REG-Ingenious Entertainment VCT 2 plc Annual Financial Report

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LONDON--(Business Wire)--

INGENIOUS ENTERTAINMENT VCT 2 plc ("the Company")

STATEMENT OF ANNUAL RESULTS

For the year ended 31 December 2009

CHAIRMAN`S STATEMENT

I am delighted to present the Company`s second annual report covering the year
to 31 December 2009 (the "Reporting Period").

Overview Of Activities

The Company has continued to actively source and review investment opportunities
during the Reporting Period. It has been an extremely challenging year for all
companies in the field of investment and one that we approached with a good deal
of caution, particularly in the early part of the year.

The Company did manage to close three investments in the period; O2 Golf Live, a
three-day golf event at Stoke Park Golf Club in Buckinghamshire, an agreement to
co-market and co-distribute TV programming with the highly experienced Digital
Rights Group and Let`s Dance for Comic Relief which peaked at 8.6 million
viewers for the final on BBC 1 and we are delighted to say that the show was
recommissioned as Let`s Dance for Sports Relief which aired for four weeks from
20 February 2010.

Our one earlier investment, 80`s Rewind Festival, performed well attracting in
excess of 26,000 people and exceptionally made a profit in its first year.

Since the end of the Reporting Period, the Company made one further investment
to back a new bar concept to be based in Shoreditch, London. This was the first
deal entered into through a co-investment of both Ordinary Shareholders and C
Shareholders.

Fund Raising

In November 2009, the Ingenious Entertainment VCTs launched a D Share offer for
subscription. As at 1 April 2010 the Ingenious Entertainment VCTs have raised
over £10 million in respect of the D Share offer. The Ingenious Entertainment
VCTs have now raised in excess of £38 million through their Ordinary, C Share
and D Share classes. The D Share offer will remain open for subscription until
31 July 2010.

Results

The Ordinary Shares and C Shares are accounted for as separate pools of funds
necessitating dual reporting.

The Reporting Period has been dominated by new investments, with £1,775,000
invested and committed to qualifying investments. The Ordinary Shares made a
loss on ordinary activities of £173,000 in the year to 31 December 2009 (2008:
£5,000 loss), the C Shares made a loss on ordinary activities of £83,000 (2008:
Nil). The net asset value of each Ordinary Share is 93.6 pence (2008: 95.3
pence), the net asset value of each C Share is 91.8 pence (2008: Nil). The
Directors do not recommend the payment of a dividend in respect of the Reporting
Period.

Outlook

As mentioned in the overview of activities, it was an extremely difficult year
for those in the investment community. We do, however, feel cautiously
optimistic that there is an increasing level of investment activity and we are
currently engaged in negotiating a number of additional investments for both the
Ordinary and C Shareholders.

Since the end of the financial year the Company has declared an interim dividend
of 5.0 pence per Ordinary Share for the year to 31 December 2010. It has been
proposed that the dividend is paid on 13 April 2010.

We believe that the strategy of the Ingenious Live VCTs, also managed by
Ingenious Ventures, which are showing strong signs of commercial success, is one
that successfully balances equity risk with a strong level of downside
protection through minimum revenue arrangements of at least 75% of each
investment. The Ingenious Entertainment VCTs will very much continue to
replicate this strategy, albeit with the ability to diversify the investment
portfolio.

I would like to take this opportunity to thank all Shareholders for their
support of the Company and I look forward to seeing those of you that are able
to attend the AGM, scheduled for 13 May 2010.

Bob Storer
Chairman
1 April 2010

MANAGER`S REVIEW

Investment Objective

Our objective is to invest in a portfolio of companies engaged in the production
of live events and premium entertainment content which will provide Shareholders
with an attractive return. This will be achieved by maximising the opportunities
for making tax-free dividends to Shareholders from both the income received and
capital profits on the sale of the Investee Companies or their assets.

A further three deals have been made during the Reporting Period and we expect
that a number of investment opportunities already in the pipeline will lead to
new deals being made in the next financial year. We continue to focus our
efforts on identifying projects with the potential to deliver premium returns
for our investors. All investments during the year have been made by the
Ordinary Shareholders.

The Rival Organisation - 80`s Rewind Festival

In December 2008, the Company made an investment of £272,598 (£1,090,390 across
the Ingenious Live VCTs and the Ingenious Entertainment VCTs) to co-promote the
80`s Rewind Festival in conjunction with The Rival Organisation. The 80`s Rewind
Festival is a two-day music festival held in August in Henley-upon-Thames.

The event attracted in excess of 26,000 people across the weekend with a line up
including Kim Wilde; Rick Astley; Bananarama; Billy Ocean; Belinda Carlisle; Kid
Creole and the Coconuts; Heaven 17; Toyah, Gloria Gaynor; Sister Sledge; ABC;
Paul Young; Go West; Midge Ure; Nik Kershaw; T`Pau and Chas `n` Dave. We are
delighted to say that the event made a strong profit in its first year.

Tickets for the 2010 event to be held between 20-22 August are on sale and
selling well already. The 2010 line up includes Boy George; Tony Hadley; Heaven
17; ABC; Level 42; Altered Images; Marc Almond; Odyssey; Jimmy Somerville; The
Weather Girls; Chesney Hawkes; Kajagoogoo; Kid Creoleandthe Coconuts; 10cc and
Rick Astley.

Let`s Dance

The second co-investment between the Ingenious Live VCTs and Ingenious
Entertainment VCTs, saw the Company invest £500,000 (£2,000,000 across the
Ingenious Live VCTs and the Ingenious Entertainment VCTs) in January 2009 to
back an exciting new entertainment format, Let`s Dance, which was commissioned
by the BBC for Comic Relief.

The programme, hosted by Claudia Winkleman and Steve Jones, saw some of the
nation`s favourite celebrities paying homage to iconic dance routines. Over its
four week run on Saturday evenings on BBC One in February and March 2009 the
show`s ratings increased week on week peaking at 8.6 million viewers for the
final. This was a terrific result for a new series and the show has now been
sold and aired in Holland and Germany and has received strong ratings in both
territories.

We are pleased to report the show was recommissioned in the UK by the BBC in
2010 as Let`s Dance for Sports Relief. A host of sport celebrities and comedians
including the winner Rufus Hound took to the dance floor in an effort to beat
Robert Webb`s 2009 winning performance of `Flashdance` and the viewing figures
for this series peaked at 8.0 million for the final.

The Ingenious Live VCTs and the Ingenious Entertainment VCTs own 50% of the
international format rights which are being represented by Fremantle Media who
produce programming in numerous territories around the world. We firmly believe
that a second UK airing will lead to increased international interest and will
drive further format revenues for the Company.

Digital Rights Group

In June 2009, the Company made an investment of £1,000,000 (£2,000,000 across
the Ingenious Entertainment VCTs) to co-distribute, co-market and fund advances
for a series of television programmes such as `The Inbetweeners`, `Kingdom`
starring Stephen Fry and a wide variety of children`s programmes and factual
documentaries.

The television distribution rights market remains strong and there is the clear
potential to generate consistent returns particularly from format rights.
Digital Rights Group is highly experienced and is the leading independent
distributor of content in the UK.

Golf Live

The third co-investment between the Ingenious Live VCTs and Ingenious
Entertainment VCTs saw the Company fund £275,000 (£1,100,000 across both the
Ingenious Live VCTs and the Ingenious Entertainment VCTs) in December 2009 to
co-promote a three-day new interactive golf event known as O2 Golf Live. The
event is to be staged at Stoke Park in Buckinghamshire from 14-16 May 2010. It
is a brand new concept and addition to the golfing calendar, which we believe
has excellent potential to be rolled out at prestigious golf courses around the
world.

This unique event will deliver unprecedented access to the world of golf, with
attendees able to `get inside the heads` of some of the world's best players
including Colin Montgomerie, Paul Casey, Retief Goosen and Ian Poulter in their
own masterclass theatres. Visitors will also be able to enjoy intimate access to
a three hole pro/celebrity tournament, test the latest kit and equipment from
the best brands, receive expert tuition from world renowned PGA professionals
and compete against other visitors at the hole-in-one challenge.

Outlook

Lifestyle changes, de-regulation and technological advances in the digital arena
have created investment opportunities for knowledgeable investors.

While the expansion of the digital media sector creates new markets for content
creators, the UK has also experienced tremendous growth in the popularity of the
live events sector. A great deal of new entertainment and media content is now
created with the view to exploitation across multiple platforms.

Nonetheless, the volatile economic environment presents challenges for the
Company as consumers become more cautious about their discretionary spending on
entertainment. We remain confident however, that our ability to invest in a
diverse portfolio of sectors coupled with our proactive measures to further
mitigate risk will stand us, and our investors, in good stead.

Contact

If you have any questions on this review or would like to speak with a member of
the management team, please do not hesitate to contact us on 0207 319 4000.

Ingenious Ventures

1 April 2010

BUSINESS REVIEW

The purpose of this review is to provide Shareholders with a summary setting out
the business objectives of the Company, the Board`s strategy to achieve those
objectives, the risks faced, the regulatory environment and the key performance
indicators (KPIs) used to measure performance.

1. Strategy For Achieving Objectives

Ingenious Entertainment VCT 2 plc is a tax efficient company listed on The
London Stock Exchange.

The investment objective is to achieve a combination of a high degree of
downside protection in an otherwise potentially high risk proposition and
long-term capital growth, maximising distributions in order to take advantage of
tax-free dividends.

The Board has delegated day-to-day investment management and administration of
the Company to Ingenious Ventures under the terms of a management deed.

The Manager`s review provides a review of the investment portfolio and the
market outlook.

2. Investment Policy

The Company`s investment policy is to invest in Investee Companies producing
live events or creating branded entertainment content, whose revenues will be
underpinned by warranties or other similar contractual arrangements. The
Ingenious Entertainment VCTs will invest in Investee Companies which are
expected to participate in the revenues and in the capital value of the content
once the market is established. The investments could include the production and
promotion of a theatrical show or the launch of a music festival, the
development and exploitation of new formats or the creation of online or mobile
games.

The Company will only invest in an Investee Company:

* where the Event has been approved by the Manager through its selection
process; and
* where the Investee Company has obtained performance warranties or similar
contractual arrangements that will provide for the Investee Company to receive
minimum revenues equivalent to at least 75% of the Company`s investment.

The initial capital required by an Investee Company will be provided by the
Company. The majority of this initial capital will be provided through loan
finance which should provide additional capital protection. The Company can
invest, under current venture capital trust legislation, up to £1million per tax
year in any one Investee Company.

The Company has the flexibility to retain up to 30% of its assets in cash and
cash equivalent instruments which the Directors believe should provide a
significant degree of downside protection whilst preserving the upside potential
of the events and branded entertainment content within the portfolio.

At the 31 December 2009 the Ordinary Shareholders of the Company had made four
investments in Qualifying Companies, with contractual arrangements that provide
the Investee Company to receive minimum revenues equivalent to at least 75% of
the Company`s investment, all of which had received the prior approval of the
Manager`s Investment Committee.

At the 31 December 2009 C Shareholders of the Company are yet to make an
investment in Qualifying Companies.

3. Principal Risks, Risk Management And Regulatory Environment

The Board believes that the principal risks faced by the Company are:

* Investment and strategic - the performance of an investment in an Event is
tied to a certain degree to the fortunes of the industry generally. In
particular, there is a risk that the Company will not identify opportunities
where the commercial success of the live event or created branded content is
sufficient to earn revenues over and above the minimum contractual income
negotiated.
* Loss of approved status as a Venture Capital Trust - the Company must comply
with section 274 of the ITA which allows it to be exempted from capital gains
tax on investment gains realised by Shareholders. Any breach of these rules may
lead to the Company losing its approval as a VCT, qualifying Shareholders who
have not held their shares for the designated holding period would have to repay
the income tax relief they obtained and future dividends paid by the Company
would become subject to tax. The Company would also lose its exemption from
corporation tax on capital gains.
* Regulatory - the Company is required to comply with the Companies Act, the
rules of the UK Listing Authority and United Kingdom Accounting Standards.
Breach of any of these regulatory rules might lead to suspension of the
Company`s Stock Exchange listing, financial penalties or a qualified audit
report.
* Financial - inadequate internal controls might lead to misappropriation of
assets. Inappropriate accounting policies might lead to misreporting or breaches
of regulations.
* External inherent risks - the Company`s investments will be in unquoted
companies which by their nature involve a higher degree of risk than investment
in the main market due to the fact there is no liquid market and may, therefore,
be difficult to realise. Furthermore, there may be further constraints imposed
on realisations because of the requirement to satisfy certain conditions
necessary for the Company to maintain its VCT status (such as the obligation to
have at least 70% by value of its investments in qualifying holdings by the
beginning of the accounting period commencing three years after provisional VCT
approval).

The Board seeks to mitigate the internal risks by setting clear policies,
including establishing a funding structure which provides for minimum revenues
equivalent to at least 75% of the investment, regular reviews of performance,
monitoring progress and compliance. Details of the Company`s internal controls
are contained in the Corporate Governance Report.

4. Key Performance Indicators (KPIs)

The primary key performance indicator on which the Board assesses the
performance of the Manager in meeting the Company`s objective is the change in
net asset value per share.

A review of the Company`s performance during the year, the position of the
Company at the year end and the outlook for the coming year is contained within
the Chairman`s Statement and the Manager`s Review.

INCOME STATEMENT

For the year ended 31 December 2009

Ordinary Shares C Shares Total Shares
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000

Gain on disposal of investments - 1 1 - - - - 1 1
Increase in fair value of investments held - 63 63 - 9 9 - 72 72
Investment income 2 40 - 40 - - - 40 - 40
Arrangement fees 3 - - - (31) - (31) (31) - (31)
Investment management fees 4 (85) (85) (170) (15) (15) (30) (100) (100) (200)
Other expenses 5 (96) (11) (107) (31) - (31) (127) (11) (138)

Loss on ordinary activities before taxation (141) (32) (173) (77) (6) (83) (218) (38) (256)
Tax on ordinary activities 6 - - - - - - - - -

Loss attributable to equity shareholders (141) (32) (173) (77) (6) (83) (218) (38) (256)

Basic and diluted return per share (pence) 7 (1.4) (0.3) (1.7) (3.9) (0.3) (4.2) n/a n/a n/a

The Company has no recognised gains and losses other than those disclosed above.

The total column is the income statement of the Company for the year. The
supplementary capital and revenue columns are prepared with guidance published
by the Association of Investment Companies ("AIC").

All operations are considered to be continuing.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS` FUNDS
For the year ended 31 December 2009

Ordinary Shares C Shares Total Shares
£'000 £'000 £'000

Opening shareholders' funds 9,728 - 9,728
Capital subscribed - 2,784 2,784
Issue costs - (121) (121)
Loss for the year (173) (83) (256)

Closing shareholders' funds 9,555 2,580 12,135

The accompanying notes form an integral part of these financial statements.

INCOME STATEMENT (continued)
For the period 10 October 2007 to 31 December 2008

Ordinary Shares C Shares Total Shares
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000

Gain on disposal of investments - 24 24 - - - - 24 24
Increase in fair value of investments held - 157 157 - - - - 157 157
Investment income 2 44 110 154 - - - 44 110 154
Arrangement fees 3 (112) - (112) - - - (112) - (112)
Investment management fees 4 (61) (61) (122) - - - (61) (61) (122)
Other expenses 5 (99) (7) (106) - - - (99) (7) (106)

(Loss)/profit on ordinary activities before taxation (228) 223 (5) - - - (228) 223 (5)
Tax on ordinary activities 6 - - - - - - - - -

(Loss)/profit attributable to equity shareholders (228) 223 (5) - - - (228) 223 (5)

Basic and diluted return per share (pence) 7 (3.8) 3.7 (0.1) - - - n/a n/a n/a

The Company had no C Shares in issue during the period ended 31 December 2008.

The Company has no recognised gains and losses other than those disclosed above.

The total column is the income statement of the Company for the period. The
supplementary capital and revenue columns are prepared with guidance published
by the Association of Investment Companies ("AIC").

All operations are considered to be continuing.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS` FUNDS
For the period 10 October 2007 to 31 December 2008

Ordinary Shares C Shares Total Shares
£'000 £'000 £'000

Opening shareholders' funds - - -
Capital subscribed 10,181 - 10,181
Issue costs (448) - (448)
Loss for the period (5) - (5)

Closing shareholders' funds 9,728 - 9,728

The accompanying notes form an integral part of these financial statements.

BALANCE SHEET
As at 31 December 2009

As at 31 December 2009 As at 31 December 2008
Ordinary C Total Ordinary C Total
Shares Shares Shares Shares Shares Shares
Note £'000 £'000 £'000 £'000 £'000 £'000

Fixed assets
Qualifying investments 8 2,048 - 2,048 273 - 273

Current assets
Debtors 10 26 5 31 7 - 7
Non-Qualifying investments 11 7,471 2,558 10,029 9,368 - 9,368
Cash at bank and in hand 46 23 69 107 - 107
7,543 2,586 10,129 9,482 - 9,482

Creditors: amounts falling due within one year 12 (36) (6) (42) (27) - (27)

Net current assets 7,507 2,580 10,087 9,455 - 9,455

Net assets 9,555 2,580 12,135 9,728 - 9,728

Capital and reserves
Called-up share capital 13 102 28 130 102 - 102
Share premium account 14 - - - 4,816 - 4,816
Other reserve account 14 9,631 2,635 12,266 4,815 - 4,815
Capital reserve 14 191 (6) 185 223 - 223
Revenue reserve 14 (369) (77) (446) (228) - (228)

Shareholders' funds 9,555 2,580 12,135 9,728 - 9,728

Net asset value (pence per share) 15 93.6 91.8 n/a 95.3 - n/a

The accompanying notes form an integral part of these financial statements.

The financial statements were approved by the Board of Directors on 1 April
2010.

Signed on behalf of the Board of Directors:

Bob Storer

Chairman

CASH FLOW STATEMENT
For the year ended 31 December 2009

Ordinary Shares C Shares Total Shares
Note £'000 £'000 £'000

Net cash outflow from operating activities (247) (91) (338)

Financial investments
Purchase of qualifying investments 8 (1,775) - (1,775)

Net cash outflow from (1,775) - (1,775)
financial investments

Management of liquid resources
Purchase of non-qualifying investments 11 (2,333) (2,549) (4,882)
Disposal of non-qualifying investments 11 4,294 - 4,294

Net cash inflow/(outflow) from liquid resources 1,961 (2,549) (588)

Financing
Issue of C Shares - 2,784 2,784
Expenses of the issue of C Shares - (121) (121)

Net cash inflow from financing - 2,663 2,663

(Decrease)/increase in cash (61) 23 (38)

Reconciliation of loss before taxation to net cash flow from operating activities

£'000 £'000 £'000

Loss on ordinary activities before tax (173) (83) (256)
Gain on investments 11 (1) - (1)
Increase in fair value of investments held 11 (63) (9) (72)
Increase in receivables (19) (5) (24)
Increase in payables 9 6 15

Net cash outflow from operating activities (247) (91) (338)

Reconciliation of net cash flow to movement in net funds

£'000 £'000 £'000

Opening cash balances 107 - 107
Net cash (outflow)/inflow (61) 23 (38)

Closing cash balances 46 23 69

Total net funds is cash of £69k (Ordinary Shares: £46k; C Shares: £23k) and
non-qualifying
investments of £10,029k (Ordinary Shares: £7,471k; C Shares: £2,558k).

The accompanying notes form an integral part of these financial statements.

CASH FLOW STATEMENT (continued)
For the period 10 October 2007 to 31 December 2008

Ordinary Shares C Shares Total Shares
Note £'000 £'000 £'000

Net cash outflow from operating activities (166) - (166)
Financial investments
Purchase of qualifying investments 8 (273) - (273)
Net cash outflow from (273) - (273)
financial investments
Management of liquid resources
Purchase of non-qualifying investments 11 (10,400) - (10,400)
Disposal of non-qualifying investments 11 1,213 - 1,213
Net cash outflow from liquid resources (9,187) - (9,187)
Financing
Issue of redeemable preference shares 50 - 50
Repurchase of redeemable preference shares (50) - (50)
Issue of Ordinary Shares 10,181 - 10,181
Expenses of the issue of Ordinary Shares (448) - (448)
Net cash inflow from financing 9,733 - 9,733
Increase in cash 107 - 107

Reconciliation of loss before taxation to net cash flow from operating activities

£'000 £'000 £'000
Loss on ordinary activities before tax (5) - (5)
Gain on investments 11 (24) - (24)
Increase in fair value of investments held 11 (157) - (157)
Increase in receivables (7) - (7)
Increase in payables 27 - 27
Net cash outflow from operating activities (166) - (166)

Reconciliation of net cash flow to movement in net funds

£'000 £'000 £'000
Opening cash balances - - -
Net cash inflow 107 - 107
Closing cash balances 107 - 107

Total net funds is cash of £107k (Ordinary Shares: £107k; C Shares: Nil) and
non-qualifying
investments of £9,368k (Ordinary Shares: £9,368k; C Shares: Nil).

The accompanying notes form an integral part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2009

1. Accounting Policies

(a) Basis Of Accounting

The financial statements for the year ended 31 December 2009 have been prepared
in accordance with UK Generally Accepted Accounting Practice, and with the
Statement of Recommended Practice (the SORP) entitled "Financial Statements of
Investment Trust Companies and Venture Capital Trusts" which was issued in
January 2009.

The comparative figures are for the period 10 October 2007 to 31 December 2008.

These financial statements have been prepared on the historical cost basis,
except for the measurement at fair value of investments.

(b) Valuation Of Investments

The Company`s business is investing in financial assets with a view to profiting
from their total return in the form of income and capital growth. As set out in
the Prospectus all investments are designated at fair value.

Investee Companies

Unquoted investments including equity and loan investments are designated at
fair value and valued in accordance with the International Private Equity and
Venture Capital Guidelines and Financial Reporting Standard 26 "Financial
Instruments: Recognition and Measurement" (FRS 26). Investments are initially
recognised at fair value. The investments are subsequently re-measured at fair
value, as estimated by the Directors with prudence and good faith. Investment
holding gains or losses arising from the revaluation of investments are taken
directly to the income statement. Fair value is determined as follows:

• Fair value is the amount for which an asset could be exchanged between
knowledgeable, willing parties in an arm`s length transaction.

• In estimating fair value for an investment, the Manager will apply a
methodology that is appropriate in the light of the nature, facts and
circumstances of the investment and its materiality in the context of the total
investment portfolio and will use reasonable assumptions and estimations.

• An appropriate methodology incorporates available information about all
factors that are likely to materially affect the fair value of the investment.
The valuation methodologies are applied consistently from period to period,
except where a change would result in a better estimate of fair value. Any
changes in valuation methodologies will be clearly disclosed in the financial
statements.

The most widely used methodologies are listed below. In assessing which
methodology is appropriate, the Directors are predisposed towards those
methodologies that draw upon market-based measures of risk and return.

• Price of recent investment

• Earnings multiple

• Net assets

• Available market prices

Of these the two methodologies most applicable to the Company`s investments are:

1 - Price of recent investment

Where the investment being valued was made recently, its cost will generally
provide a good indication of value. It is generally considered that this would
only apply for a limited period; in practice a period up to the start of the
first live event or entertainment content which forms the investment is often
applied as the long stop date for such a valuation.

2 - Discounted cash flows/earnings of the underlying business

Investments can be valued by calculating the net present value of expected
future cashflows of the Investee Companies. In relation to the Company`s
investments, anticipating future cashflows in excess of the guaranteed amounts
would clearly require highly subjective judgements to be made in the early stage
of each investment and therefore would not be an appropriate methodology to
apply in the early stage of the investment.

In the period prior to the first live event or entertainment content it is
considered appropriate to use the price paid for the recent investment as the
latest available information. Thereafter, the portfolio of investments is fair
valued on the discounted cash flow/earnings basis using the latest available
information on the performance of the live event or entertainment content. Gains
or losses arising from changes in the fair value of the `financial assets at
fair value through profit or loss` category are presented in the income
statement in the period in which they arise.

As a result of the above basis of valuation, there is significant judgement
associated with the valuation of investments.

Non-Qualifying Investments - Open Ended Investment Companies

The Company's non-qualifying investments in interest bearing money market open
ended investment companies (OEICs) are valued at fair value, this is bid price.
They have been designated as fair value through profit and loss for the purposes
of FRS 26.

Gains and losses arising from changes in fair value of qualifying and
non-qualifying investments are recognised as part of the capital return within
the income statement and allocated to the realised or unrealised capital reserve
as appropriate. Transaction costs attributable to the acquisition or disposal of
investments are charged to capital within the income statement.

(c) Investment Income

Interest income is recognised in the income statement as it accrues.

(d) Dividend Income

Dividend income is recognised in the income statement once it is declared by the
Investee Companies.

(e) Expenses

All expenses are accounted for on an accruals basis. Expenses are charged to the
revenue account within the income statement except that:

* expenses which are incidental to the acquisition or disposal of an investment
are charged to capital in the income statement as incurred; and
* expenses are split and presented partly as capital items where a connection
with the maintenance or enhancement of the value of the investments held can be
demonstrated.

(f) Deferred Taxation

Deferred taxation 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, or a right to pay less, tax in
the future have occurred at the balance sheet date. This is subject to deferred
tax assets only being recognised if it is considered more likely than not that
there will be suitable profits from which the future reversal of the underlying
timing differences can be deducted. Timing differences are differences arising
between the Company's taxable profits and its results as stated in the financial
statements which are capable of reversal in one or more subsequent periods.

2. Investment Income

2009 2008
£'000 £'000
Bank deposit interest 4 44
Interest from OEICs 24 110
Loan note interest from Qualifying Investments 12 -
40 154

3. Arrangement Fees

2009 2008
£'000 £'000
Arrangement fees 31 112

All costs arising out of the Offer, including listing expenses and commissions,
were incurred by the Promoter (Ingenious Media Investments Limited) and a fee of
5.5% of the gross proceeds of the Offer was paid in consideration of the service
provided. The Directors believe that 80% of these fees relate directly to the
raising of capital and have classified this proportion as issue costs. In
accordance with Company law, the issue costs have been deducted from the share
premium account. The remaining 20% reflected above has been taken to revenue.

Current year arrangement fees relate to the C Shares (2008: Ordinary Shares).

4. Investment Management Fee

2009 2009 2009 2008 2008 2008
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 100 100 200 61 61 122

For the purposes of the revenue and capital columns in the income statement, the
management fee has been allocated 50% to revenue and 50% to capital, which
represents the split of the Company`s long term returns.

5. Other Expenses

2009 2009 2009 2008 2008 2008
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Directors` remuneration (including employer`s national insurance) 39 - 39 45 - 45
Auditors` remuneration
- Audit fees 12 - 12 14 - 14
Legal & professional fees - 4 4 - 4 4
Other administration expense 66 5 71 33 3 36
Irrecoverable VAT 10 2 12 7 - 7
127 11 138 99 7 106

The Company is not registered for VAT. Fees payable to the Company`s auditor for
the audit of the Company`s financial statements are £12k (2008: £14k) excluding
VAT. Further details on the Directors' fee disclosures are given in the
Directors' Remuneration Report.

6. Tax Charge On Ordinary Activities

2009 2009 2009 2008 2008 2008
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(Loss)/profit on ordinary activities before tax (218) (38) (256) (228) 223 (5)
(Loss)/profit on ordinary activities by tax rate 28% (2008: 28.5%) (61) (11) (72) (65) 64 (1)
Adjustments:
Non taxable gains on investments - (20) (20) - (83) (83)
Disallowed expenses 1 31 32 - 19 19
Unutilised losses for the current year 60 - 60 65 - 65
- - - - - -

As the Company is a VCT its capital gains are not taxable.

At 31 December 2009 the Company had surplus management expenses of £445k (2008:
£229k). A deferred tax asset has not been recognised in respect of these surplus
management expenses as the Company has only been investing for a short period of
time, and future taxable income can not be predicted with reasonable certainty.
Due to the Company's status as a VCT, and the intention to continue meeting the
conditions required to obtain approval in the foreseeable future the Company
does not recognise deferred tax on any capital gains or losses which arise on
the revaluation of investments.

7. Basic And Diluted Return Per Share

Ordinary Shares 2009 2009 2009 2008 2008 2008
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(Loss)/profit on ordinary activities after taxation (141) (32) (173) (228) 223 (5)
Weighted average shares in issue (number) 10,205,011 10,205,011 10,205,011 6,085,827 6,085,827 6,085,827
(Loss)/profit attributable per share (pence) (1.4) (0.3) (1.7) (3.8) 3.7 (0.1)

C Shares 2009 2009 2009 2008 2008 2008
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Loss on ordinary activities after taxation (77) (6) (83) - - -
Weighted average shares in issue (number) 1,980,118 1,980,118 1,980,118 - - -
Loss attributable per share (pence) (3.9) (0.3) (4.2) - - -

There are no dilutive potential Ordinary or C Shares, including convertible
instruments, options or contingent share agreements in issue for the Company.

8. Fixed Asset Investments

2009 2008
£'000 £'000
Unquoted investments 2,048 273

Equity shares 614 82
Unsecured loan notes 1,434 191
2,048 273

Qualifying Investments
£'000 £'000
Opening valuation 273 -
Purchases at cost 1,775 273
Closing valuation 2,048 273

These investments are made by the Ordinary Shareholders.

9. Significant Interests

The Ordinary Shares have interests of greater than 10% of the nominal value of
the allotted shares in the following Investee Companies incorporated in the
United Kingdom as at 31 December 2009:

Trading Companies % class and share type % voting rights
DRG Media Assets Limited 24.95% A Ordinary 24.95%
Dance Floor Limited 12.48% A Ordinary 12.48%
Golfmania Limited 12.48% A Ordinary 12.48%
Into The Groove Limited 12.48% A Ordinary 12.48%

Dormant Companies % class and share type % voting rights
Callisto Moon Limited 100% A Ordinary 100%
Diamond Ventures Limited 100% A Ordinary 100%
Electric Ventures Limited 100% A Ordinary 100%
Essential Experience Limited 100% A Ordinary 100%
Saturn Explosion Limited 100% A Ordinary 100%

The investments made by the Company are part of its portfolio of investments and
the table above includes all portfolio investments. As a VCT, the Company values
those investments at fair value in accordance with FRS 26.

The above companies are dormant and the Company is not required to prepare
consolidated accounts.

10. Debtors

2009 2008
£'000 £'000
Trade debtors 5 -
Prepayments and accrued income 26 7
31 7

11. Current Asset Investments

2009 2008
£'000 £'000
Funds held in listed money market instruments 10,029 9,368

Non-Qualifying Investments
£'000 £'000
Opening valuation 9,368 -
Purchases at cost 4,882 10,400
Disposal proceeds (4,294) (1,213)
Realised gains on disposal 1 24
Unrealised change in value of investment 72 157
Closing valuation 10,029 9,368

In order to safeguard the capital available for investment in Qualifying
Investments and balance this with the need to provide good returns to investors,
available funds from the net proceeds are invested in appropriate securities
(money market securities and cash funds) until required for Qualifying
Investment purposes.

12. Creditors: Amounts Falling Due Within One Year

2009 2008
£'000 £'000
Trade creditors 6 5
Accruals and deferred income 36 22
42 27

13. Called-Up Share Capital

2009 2008
Authorised £'000 £'000
35,000,000 Ordinary Shares 1p each 350 350
35,000,000 C Shares 1p each 350 350
700 700

2009 2008
Allotted, called-up and fully paid £'000 £'000
10,205,011 Ordinary Shares 1p each 102 102
2,810,596 C Shares 1p each 28 -
130 102

In the current year 2,810,596 C Shares were issued and allotted in accordance
with the terms of the Prospectus. Share issue costs amounting to £121k have been
set off against share premium.

In the period ended 31 December 2008, 10,205,011 Ordinary Shares were issued and
allotted in accordance with the terms of the Prospectus. The one subscriber
share created upon incorporation was issued at par. Share issue costs amounting
to £448k have been set off against share premium.

The entire issued Ordinary and C Share capital of the Company has been admitted
to the official list maintained by the Financial Services Authority and to
trading on the London Stock Exchange.

Number of C Shares Aggregate nominal Aggregate consideration
allotted value allotted received net of issue costs
£'000 £'000
Date of issue and allotment
3 April 2009 2,386,055 24 2,232
4 April 2009 65,800 1 62
31 July 2009 358,741 3 338
2,810,596 28 2,632

During the year 25,000 bonus C Shares were issued in accordance with the terms
of the Prospectus. The unpaid bonus shares were issued with a nominal value of
1p per C Share.

14. Reserves

Share premium Other reserve Capital reserve Revenue reserve Total reserves
£'000 £'000 £'000 £'000 £'000
At 1 January 2009 4,816 4,815 223 (228) 9,626
Issue of equity 2,756 - - - 2,756
Reduction of share premium account (7,451) 7,451 - - -
Gain on disposal of investments - - 1 - 1
Increase in fair value of investments held - - 72 - 72
Investment income - - - 40 40
Arrangement fees (121) - - (31) (152)
Investment management fees - - (100) (100) (200)
Other expenses - - (11) (127) (138)
At 31 December 2009 - 12,266 185 (446) 12,005

On 12 December 2009, the Company registered the court order dated 9 December
2009, with the Registrar of Companies confirming the reduction of the Company`s
share premium account by £7,451k. The purpose of the reduction is to enable the
Company to create a distributable reserve.

The capital reserve includes realised investment holding losses of £44k and
unrealised investment holding gains of £229k.

As an investment company under section 833 of the Companies Act 2006, the other
reserve account is the only distributable reserve of the Company.

15. Net Asset Value Per Share

2009 2008
Net assets attributable to Ordinary Shareholders (£'000) 9,555 9,728
Ordinary Shares in issue (number) 10,205,011 10,205,011
Net asset value per Ordinary Share (pence) 93.6 95.3

2009 2008
Net assets attributable to C Shareholders (£'000) 2,580 -
C Shares in issue (number) 2,810,596 -
Net asset value per C Share (pence) 91.8 -

16. Financial Instruments And Risk Management

The Company's financial instruments comprise equity and floating rate debt
investments in unquoted companies, cash balances and listed money market
instruments. The Company holds financial assets in accordance with its
investment policy.

Fixed asset investments (see note 8) are valued at fair value. For quoted
securities included in current asset non qualifying investments, this is bid
price. In respect of unquoted investments, these are fair valued in accordance
with the International Private Equity and Venture Capital Valuation Guidelines.
The fair value of all other financial assets and liabilities is represented by
their carrying value on the balance sheet.

Fair Value Hierarchy

2009 2008
£'000 £'000
Listed money market instruments (note 11) Level 1 10,029 9,368
Unquoted investments (note 8) Level 3 2,048 273
12,077 9,641

There were no gains and losses on level 3 investments in the year.

In accordance with Financial Reporting Standard 29 `Financial Instruments:
Disclosures`, the above table provides an analysis of these investments based on
the fair value hierarchy described below which reflects the reliability and
significance of the information used to measure their fair value:

* Level 1 - investments with quoted prices in active markets;
* Level 2 - investments whose fair value is based directly on observable market
prices or is indirectly drawn from observable market prices; and
* Level 3 - investments whose fair value is determined using a valuation
technique based on assumptions that are not supported by observable current
market prices or are not based on observable market data.

The valuation techniques used by the Company are explained in note 1 on
accounting policies.

Risk Management

The Company's investing activities expose it to various types of risk that are
associated with the financial instruments and markets in which it invests. The
most important types of financial risk to which the Company is exposed are:

* Market risk;
* Interest rate risk;
* Credit risk; and
* Liquidity risk.

The nature and extent of the financial instruments outstanding at the balance
sheet date and the risk management policies employed by the Company are
discussed below:

a) Market Risk

Market risk embodies the potential for both losses and gains and includes
interest rate risk and price risk.

The Company's strategy on the management of investment risk is driven by the
Company's investment objective. Investments in unquoted companies, by their
nature, involve a higher degree of risk than investments in larger "blue chip"
companies.

The risk of loss in value is managed through careful selection in accordance
with a formalised investment decision process, with each investment proposal
evaluated by the investment committee as part of the due diligence stage. The
Company`s investment policy can be found in the Business Review. The risk is
also managed through continuous monitoring of the performance of investments and
changes in their risk profile.

b) Interest Rate Risk

Some of the Company's financial assets are interest bearing, all of which are at
floating rates. As a result, the Company is subject to exposure to interest rate
risk due to fluctuations in the prevailing levels of market interest rate.

When the Company retains cash balances, the majority of cash is held within
interest bearing money market open ended investment companies (OEICs). This is
the Non-Qualifying Investments amount on the balance sheet of £10,029k (2008:
£9,368k). The benchmark rate which determines the interest payments received on
interest bearing cash balances and debt investments in unquoted companies is the
bank base rate which was 0.5% as at 31 December 2009 (31 December 2008: 2%).

The following table illustrates the sensitivity of the impact on ordinary
activities for the year before taxation and total equity to a change in interest
rates of 50 basis points, with effect from the beginning of the year. These
changes are considered to be reasonably possible based on observation of current
market conditions. The calculations are based on the Company`s Non-qualifying
investments held at each balance date. All other variables are held constant.

31 December 2009 31 December 2008
£ '000 £ '000
+/- 50 basis points +/- 50 basis points
Impact on profit/(loss) on ordinary activities for the year
/period before taxation and total equity 50 47

c) Credit Risk

Credit risk is the risk that a counterparty to a financial instrument will fail
to discharge an obligation or commitment that it has entered into with the
Company.

Whilst the Company is exposed to credit risk due to its £1,434k (2008: £191k)
unsecured loan note instruments, this risk is mitigated by the Company requiring
that minimum royalty arrangements are in place prior to the investment as set
out in the Company's investment policy. In addition, and in accordance with the
Company's monitoring procedure, the Manager, closely monitors progress
(including financial expenditure) against the Investee Companies' agreed
business plans.

The £1,434k (2008: £191k) unsecured loan notes are the contractually agreed 70%
of initial investments.

d) Liquidity Risk

The Company's financial instruments include equity and debt investments in
unquoted companies, which are not traded in an organised public market and which
generally may be illiquid. As a result, the Company may not be able to liquidate
quickly some of its investment in these instruments at an amount close to fair
value.

The Company maintains sufficient reserves of cash and readily realisable
marketable securities to meet its liquidity requirements at all times. No
numerical disclosures have been provided in respect of liquidity risk as this is
not considered to be material.

17. Contingencies, Guarantees And Financial Commitments

There is currently interest income accruing on the unsecured loan note
instruments at a rate of 1.5% (2008: 3%), being 1% over the bank base rate which
was 0.5% as at 31 December 2009 (31 December 2008: 2%), totalling £8k (2008:
Nil). The repayment of this interest is not deemed recoverable based on current
profits being derived by the Investee Companies, which currently can not be
determined with any certainty, therefore the Directors have not recognised it in
the financial statements.

18. Related Party Transactions

a. The Company has appointed Ingenious Media Investments Limited, a company of
which Patrick McKenna is a director, to be their promoter. Ingenious Media
Investments Limited is a wholly owned subsidiary of Ingenious Media Limited
which is controlled by Patrick McKenna. The Company paid the Promoter (Ingenious
Media Investments Limited) a fee of 5.5% of the gross proceeds of the Offer
which was paid in consideration of the service provided.

b. Ingenious Ventures Limited was the manager until 28 February 2008, when the
investment management agreement was novated to Ingenious Asset Management
Limited, and Ingenious Ventures became a trading division of Ingenious Asset
Management Limited. Patrick McKenna is a director of Ingenious Asset Management
Limited and was a director of Ingenious Ventures Limited until 1 June 2009,
which are both wholly owned subsidiaries within the Ingenious Group, which is
controlled by Patrick McKenna.

Ingenious Ventures (the manager), as per the management agreement, receives a
management fee of 0.4375% of the net asset value payable quarterly in advance.
The manager also charges an administration fee of £35k per annum and
irrecoverable VAT.

c. The funds invested in OEICs, are managed by Ingenious Asset Management
Limited, a company of which Patrick McKenna is a director. Ingenious Asset
Management Limited is a wholly owned subsidiary of Ingenious Media Limited which
is controlled by Patrick McKenna. There is no fee associated with this
transaction.

d. Patrick McKenna is a director and a shareholder of Ingenious Entertainment
VCT 1 plc, Ingenious Live VCT 1 plc and Ingenious Live VCT 2 plc. The Company,
Ingenious Entertainment VCT 1 plc, Ingenious Live VCT 1 plc and Ingenious Live
VCT 2 plc have jointly agreed with Brand Events Limited to form a new company,
Golfmania Limited, to co-promote O2 Golf Live in the UK. During the year the
Company invested £275,000 for a total of 12.475% of the equity in Golfmania
Limited. Ingenious Entertainment VCT 1 plc, Ingenious Live VCT 1 plc and
Ingenious Live VCT 2 plc each invested £275,000 for 12.475% of the equity in
Golfmania Limited. Brand Events Limited holds 49.9% of the equity in Golfmania
Limited. Brand Events Limited is a subsidiary of Brand Events Holdings Limited
which is a subsidiary of Ingenious Media Active Capital Limited ("IMAC"), a
company of which Patrick McKenna is a director. Ingenious Media Limited, a
company which is controlled by Patrick McKenna, is also a shareholder of IMAC.
Ingenious Ventures is also the manager of IMAC.

e. Patrick McKenna is a director and a shareholder of Ingenious Entertainment
VCT 1 plc, Ingenious Live VCT 1 plc and Ingenious Live VCT 2 plc. The Company,
Ingenious Entertainment VCT 1 plc, Ingenious Live VCT 1 plc and Ingenious Live
VCT 2 plc have jointly agreed with Whizz Kid Entertainment Limited to form a new
company, Dance Floor Limited, to co-produce Let`s Dance. During the year the
Company invested £500,000 for a total of 12.475% of the equity in Dance Floor
Limited. Ingenious Entertainment VCT 1 plc, Ingenious Live VCT 1 plc and
Ingenious Live VCT 2 plc each invested £500,000 for 12.475% of the equity in
Dance Floor Limited. Whizz Kid Entertainment Limited holds 49.9% of the equity
in Dance Floor Limited. Whizz Kid Entertainment Limited is a subsidiary of
Ingenious Media Active Capital Limited ("IMAC"), a company of which Patrick
McKenna is a director. Ingenious Media Limited, a company which is controlled by
Patrick McKenna, is also a shareholder of IMAC. Ingenious Ventures is also the
manager of IMAC.

f. Patrick McKenna is a director and a shareholder of Ingenious Entertainment
VCT 1 plc. The Company and Ingenious Entertainment VCT 1 plc have jointly agreed
with Digital Rights Group Limited to form a new company, DRG Media Assets
Limited, to co-distribute television programmes. During the year the Company
invested £1,000,000 for a total of 24.95% of the equity in DRG Media Assets
Limited. Ingenious Entertainment VCT 1 plc invested £1,000,000 for a total of
24.95% of the equity in DRG Media Assets Limited. Digital Rights Group Limited
holds 49.9% of the equity in DRG Media Assets Limited. Digital Rights Group
Limited is a subsidiary of Ingenious Media Active Capital Limited ("IMAC"), a
company of which Patrick McKenna is a director. Ingenious Media Limited, a
company which is controlled by Patrick McKenna, is also a shareholder of IMAC.
Ingenious Ventures is also the manager of IMAC.

g. Patrick McKenna is a director and a shareholder of Ingenious Entertainment
VCT 1 plc, Ingenious Live VCT 1 plc and Ingenious Live VCT 2 plc. The Company,
Ingenious Entertainment VCT 1 plc, Ingenious Live VCT 1 plc and Ingenious Live
VCT 2 plc have jointly agreed to form a new company, Into The Groove Limited, to
co-promote 80`s Rewind. In December 2008 the Company invested £272,598 for a
total of 12.475% of the equity in Into The Groove Limited. Ingenious
Entertainment VCT 1 plc, Ingenious Live VCT 1 plc and Ingenious Live VCT 2 plc
each invested £272,598 for 12.475% of the equity in Into The Groove Limited.

h. Patrick McKenna is a director and chairman of The Young Vic Company (a
registered charity) which holds 0.2% of the equity of Golfmania Limited, Dance
Floor Limited, DRG Media Assets Limited and Into The Groove Limited.

During the Reporting Period the Company has carried out a number of transactions
with the above-mentioned related parties in the normal course of the business
and on an arm's length basis:

2009 2009 2008 2008
Entity Expenditure paid Amounts due Expenditure Amounts due
£`000 £`000 paid/(received) £`000

£`000
Ingenious Media Investments Limited a
- Arrangement fee 152 - 560 -
Ingenious Asset Management Limited
- Investment management fee b 200 - 128 -
- Administration fee b 35 - 14 -
- Irrecoverable VAT b 9 3 - -
- VAT reclaimed on Management b - - (7) -
and Administration fee

Transactions Between Related Parties

a. Ingenious Media Consulting Limited, a company of which Patrick McKenna was a
director during the year and which is a wholly owned subsidiary in the Ingenious
Group, which is controlled by Patrick McKenna, has entered into consultancy
agreements with each of the Investee Companies to provide management services.
For the provision of such services, consulting fees totalling £48k including VAT
(2008: Nil) have been invoiced in the year, £3k of which remains outstanding as
at 31 December 2009 (2008: Nil).

19. Events After The Balance Sheet Date

a. The Company declared an interim dividend of 5.0 pence per Ordinary Share on
23 March 2010. It has been proposed that the dividend is paid on 13 April.

b. Patrick McKenna is a director and a shareholder of Ingenious Entertainment
VCT 1 plc. The Company and Ingenious Entertainment VCT 1 plc have jointly agreed
to form a new company, Essential Experience Limited, to co-promote a nightclub
in Shoreditch called XOYO. On the 17 March 2010 the Company invested £400k for a
total of 24.95% of the equity in Essential Experience Limited. Ingenious
Entertainment VCT 1 plc invested £400k for 24.95% of the equity in Essential
Experience Limited.

The investment of £400k in Essential Experience Limited is the first joint
investment between the Ordinary Shares (£315k) and the C Shares (£85k).

Patrick McKenna is a director and chairman of The Young Vic Company (a
registered charity) which holds 0.2% of the equity of Essential Experience
Limited.

c. The Company allotted 4,192,080 D Shares on 1 April 2010.

20. Capital Management

The capital management objectives of the Company are:

* To safeguard its ability to continue as a going concern so that it can
continue to provide returns to Shareholders.
* To ensure sufficient liquid resources are available to meet the funding
requirements of its investments and to fund new investments where identified.

The Company has no external debt; consequently all capital is represented by the
value of share capital, distributable and other reserves. Total shareholder
equity at 31 December 2009 was £12,135k (2008: £9,728k).

In order to maintain or adjust its capital structure the Company may adjust the
amount of dividends paid to the Shareholders, return capital to Shareholders,
issue new shares or sell assets.

There have been no changes to the capital management objectives of the business
from the previous period.

The capital structure of the Company was changed by the issue of C Shares (see
note 13) during the year.

The Company has issued new share capital during the year which has changed the
capital structure of the Company.

The Company is subject to the following externally imposed capital
requirements:

* As a public company Ingenious Entertainment VCT 2 plc must have a minimum of
£50k of share capital.

The level of dividends may be influenced by the need to comply with the VCT
legislation which states that no more than 15% of income from shares and
securities may be retained.

Ingenious Entertainment VCT 2 plc

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