Key accounting issues for an AIM IPO “Get Ready for AIM” London Stock Exchange 7 November 2006 Paul Watts Capital Markets Partner

2 Agenda Introduction About Baker Tilly and AIM Preparation for flotation Key accounting issues Tax considerations Continuing obligations and corporate governance

3 About Baker Tilly Baker Tilly 7 th largest UK accounting firm 30 offices 2,000 staff 260 partners Baker Tilly International 8 th largest network of independent accountancy firms worldwide 128 firms in 85 countries $2bn fee income.

4 Baker Tilly and AIM Winner of the Growth Company “AIM Accountant of the year” for the years 2003, 2004, 2005 and 2006 Acted for over 150 companies that have sought an IPO (including 44 in the last 12 months); have over 120 AIM audit and tax clients Publish “Taking AIM”, annual survey of AIM market Are represented on the London Stock Exchange AIM Advisory Group (the only practicing accountant) Have specialists in the tax benefit legislation and as such are authors of A Guide to AIM Tax Benefits – a joint London Stock Exchange and Baker Tilly Publication

5 Preparation for Flotation Key issues Suitability (profit trends) Corporate structure Non-core assets Board and management Employee benefits & share options Accounting policies and financial controls Tax Investor relations and corporate governance Business plan

6 Key accounting issues In Admission Document Historical financial information Working capital statement Profit Forecast (rarely) Pro – forma financial information (sometimes) To Company and Nomad Financial due diligence - long form report Aim Application form Financial reporting systems and procedures – declaration Working Capital - declaration Profit forecast - declaration

7 Regulatory framework AIM Rules Issued by London Stock Exchange (updated August 2006) Draft new rules for companies and Nomads – consultation period Prospectus directive (AIM PD) Standards for Investment Reporting (SIRs) – issued by the UK auditing practices board APB) under ISAs SIR General SIR 2000 – Historical financial information SIR 3000 – Profit forecasts / SIR 4000 – Pro forma financial information Accounting standards IFRS from 1 January 2007 for EEA companies US GAAP, Canadian GAAP, Australian GAAP

8 Historical Financial Information 3 years audited financial statements Attached to admission document, or Comparative table with audit reports (if no adjustments), or Comparative table with Accountants (“audit”) report (most likely) Material subsidiaries acquired in last 3 years Standards for investment reporting (SIR 2000), requires ISAs Last 2 years in NEXT GAAP EU companies: IFRS/IAS ( for periods commencing 1 January 2007 ) Others: US, Australian, Canadian or IFRS Accountants report likely to be required Prior Year Adjustments GAAP change Nomad requests Additional disclosures applying to listed companies

9 Historical Financial Information Interim accounts If published must be included Required if admission document dated more than 9 months after audited year end May be unaudited (but Nomad often requires them to be audited) Audited accounts no older than 18 months from date of document if audited interims 15 months if unaudited interims

10 Long Form Report Introduction Executive Summary History and business Trading Results Financial Position Future Prospects Management and staff Sales and Selling Purchasing Accounting Systems and controls Taxation – direct and indirect, employment Other – environmental – insurances

11 Financial reporting procedures Company declaration: “Procedures have been established which provide a reasonable basis for the directors to make proper judgements as to the financial position and prospects of the Issuer and its group” Board Memorandum / Accounting procedures manual (template can be provided) Comfort letter / report by reporting accountants New procedures often required to be implemented to supplement existing ones

12 Working capital Statement by directors: “in their opinion having made due and careful enquiry, the working capital available to it and its group will be sufficient for its present requirements that is for at least twelve months from the date of admission” Board memorandum/comfort letter by reporting accountants or Working capital report Required: Forecasts 18 months to 3 years Integrated model of profit, cash flow and projected balance sheets Detailed assumptions Visibility Sensitivity analysis Growth strategy Includes funds to be raised Include IPO costs

13 Tax considerations Is the current structure tax-optimal ? Group structure Issues arising from restructuring if not CGT on transfers Tax clearances Shareholder/director personal tax planning “ Employment-related securities” rules

14 Tax considerations Formal role as reporting accountants Identify and quantify tax risks Draft suitable disclosures for admission document/comfort letter Responsibility for overall tax risks of structure Tax due diligence Identify and quantify tax risks and compliance Corporation tax PAYE VAT

15 Tax benefits of AIM Quoted, but unquoted! Tax breaks for cost of investment (smaller companies only) EIS VCT 10% CGT rate on exit after two years – UK tax payers Relief from inheritance tax - UK domiciled individuals

16 Overview for Investors EISVCT Limit per annum£400,000*£200,000* Initial Income Tax Relief (new subscriptions only) 20%30% 2006/7 only (was 20% up to 2003/4 and 40% for 2004/5 and 2005/6) CGT on disposal Holding period Nil 3 years Nil 5 years CGT deferral (unlimited EIS only) (new subscriptions only) 3 years afterTerminated FA 2004 for gains reinvested in CCT shares issued on or after 6 April 2004 (previously 1 year after) * Husband and wife each 1 year beforeTerminated FA 2004 (previously 1 year before)

17 Overview for Companies EISVCT New FundsUnlimited£1 million per VCT SecuritiesNew ordinary shares Preference shares or loans min 5 years Gross assets£7 million before £8 million immediately after £7/15* million before £8/16* million immediately after *old limits apply where VCT funds raised prior to 6 April 2006

18 Company Qualifying Criteria Purpose/ExistenceWholly for purposes of (single company only)carrying on a qualifying trade (not investment) other than insignificant Non qualifying Property, banking, financial, (less than 20%)legal, royalties and licence fees*, hotels, nursing homes GroupsConsidered overall ControlNot controlled by another company * Except where the Company has itself derived the greater part of the IP by value or is actually a product or service

19 Use of Funds Consider restrictions on VCT/EIS funds Wholly for purposes of qualifying business activity wholly or mainly in the UK 80% in first year, balance next 12 months EIS – above applies to ALL cash proceeds of all issues on same day whether EIS or not. Recommend separate issues of EIS/non EIS shares on separate days Not employed in overseas subsidiaries New money only – not for vendors Issue costs - apportion Identification – recommend separate bank accounts

20 Continuing obligations Annual audited accounts Published within 6 months IFRS Half Yearly Reports Announce to market - 3 months after relevant period (max) Balance sheet, income statement, cash flow, certain notes Comparatives for corresponding period in previous year Need not be audited No quarterly reporting requirements

21 Corporate governance No mandatory requirements for AIM companies Best practice based on combined code requirements Principles: Efficient management Effective management Entrepreneurial management Code of Best Practice for AIM companies Quoted Companies Alliance (QCA) QCA Link:

22 Key issues - conclusions Agree timetable, responsibilities and scope Availability of historical audited accounts Compliance with SIRs, ISAs, IFRS, AIM rules etc. Provide checklists and templates Board memoranda - working capital, financial reporting Due diligence checklists Structure issues Legal and tax issues Corporate governance Look for solutions not problems

Key accounting issues for an AIM IPO “Get Ready for AIM” London Stock Exchange 7 November 2006 Paul Watts Capital Markets Partner