inception of the hedging transaction the relationship
between hedging instruments and hedged items, as well as its risk management
objective and strategy for undertaking various hedge transactions. The Group
also documents its assessment, both at hedge inception and on an ongoing basis,
of whether the derivatives that are used in hedging transactions have been and
will continue to be highly effective in offsetting changes in fair values or
cash flows of hedged items.

Trading derivatives are classified as current assets. The fair value of
derivatives is determined with reference to publicly disclosed gold curve
information. The value attached to the derivatives coincides with the maturity
dates of the derivatives and this value is then discounted back using the basic
rate of interest as published by the Federal Reserve.

The Group has accounted for the fair values of both the call and put options in
accordance with their legal structure and has not netted these fair values.

Cash flow hedge

The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedged is recognised in equity in the
hedging reserve. The gain or loss relating to the ineffective portion is
recognized immediately in the income statement within other income or other
expenses.

Amounts accumulated in equity are recycled in the income statement in the
periods when the hedged item affects profit or loss (for instance when the
forecast sale that is hedged takes place).

When a hedging instrument expires or is sold or terminated, or when a hedge no
longer meets the criteria for hedge accounting, any cumulative gain or loss
existing in equity at that time remains in equity and is recognized when the
forecast transaction is ultimately recognized in the income statement. When a
forecast transaction is no longer expected to occur, the cumulative gain or loss
that was reported in equity is immediately transferred to the income statement.

The Group has decided not to separate out time and intrinsic value but retain
one single fair value to all option derivatives and measure hedge effectiveness
consistent with this.

The Group has made the assessment that these forecast sales are highly probable
on the basis of the Group having a JORC compliant gold reserve and has predicted
the approximate date of gold delivery with reference to the Gold Life of Mine
plan.

Payables

Trade and other payables represent liabilities for goods and services provided
to the Company prior to the year end and which are unpaid. These amounts are
unsecured and have 30-60 day payment terms.

Employee Benefits

Wages and Salaries, Annual Leave and Sick Leave

Liabilities for wages and salaries, including non-monetary benefits, annual
leave and accumulating sick leave expected to be settled within 12 months of
balance sheet date are recognised in respect of employees' services rendered up
to balance sheet date and measured at amounts expected to be paid when the
liabilities are settled. Liabilities for non-accumulating sick leave are
recognised when leave is taken and measured at the actual rates paid or payable.
Liabilities for wages and salaries are included as part of Other Payables and
liabilities for annual and sick leave are included as part of Employee Benefit
Provisions.

Long Service Leave

Liabilities for long service leave are recognised as part of the provision for
employee benefits and measured as the present value of expected future payments
to be made in respect of services provided by employees to the balance sheet
date using the projected unit credit method. Consideration is given to expected
future salaries and wages levels, experience of employee departures and periods
of service. Expected future payments are discounted using national government
bond rates at balance sheet date with terms to maturity and currency that match,
as closely as possible, the estimated future cash outflows.

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently stated at amortised cost; any difference
between the proceeds (net of transaction costs) and the redemption value is
recognised in the income statement over the period of the borrowings using the
effective interest method.

The fair value of the liability portion of a convertible bond is determined
using a market interest rate for an equivalent non-convertible bond. This amount
is recorded as a liability on an amortised cost basis until extinguished on
conversion or maturity of the bonds. The remainder of the proceeds is allocated
to the conversion option. This is recognised and included in shareholders'
equity, net of income tax effects.

Contributed Equity

Ordinary shares are classified as equity.

Costs directly attributable to the issue of new shares or options are shown as a
deduction from the equity proceeds, net of any income tax benefit. Costs
directly attributable to the issue of new shares or options associated with the
acquisition of a business are included as part of the purchase consideration.

Exploration and evaluation expenditure

Exploration and evaluation expenditure encompasses expenditures incurred by the
Company in connection with the exploration for and evaluation of mineral
resources before the technical feasibility and commercial viability of
extracting a mineral resource are demonstrable.

Exploration and evaluation expenditure incurred by the Company is accumulated
for each area of interest and recorded as an asset if:

(i) the rights to tenure of the area of interest are current; and

(ii) at least one of the following conditions is also met:

(1) the exploration and evaluation expenditures are expected to be
recouped through successful development and exploitation of the area
of interest, or alternatively, by its sale; and

(2) exploration and evaluation activities in the area of interest have not
at the reporting date reached a stage which permits a reasonable
assessment of the existence or otherwise of economically recoverable
reserves, and active and significant operations in, or in relation to,
the area of interest are continuing.

For each area of interest, expenditure incurred in the acquisition of rights to
explore is capitalised, classified as tangible or intangible, and recognised as
an exploration and evaluation asset. Exploration and evaluation assets are
measured at cost at recognition. Exploration and evaluation expenditure incurred
by the Company subsequent to acquisition of the rights to explore is expensed as
incurred.

The recoverable amount of each area of interest is determined on a bi-annual
basis and the provision recorded in respect of that area adjusted so that the
net carrying amount does not exceed the recoverable amount. For areas of
interest that are not considered to have any commercial value, or where
exploration rights are no longer current, the capitalised amounts are written
off against the provision and any remaining amounts are charged against profit.

Recoverability of the carrying amount of the exploration and evaluation assets
is dependent on successful development and commercial exploitation, or
alternatively, sale of the respective areas of interest.

Goods and Services and Value Added Tax

Revenues, expenses and assets are recognised net of GST except where GST
incurred on a purchase of goods and services is not recoverable from the
taxation authority, in which case the GST is recognised as part of the cost of
acquisition of the asset or as part of the expense item.

Receivables and payables are stated with the amount of GST included. The net
amount of GST recoverable from, or payable to, the taxation authority is
included as part of receivables or payables in the balance sheet.

Cash flows are included in the cash flow statement on a gross basis and the GST
component of cash flows arising from investing and financing activities, which
is recoverable from, or payable to, the taxation authority are classified as
operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable
from, or payable to, the taxation authority.

Restoration and Rehabilitation Expenditure

The Company provides for the future cost of rehabilitating and closing its
mining operation, regardless of when that operation is expected to cease. A
provision for restoration is required to be brought to account as soon as there
is a probable outflow of resources that can be measured reliably. The provision
for restoration is based on the discounted cash flow of the expected future
cost.

Share Based Payments

The Company provides benefits to employees (including directors) of the Company
in the form of share-based payment transactions, whereby employees render
services in exchange for shares or options over shares ("equity-settled
transactions").

The fair value of options is recognised as an expense with a corresponding
increase in equity (share option reserve). The fair value is measured at grant
date and recognised over the period during which the holder become
unconditionally entitled to the options. Fair value is determined by an
independent valuer using a Black-Scholes option pricing model. The cumulative
expense recognised between grant date and vesting date is adjusted to reflect
the directors' best estimate of the number of options that will ultimately vest
because of internal conditions of the options, such as the employees having to
remain with the Company until vesting date, or such that employees are required
to meet internal sales targets. No expense is recognised for options that do not
ultimately vest because internal conditions were not met. An expense is still
recognised for options that do not ultimately vest because a market condition
was not met.

Where the terms of options are modified, the expense continues to be recognised
from grant date to vesting date as if the terms had never been changed. In
addition, at the date of the modification, a further expense is recognised for
any increase in fair value of the transaction as a result of the change.

Where options are cancelled, they are treated as if vesting occurred on
cancellation and any unrecognised expenses are taken immediately to the income
statement. However, if new options are substituted for the cancelled options and
designated as a replacement on grant date, the combined impact of the
cancellation and replacement options are treated as if they were a modification.

Consolidation

Subsidiaries are all entities (including special purpose entities) over which
the Group has the power to govern the financial and operating policies generally
accompanying a shareholding of more than one half of the voting rights. The
existence and effect of potential voting rights that are currently exercisable
or convertible are considered when assessing whether the Group controls another
entity. Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are de-consolidated from the date that control
ceases.

The purchase method of accounting is used to account for the acquisition of
subsidiaries by the Group. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date,

irrespective of the extent of any minority interest. The excess of the cost of
acquisition over the fair value of the Group's share of the identifiable net
assets acquired is recorded as goodwill. If the cost of acquisition is less than
the fair value of the net assets of the subsidiary acquired, the difference is
recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions
between group companies are eliminated. Unrealised losses are also eliminated
but considered an impairment indicator of the asset transferred. Accounting
policies of subsidiaries have been changed where necessary to ensure consistency
with the policies adopted by the Group.

3 PROFIT PER SHARE

The calculation is based on the profit attributable to ordinary shareholders
divided by the weighted average number of ordinary shares:

6 Months to 6 Months to 12 Months to
31 December 2007 31 December 2006 30 June 2007

Profit /(Loss) for the period £(3,563,871) £(1,015,269) £(2,875,885)

Weighted average number 62,258,365 53,568,566 55,547,888
of shares undiluted
Weighted average number 62,258,365 53,568,566 55,547,888
of shares diluted

4 EXPLANATION OF TRANSITION TO IFRS

The Group has applied IFRS 1 "First Time Adoption of International Financial
Reporting Standards" as a starting point for reporting under IFRS. The Group's
date of transition is 1 July 2006 and comparative information has been restated
to reflect in the Group's adoption of IFRS except where otherwise required or
permitted by IFRS 1. Note 2 fully explains the impact of IFRS 3.

IFRS 1 required an entity to comply with IRFS and IAS effective at the reporting
date for its first financial statements prepared under IFRS. As a general rule,
IFRS 1 requires such standards to be applied retrospectively. However, the
standard allows several optional exemptions from full retrospective application.

The Group has not elected to take advantage of any of the available exemptions.
As a consequence of this, Business combinations made prior to 1 July 2006 have
been accounted for under IFRS 3 "Business Combinations". Share based payments
transactions have been applied to equity settled share based payment
transactions that was granted and vested post 1/1/05 as required by p.60 of IFRS
2, there were no equity settled share based payment transactions that was
granted prior to 1/1/05 but after 7 November 2002 and vested post 1/1/05.

The reconciliations of equity and losses as required by IFRS 1, are set out
below.

As IFRS requires a different basis of preparation of the accounts as explained
in note 1 and 2, it is not possible to publish full reconciliation tables as
required by IFRS 1. However the tables below show the reconciliation of key
published amounts for the affected periods previously presented under UKGAAP:

RECONCILIATION OF NET ASSETS FROM UK GAAP TO IFRS

12 months 6 months
ended 30 ended 31
June 2007 December
2006
£ £

UK GAAP loss for the financial period as (2,875,885) (1,015,269)
previously reported
(Loss) from continuing operations - IFRS (2,875,885) (1,015,269)

RECONCILATION OF NET ASSETS FROM UK GAAP TO IFRS

30 June 31 December 1 July 2006
2007 2006
£ £ £

Net Assets per UK GAAP 27,549,827 23,014,601 23,979,479
Goodwill Uplift on Reverse Acquisition (i) - - 467,694
Goodwill Written off to opening - - (467,694)
Accumulated Losses (i)
Cost of Share Based Payments - - 927,043
Cost of Issue of Warrants in relation - - 312,677
to equity raising
Allocation to Share Based Payments - - (1,239,720)
Reserve
Net Assets - IFRS 27,549,827 23,014,601 23,979,479

(i) Note the reverse acquisition occurred on 4 August 2004 which represented the
date of share for share exchange.

Company Information
Company Number 05079979

This information is provided by RNS
The company news service from the London Stock Exchange

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