NASSTAR PLC (Incorporated and registered in England and Wales under the Companies Act 1985 with registered number ) ISIN: GB00B0T1S097

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1 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this document and what action you should take you are recommended immediately to seek your own financial advice from an independent financial adviser who specialises in advising on the acquisition of shares and other securities and is authorised under the Financial Services and Markets Act 2000 ( FSMA ). Application will be made for the Ordinary Shares to be admitted to trading on AIM. AIM is a market designed primarily for emerging or smaller companies to which a higher investment risk tends to be attached than to larger or more established companies. AIM securities are not admitted to the Official List of the United Kingdom Listing Authority. A prospective investor should be aware of the risks of investing in such companies and should make the decision to invest only after careful consideration and, if appropriate, consultation with an independent financial adviser. Neither London Stock Exchange plc nor the UK Listing Authority has examined or approved the contents of this document. The directors of Nasstar plc, whose names appear on page 5 of this document, accept responsibility, individually and collectively, for the information contained in this document. To the best of the knowledge and belief of the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. This document is an admission document drawn up in accordance with the AIM Rules and is not a prospectus for the purposes of FSMA or otherwise. No offer to subscribe for or to dispose of any securities in the Company is being made pursuant to this document. NASSTAR PLC (Incorporated and registered in England and Wales under the Companies Act 1985 with registered number ) ISIN: GB00B0T1S097 Placing of 600,000 new Ordinary Shares of 1p each at 25p per share and ADMISSION TO AIM Nominated Adviser and Broker W.H. Ireland Limited SHARE CAPITAL OF THE COMPANY ON ADMISSION Authorised Issued and fully paid Number Amount Number Amount 1,000,000,000 10,000,000 Ordinary Shares of 1p each 10,900, ,000 W.H. Ireland, which is authorised and regulated by the Financial Services Authority, is acting as the nominated adviser and broker for Nasstar plc in connection with the proposed Admission and is not acting for any person other than Nasstar plc and will not be responsible to any person other than Nasstar plc for providing the protections afforded to its customers or for providing advice to any other person in connection with the admission document. It is expected that Admission will occur and that trading in the Ordinary Shares will commence on 29 December Copies of this document will be made available to the public during normal business hours on any weekday (Saturdays and public holidays excepted) free of charge from the offices of Marriott Harrison, 12 Great James Street, London WC1N 3DR and W.H. Ireland Limited at 24 Bennetts Hill, Birmingham B2 5QP and shall remain available for one month after Admission. This document is not for distribution outside the United Kingdom and, in particular, it should not be distributed to persons with addresses in Canada, Australia, Japan, South Africa or the Republic of Ireland or to persons with addresses in the United States of America, its territories or possessions or to any citizen thereof or to any corporation, partnership or other entity created or organised under the laws thereof. Any such distribution could result in the violation of Canadian, Australian, Japanese, South African, Irish or relevant United States of America law. THE WHOLE TEXT OF THIS DOCUMENT SHOULD BE READ. YOUR ATTENTION IS DRAWN, IN PARTICULAR, TO THE SECTION HEADED RISK AND OTHER FACTORS SET OUT IN PART II OF THIS DOCUMENT.

2 CONTENTS Page Definitions 3 Glossary 4 Directors, Secretary and Advisers 5 Expected Timetable of Principal Events 6 Placing Statistics 6 PART I Information on the Company 7 Introduction 7 The Business 7 Revenues 8 Directors 9 The Market 10 Competition 10 Strategy 10 Current Trading and Prospects 11 Dividend Policy 11 Directors Interests and Lock-in Arrangements 12 Corporate Governance 12 Reasons for the Placing and Admission 12 Details of the Placing 13 Share Options 13 Substantial Shareholder and City Code on Takeovers and Mergers 13 Controlling Shareholder Agreement 13 Taxation 13 Settlement, Dealings and CREST 13 PART II Risk and Other Factors 14 PART III Accountants Report on Nasstar plc 16 PART IV Accountants Report on Nasstar (UK) Limited 19 PART V Additional Information 30 2

3 DEFINITIONS Act Admission the Companies Act 1985, as amended; the admission of the Ordinary Shares to trading on AIM; Admission Document this document dated 20 December 2005; AIM AIM Rules Articles the AIM Market of London Stock Exchange; the rules applicable to AIM as published by London Stock Exchange from time to time; the Company s articles of association; Board or Directors the directors of the Company, whose names appear on page 5 of this document; Combined Code Company CREST the Combined Code of Corporate Governance published in July 2003; Nasstar plc; the computerised settlement system to facilitate the transfer of title of shares in uncertificated form, operated by CRESTCo Limited; Directors Share Options the Directors share options granted on 8 December 2005 pursuant to the Share Option Scheme, the terms of which are summarised at paragraph 7 of Part V of this document; Group London Stock Exchange Nasstar Official List Ordinary Shares Placing Placing Agreement Placing Shares Share Dealing Code Shareholders or Members Share Option Scheme SME UKLA W.H. Ireland the Company and Nasstar (UK) Limited; London Stock Exchange plc; Nasstar (UK) Limited; the Official List of the UKLA; ordinary shares of 1p each in the capital of the Company; the conditional placing of 600,000 new Ordinary Shares on the terms set out in the Placing Agreement; the agreement between (1) the Company (2) the Directors and (3) W.H. Ireland in relation to the Placing and which is summarised in paragraph of Part V of this document; the 600,000 new Ordinary Shares which are to be placed at 25p per share on the terms set out in the Placing Agreement; the code on dealings in the Company s securities adopted by the Company; holders of issued Ordinary Shares; the Nasstar 2005 Unapproved Share Option Scheme, details of which are summarised in paragraph 7 of Part V of this document; small to medium sized enterprise; the United Kingdom Listing Authority of the Financial Services Authority, acting in its capacity as the competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000; W.H. Ireland Limited. 3

4 GLOSSARY ASP CRM DNS ISPs application service provider; customer relationship management; domain name system or domain name servers; internet service providers. 4

5 DIRECTORS, SECRETARY AND ADVISERS Directors Company Secretary Peter Gilbert Daresbury, The Lord Daresbury - Non-executive Chairman Charles Michael Andrew Black - Chief Executive Shannon Ian Johnston - Technical Director Anthony Richard Malkin - Finance Director Damion Paul Greef - Non-executive Director Anthony Richard Malkin all of: Registered Office Old Street London EC1V 9BH Telephone number Nominated Adviser and Broker Auditors and Reporting Accountants Solicitors to the Company Solicitors to the Placing Registrars W.H. Ireland Limited 24 Bennetts Hill Birmingham B2 5QP Gerald Edelman Chartered Accountants 25 Harley Street London W1G 9BR Marriott Harrison 12 Great James Street London WC1N 3DR Eversheds LLP 115 Colmore Row Birmingham B3 3AL Neville Registrars Limited Neville House 18 Laurel Lane Halesowen West Midlands B63 3DA 5

6 EXPECTED TIMETABLE OF PRINCIPAL EVENTS Admission Document publication date 20 December 2005 Admission effective and dealings in Ordinary Shares commence on AIM 29 December 2005 Placing Price PLACING STATISTICS Number of existing Ordinary Shares prior to the Placing 10,300,000 Number of new Ordinary Shares being issued under the Placing 600,000 Number of Ordinary Shares in issue immediately following completion of the Placing and Admission 10,900,000 The Placing Shares as a percentage of the issued share capital immediately following the Placing and Admission 5.5% Gross proceeds of the Placing 150,000 Market capitalisation at the Placing Price 2,725,000 Number of Ordinary Shares in issue assuming exercise of all options to subscribe for Ordinary Shares 12,096,000 25p 6

7 PART I INFORMATION ON THE COMPANY INTRODUCTION Nasstar is an application service provider supplying software over the internet. The service involves hosting software applications including , Microsoft Office, accounts software, CRM systems and web sites from a purpose-built data centre. The hosting services provide customers with the opportunity to outsource their IT functions with customers paying for usage on a monthly basis. Nasstar commenced trading in 1998 when its main business was developing and hosting websites. In May 2001 the entire share capital of Nasstar was acquired by Gaming Corporation plc and in October 2002 Charles Black acquired the entire share capital of Nasstar from Gaming Corporation plc. Nasstar has supplied hosted computer applications including and Microsoft Office since early THE BUSINESS Nasstar s services fall within the following categories: Hosted Applications Nasstar s hosted applications provide businesses which manage applications in-house with a software outsourcing solution. The Company s hosted applications are accessed over the internet using a secure connection. Nasstar s hosted applications include: bespoke applications accounts software Microsoft Office Professional Microsoft Exchange Microsoft Sharepoint Services Microsoft CRM Adobe Acrobat Nasstar is a Microsoft Certified Partner and Microsoft has produced a case study of the Group s deployment of hosted exchange for one of its customers. Hosting Nasstar s hosting service falls into four categories: Shared hosting A single server is used to host web sites for multiple customers, enabling a customer to upload its web site to their allocated space on the server. The service includes a bandwidth allowance, data back-up and the provision to the customer of its web site usage statistics such as the number of hits which a particular web site receives. Dedicated servers Dedicated servers are set up exclusively for use by a single customer and are generally used in the following situations: where a specific component is required to be installed on a server to run the application usage statistics are such that a shared hosting environment would not be able to provide the required level of performance higher levels of security are required. 7

8 Co-location Customers can purchase their own hardware and locate it within Nasstar s hosting facility. The customer is charged a fee for use of the network infrastructure and for rackspace to accommodate the server, bandwidth provision and other services such as technical support and backup. Advanced hosting solutions Advanced hosting solutions are for web sites or applications that have a large number of users and/or where additional hardware and services need to be set up to provide the level of service required. Advanced hosting solutions involve the deployment of either dedicated servers or co-located servers together with additional hardware such as load-balancers. Advanced hosting solutions include: Networks load balancing, where usage of the website or application is such that a single server would not be able to process user requests, and more than one server is required to balance the load high availability: this type of system is required where there can be no single point of failure so that all hardware components (for example) are duplicated to provide backup. High availability may also require a system to be located in diverse geographical locations geographical diversity, where a hosted service is set up in two datacentres with an automatic transfer of services in the event of failure at the primary data centre. The ASP model of software delivery involves customers accessing applications over the internet. Nasstar s services therefore include the installation and maintenance of networks which enable multiple users to share an internet connection through which they can access their software applications. Internet connectivity Nasstar provides high speed internet connectivity to enable its customers to access s and other hosted applications over the internet. Nasstar supplies broadband through its contract with B.T. Wholesale Managed Broadband, and provides leased lines or private high speed circuits through third party telecom suppliers such as British Telecommunications plc or Colt Telecommunications. The type of connectivity supplied depends on the customer s number of users and bandwidth requirement. Domain names Nasstar registers domain names for and on behalf of its customers and operates its own name servers for DNS management. Domain name registration and DNS management capabilities facilitate the provision of hosting services, as Nasstar has control of DNS records. Nasstar is a member of Nominet UK and as such is entitled to register UK domain names. REVENUES Nasstar currently has approximately 150 customers, including resellers who sell on the hosting and services to their own customers. The Group s customer base covers a diverse range of businesses and currently includes: EQ Group plc; Corvus Capital Inc.; Gaming Corporation plc; TaTa Consultancy Services Limited; Tindle Radio Limited; and APCOA Parking (UK) Limited; 8

9 The Group s main source of revenue is from the provision of its hosting and hosted applications, which provides for approximately 75 per cent. of its current turnover. Customer contracts typically range between 10 and 500 per month. Premises The Group occupies premises in the City of London, held on a six year lease from 21 July The premises have space for additional staff and the Directors consider them to be sufficient for the Group s requirements for at least 18 months from the date of this document. Nasstar s hosting services are provided from a third party data centre located at Moorland House, Goswell Road, in the City of London. The data centre has built-in redundancy for power and multiple transit links for internet traffic. Employees The Company currently has eight employees including the executive Directors, all of whom are based at the Company s premises at Old Street, London EC1. It is proposed that an additional engineer and a sales employee will be recruited in Thereafter, additional engineering, administrative and sales staff may need to be recruited, dependent upon sales targets being achieved or exceeded and any acquisitions which the Group may make. DIRECTORS The Company s board comprises three executive directors and two non-executive directors, whose details are set out below. Peter Daresbury MA, DL, The Lord Daresbury (age 52 years) Non-executive Chairman Peter, a graduate of Cambridge University and London Business School, has extensive experience as a director of public companies. In 1977 he joined De Vere Group plc where he became a director in 1984, managing director in 1993 and chief executive in Currently he is non-executive chairman of De Vere Group Plc, Aintree Racecourse Company Limited, Kazakh Gold Group Limited and non-executive director of Evraz Group S.A. He is also a senior adviser at Fleming Family and Partners. Charles Black (age 34 years) Chief Executive Charles qualified as a barrister in 1997, having trained in media law and company law chambers. In January 1998 he formed Nasstar and in 2000 was appointed a director of Xworks Limited. In April 2001 Xworks Limited was admitted to trading on AIM through a reverse takeover and, in May 2001, acquired Nasstar to provide web site development and hosting services to investment subsidiaries of Xworks plc. In August 2002 Xworks plc refocussed its business on online gaming and changed its name to Gaming Corporation plc. Following the change in strategy of Gaming Corporation plc, Charles acquired the entire issued share capital of Nasstar in order to develop Nasstar as an application service provider. Charles remained a director of Gaming Corporation plc until March 2005, when he resigned in order to devote his time fully to Nasstar. Shannon Johnston (age 26 years) - Technical Director Shannon commenced his career in IT support and in 1997 became information and communication technology manager with the London Borough of Enfield. He joined SDT Limited in 1998 as a field engineer where he travelled around the UK supporting a range of IT systems, including those of Granada Television. In 2000 he joined Video Networks Limited as a line support analyst. He joined Capgemini for a short period as network and security engineer before becoming a consultant to Nasstar in He joined the Company as its Technical Director in July Richard Malkin BSc, ACA, MSI (age 40 years) - Finance Director (part time) Richard qualified as a chartered accountant with Hacker Young. He was an accountant with Refuge Assurance Plc until 1995 when he joined Binns & Co Public Relations Limited where he became finance director and company secretary. In 1999 he joined Hoodless Brennan Plc where he subsequently became its finance director and company secretary. He joined the Company in November

10 Damion Greef (age 38 years) - Non-executive Director Damion began his career in the Royal Navy before joining Binns & Co Public Relations Limited as a public relations consultant in He continued his career in financial public relations, moving to Holborn PR Limited in 1998 and in 2000 was a founding director of Eyeconomy Holdings plc, which was acquired by Gaming Corporation plc, where he was appointed communications director. Damion joined the board of the Company in 2005 in a non-executive role. He is also a director of Gaming Corporation plc. The senior managers of the Group are the executive Directors. THE MARKET The Company s target customers are SMEs, defined as businesses with up to 250 employees, of which there are in excess of four million in the UK, and government bodies such as housing associations and local councils. The ASP method of supply requires remote access, either via a desktop computer or internet browser, to the data centre which hosts applications. The rapid development of high speed internet access has provided a networking infrastructure which enables the implementation of the ASP model, and thus provides an opportunity for growth in the ASP sector. A catalyst for the creation and continued development of the ASP market has been the move by some software vendors to license their software by way of monthly subscription as opposed to the perpetual one-off licence fee, paid up-front, which has been the traditional method of software application supply. In particular, Microsoft has implemented a licensing programme called Service Provider License Agreement to enable its software to be supplied by a licensee of its software as a service. The pricing implemented is for a monthly subscription fee per user of the relevant software for core business applications such as Microsoft Exchange and Microsoft Office Professional. Further Microsoft products are being added to the range of software able to be provided under these arrangements, providing a quantifiable and transparent pricing structure for its software products. COMPETITION The market in which the Group operates is competitive. The Directors believe that the Group s competitors include Cobweb Solutions Limited, Mistral Internet Group Limited, Attenda Limited and Netstore Limited. The Directors believe Attenda Limited and Netstore Limited provide similar services to Nasstar but focus on medium and large organisations, in contrast to Nasstar s focus on SMEs. Certain ISPs, such as 1&1 Internet Limited, Pipex Internet Limited and Fasthosts Internet Limited, offer hosted applications and/or hosted exchange. Some also offer Microsoft Sharepoint Services. However, as far as the Directors are aware, few ISPs offer a complete outsourcing solution. Nasstar seeks to differentiate itself from its competitors through its breadth of services and its focus on the SME market. To enter the ASP market requires investment in infrastructure and technical expertise in the configuration of applications and marketing. Although existing ISPs may already have data centre infrastructure, they may have to set up new systems to host applications, which could require investment in new hardware and engineers with the expertise to set up applications in a hosted environment. Some larger ISPs may need to introduce a managed service approach for the supply of hosted applications, which the Directors believe is different from the approach currently taken. STRATEGY The Group intends to grow both organically and through acquisition as and when opportunities arise. Organic Growth The Group has a marketing plan which has several elements and includes cost-per-click advertising through Google and internet search engine optimisation. The Group currently serves SMEs, and intends to extend its customer base to include government bodies such as housing associations and local councils. 10

11 Nasstar is currently a Microsoft Certified Partner and the Directors intend to build upon the relationship with Microsoft by qualifying as a Microsoft Gold Partner. The Directors believe that such accreditation may provide additional sales leads and enhance the Company s reputation as a provider of hosted applications. Growth though acquisition The Company intends to grow through acquisition by targeting profitable businesses which fall into one of the following categories: ISPs which do not offer hosted applications. Such businesses would provide the opportunity to offer hosted applications to existing customers ISPs which currently offer hosted applications and where the Directors believe cost savings could be achieved traditional network support companies which install and support in-house services. Such businesses would provide the opportunity to migrate the target s customers to Nasstar s ASP model. CURRENT TRADING AND PROSPECTS The Directors believe that the trend for technology is for business managers generally to understand the technical tools they want their businesses to use, but not to have all of the necessary skills to apply such technology. The Directors believe that there is an increasing number of business users who require high levels of ASP service, and that the Group is in a strong position to increase its business by addressing this demand. At 2 December 2005 the Company had net assets of 103,000, comprising its investment in Nasstar. The results of Nasstar for the three years ended 30 September 2005 are set out in Part IV of this document and are summarised below. Years ended 30 September Sales Operating Expenses (670) (264) (170) Operating (Loss)/Profit (255) Interest (17) (7) (3) (Loss)/Profit before tax (272) At 30 September 2005 Nasstar had net liabilities of 116,000. On 10 November 2005 it issued 4,591,667 Ordinary Shares at 12p per share. The increase in turnover reflects the increasing business activity of Nasstar. Revenues from service contracts are accrued evenly over the period of the contract except for set up revenues which are recognised over the set up period. Set up revenues are normally expected by the Directors to comprise approximately 30 per cent. of sales per contract. The significant increase in Nasstar s operating costs in 2005 was due to investment in the operating infrastructure during the period including investment in senior management, staff and systems. Average sales have grown during 2005 and with additional resources now being applied to the marketing of the Company s services, the Directors believe that the Company will see continued growth. The Directors believe that the current market presents an opportunity for growth and acquisition, and view the future with confidence. DIVIDEND POLICY The Company is initially seeking to achieve capital growth for its shareholders and it is not its present intention to pay a dividend. The Directors therefore intend that any profits generated by the Group will be retained and applied to working capital. 11

12 DIRECTORS INTERESTS AND LOCK-IN ARRANGEMENTS The Directors aggregate interests in Ordinary Shares will represent on Admission approximately 78 per cent. of the issued share capital of the Company and options to acquire up to a further 1,120,000 Ordinary Shares under the Option Scheme. The Directors have agreed not to dispose of any interests in the securities of the Company within a 12 month period following Admission, save in certain circumstances. Further details of the lock-in arrangements are set out in paragraph of Part V of this document. CORPORATE GOVERNANCE The Directors are committed to maintaining high standards of corporate governance. The Directors intend, so far as is practicable given the Company s size, to comply with the Combined Code as modified by the recommendations of the Quoted Companies Alliance. The Company has adopted and shall, following Admission, operate a Share Dealing Code for directors and employees. The Board The Board will meet regularly throughout the year. To enable the Board to perform its duties, all directors will have full access to all relevant information and to the services of the Company Secretary. If necessary the nonexecutive directors may take independent professional advice at the Company s expense. The Board includes two non-executive Directors. The Board has delegated specific responsibilities to the committees described below. The audit committee The audit committee, which upon Admission will comprise Lord Daresbury and Damion Greef, is to be chaired by Lord Daresbury and will meet at least twice a year. The audit committee will review the Company s annual and interim financial statements before submission to the Board for approval. The audit committee will also review regular reports from management and the external auditors on accounting and internal control matters. Where appropriate, the committee will monitor the progress of action taken in relation to such matters. The committee will also recommend the appointment of, and review the fees of, the external auditors. The remuneration committee The remuneration committee, which upon Admission will comprise Lord Daresbury and Damion Greef, is to be chaired by Lord Daresbury and intends to meet at least twice a year. It will be responsible for reviewing the performance of the executive directors and for setting the scale and structure of their remuneration, paying due regard to the interests of Shareholders as a whole and the performance of the Company. The remuneration committee will also determine allocations of any share options and will be responsible for setting any performance criteria in relation to the exercise of share options. REASONS FOR THE PLACING AND ADMISSION The Company is raising 150,000 (before expenses) by the issue of 600,000 new Ordinary Shares at 25 pence per share in order to fund the expenses of the Placing and Admission. The Directors believe that the benefits of Admission include: Corporate profile The public profile of the existing business and any business acquired in the future should benefit from the status of being part of an AIM quoted company. Incentivisation of key staff The use of publicly traded equity to implement appropriate share option schemes to seek to incentivise Directors and employees. 12

13 Acquisition consideration The issue of publicly traded shares as consideration or part consideration, is potentially more attractive to vendors than the issue of non-publicly traded shares and the Directors would intend to finance any acquisition in this way as and when appropriate. DETAILS OF THE PLACING The Company will issue 600,000 new Ordinary Shares pursuant to the Placing at 25p per share to raise 150,000 (before expenses). The 600,000 new Ordinary Shares issued in the Placing will represent approximately 5.5 per cent. of the enlarged issued share capital of the Company following the Placing and will be issued credited as fully paid and will rank pari passu in all respects with the existing Ordinary Shares. The Company and the Directors have entered into a placing agreement with W.H. Ireland. The Placing is not being underwritten. The Placing Shares have been placed conditionally on Admission. The Placing is conditional only upon the Placing Agreement becoming unconditional and not having been terminated. Further details of the Placing Agreement are set out in paragraph of Part V of this document. SHARE OPTIONS The Company adopted the Share Option Scheme on 8 December 2005 and has granted options over Ordinary Shares to certain of the Directors and to certain employees. Further details of these options are set out in paragraph 7 of Part V of this document. The Company intends to grant further options to seek to retain and incentivise certain key staff and will following Admission explore the additional types of option scheme available to the Company and intends to implement an additional share option scheme or additional share option schemes to maximise the tax benefits available to the Company and the holders of options under the intended schemes. It is currently intended that options to subscribe for Ordinary Shares would not exceed 12 per cent. of the Company s issued share capital from time to time. SUBSTANTIAL SHAREHOLDER AND CITY CODE ON TAKEOVERS AND MERGERS On Admission, Charles Black will be interested in 6,521,666 Ordinary Shares, representing 60 per cent. of the issued share capital of the Company and will have options to subscribe for an additional 750,000 Ordinary Shares. The City Code requires that any shareholder who acquires shares which carry more than 30 per cent. of the voting rights of a company subject to the Code, or increases their holding if they are already interested in between 30 per cent. and 50 per cent. of the voting rights of such a company, must make a bid for the remaining shares they do not own. The Company is subject to the Code. As Mr Black will be interested in more than 50 per cent. of the voting rights of the Company at Admission he will be able to acquire further shares in the Company without incurring any obligation to make a mandatory bid under the City Code. However, if for any reason his interest falls below 50 per cent. in the future, then he will be subject to the restrictions outlined above. CONTROLLING SHAREHOLDER AGREEMENT Mr Black has entered into a controlling shareholder agreement with the Company, the terms of which are summarised in paragraph of Part V of this document. TAXATION Information regarding taxation is set out in paragraph 12 of Part V of this document. These details are, however, intended only as a general guide to the current tax position under UK taxation law. If you are in any doubt as to your tax position, you should consult an appropriate professional adviser immediately. SETTLEMENT, DEALINGS AND CREST The Company has applied for the Ordinary Shares to be admitted to CREST and it is expected that the Ordinary Shares will be so admitted and accordingly enabled for settlement in CREST on the date of Admission. Accordingly, it is expected that settlement of transactions in Ordinary Shares following Admission may take place within the CREST system if any Shareholder so wishes. The Ordinary Shares are in registered form. 13

14 PART II RISK AND OTHER FACTORS In addition to the other relevant information set out in this document, the following specific factors should be considered carefully when evaluating an investment in the Company. It should be noted that the risks described below are not the only risks faced by the Company; there may be additional risks that the Directors currently consider not to be material or of which they are currently unaware. If any of the risks referred to in this Part II crystallise, the Company s business, financial condition, results or future operations could be materially adversely affected. In such case, the price of its shares could go down and investors may lose all or part of their investment. The risks set out below do not appear in any order of priority. Requirement for funds Currently the Group s overhead base is being expanded to support anticipated growth. If this growth is not achieved, it may be necessary to raise funds to cover the Company s working capital requirements. It may also be necessary to raise funds for all or part of any cash consideration in respect of an acquisition. If required funds are not available the Company may not be able to fulfil its strategy which could have a material adverse effect on the Company s business, financial condition and prospects. If such funds are sought by way of the issue of equity in the Company, then this may dilute the equity interests of the Company s then shareholders. Dependence on key personnel and employees In common with many smaller companies the Company s future success will depend upon its current and future senior management team. Whilst it has entered into contractual arrangements with the aim of securing the services of the Directors, details of which are set out in Part V of this document, the retention of their, and any future directors or employees services cannot be guaranteed. Customer retention There can be no assurance that the Company s current customers will remain customers of the Company or will continue to conduct the same level of business with it in the future. The Company will rely on its ability to secure additional customers and revenue. Legislative and regulatory risk The Company s business and potential future expansion could be adversely affected by the introduction of new legislation or regulation relating to the services which it currently provides. Microsoft Agreement The Microsoft Service Provider Licence Agreement, referred to in Paragraph of Part V of this document expires in If the agreement could not be renewed, this could have an adverse affect on the Group s ability to provide its services to customers and adversely affect its financial position. However, the Directors see no reason for the agreement not to be renewed, and in such case, alternative steps could be taken to maintain service provision through a third party. Share price effect of sales of Ordinary Shares by a significant Shareholder and/or Director The market price of Ordinary Shares could decline significantly as a result of any sales of Ordinary Shares or the perception by the market that such sales could or would occur. Share price volatility and liquidity The share price of publicly traded companies can be highly volatile. The price at which the Ordinary Shares will be quoted and the price which Shareholders may realise for their Ordinary Shares will be influenced by a large number of factors, some specific to the Company and its operations, its sector and some which may affect quoted companies generally. 14

15 Competition Additional ASPs may enter the market and reduce the Company s market share and adversely affect the Company s planned growth rate. Software companies may cease to use the hosting service provider and offer ASP facilities themselves. Inability to identify an acquisition It may not be possible to identify an acquisition target in line with the Company s strategy. Growth management There is no certainty that the Company s desired growth will be successfully managed. The Company may have to engage the services of additional technical, sales and marketing and administrative personnel to handle any material growth in its business. Prior to these personnel being engaged, the additional demands placed on the Company s existing resources may impair its ability to maintain its services to its customers. Service failure Terrorist attack or an event of force majeure that causes physical devastation of the data centre could occur. In such an event data transit or power or physical access to the data centre may be lost resulting in an interruption of the Company s hosted services, preventing users accessing the hosted applications. Customer data is backed up and moved off-site on a weekly basis but currently it would take several days for the Company to set up new servers in another data centre location and re-install services and re-import data to re-establish services. The value of Ordinary Shares can decrease as well as increase. Admission to AIM should not be taken as implying that there will be a liquid market for the Ordinary Shares. It may be more difficult for an investor to realise his investment on AIM than to realise an investment in a company whose shares are quoted on the Official List. 15

16 PART III ACCOUNTANTS REPORT ON NASSTAR PLC The Directors Nasstar plc Old Street London EC1V 9BH 25 Harley Street and London W1G 9BR The Directors W.H. Ireland Limited 24 Bennetts Hill Birmingham B2 5QP 20 December 2005 Dear Sirs, Nasstar plc Introduction We report on the financial information set out below relating to Nasstar plc (the Company ). This financial information has been prepared for inclusion in the AIM admission document dated 20 December 2005 (the Admission Document ) relating to the proposed admission to AIM of the Company and is given for the purpose of complying with Schedule Two of the AIM Rules and for no other purpose. The Company was incorporated on 15 November Since incorporation the Company has not prepared any financial statements for presentation to members and has neither declared nor paid dividends or made any other distributions. There have been no transactions other than the allotment of shares and the acquisition of the subsidiary undertaking described in notes 2 and 4 below. Accordingly, no profit and loss information is presented in this report. Responsibility The Directors of the Company are responsible for preparing the financial information on the basis of preparation set out in the notes to the financial information and in accordance with the financial reporting framework. It is our responsibility to form an opinion on the financial information as to whether the financial information gives a true and fair view, for the purposes of the Admission Document, and to report our opinion to you. Basis of opinion We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of significant estimates and judgements made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the Company, consistently applied and adequately disclosed. We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement, whether caused by fraud, other irregularity or error. 16

17 Opinion In our opinion, the financial information contained in this report gives, for the purposes of the Admission Document dated 20 December 2005, a true and fair view of the state of affairs of the Company as at 2 December 2005 in accordance with the basis of preparation set out in note 1 and in accordance with the applicable financial reporting framework. Declaration For the purposes of Paragraph (a) of Schedule Two of the AIM Rules, we are responsible for this report as part of the Admission Document and declare we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Admission Document in compliance with Schedule Two of the AIM Rules. Balance Sheet as at 2 December December 2005 Notes Fixed assets Investment in subsidiary undertaking at cost 2 103, , Capital and reserves Called up share capital 4 103, , Notes to the financial statements 1. Accounting policies Basis of preparation The financial information has been prepared using the historical cost basis of accounting in accordance with applicable accounting standards and with UK generally accepted accounting principles. The financial information in this Part III does not constitute statutory accounts within the meaning of section 240 of the Companies Act Investment in subsidiary undertaking On 2 December 2005 the Company acquired the entire issued share capital of Nasstar (UK) Limited by way of a share for share exchange. The Company issued 10,299,800 Ordinary Shares of 1p each. These were used in addition to the 200 subscriber shares to acquire 10,300,000 Ordinary Shares of 1p each of Nasstar (UK) Limited. 3. Control The Company is controlled by Charles Black, a Director and majority shareholder. 17

18 4. Share capital 2 December 2005 Authorised: 1,000,000,000 Ordinary Shares of 1p each 10,000, Issued, allotted, called up and fully paid: 10,300,000 Ordinary Shares of 1p each 103, Yours faithfully, GERALD EDELMAN Chartered Accountants Registered Auditors 18

19 PART IV ACCOUNTANTS REPORT ON NASSTAR (UK) LIMITED The Directors Nasstar (UK) Limited Old Street London EC1V 9BH 25 Harley Street and London W1G 9BR The Directors W.H. Ireland Limited 24 Bennetts Hill Birmingham B2 5QP 20 December 2005 Dear Sirs, Nasstar (UK) Limited Introduction We report on the financial information set out below relating to Nasstar (UK) Limited (the Company ). This financial information has been prepared for inclusion in the AIM admission document dated 20 December 2005 (the Admission Document ) relating to the proposed admission to AIM of Nasstar plc and is given for the purpose of complying with Schedule Two of the AIM Rules and for no other purpose. Responsibility The Directors of the Company are responsible for preparing the financial information on the basis of preparation set out in the notes to the financial information and in accordance with the financial reporting framework. It is our responsibility to form an opinion on the financial information as to whether the financial information gives a true and fair view, for the purposes of the Admission Document, and to report our opinion to you. Basis of opinion We conducted our work in accordance with the Standards of Investment Circular Reporting Standards issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of significant estimates and judgements made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the Company, consistently applied and adequately disclosed. We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement, whether caused by fraud, other irregularity or error. Opinion In our opinion, the financial information contained in this report gives, for the purposes of the Admission Document dated 20 December 2005, a true and fair view of the state of affairs of the Company as at 30 September 2003, 2004 and 2005 in accordance with the basis of preparation set out in note 1 and in accordance with the applicable financial reporting framework. 19

20 Declaration For the purposes of Paragraph (a) of Schedule Two of the AIM Rules, we are responsible for this report as part of the Admission Document and declare we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Admission Document in compliance with Schedule Two of the AIM Rules. Profit and loss account Year ended Year ended Year ended 30 Sept 30 Sept 30 Sept Notes Turnover Operating expenses (670) (264) (170) Operating (loss)/profit 3 (255) Interest payable and similar charges 6 (17) (7) (3) (Loss)/profit on ordinary activities before taxation (272) Tax on (loss)/profit on ordinary activities 7 51 (7) (24) Net (loss)/profit for the year (221) Dividends Retained (loss)/profit for the year (221) All of the activities of the Company are classed as continuing. The Company has no recognised gains or losses other than the results for the period as set out above. 20

21 Balance sheet Year ended Year ended Year ended 30 Sept 30 Sept 30 Sept Notes Fixed assets Current assets Debtors Cash at bank and in hand Creditors: amounts due within one year 10 (406) (161) (90) Net current liabilities (248) (91) (44) Creditors: amounts due after one year 11 (32) - (17) Net (liabilities)/assets (116) 20 (29) Represented by: Called up share capital Share premium account Profit and loss account 16 (330) (109) (145) (116) 20 (29) Statement of total recognised gains and losses Year ended Year ended Year ended 30 Sept 30 Sept 30 Sept (Loss)/profit for the financial year (221) Prior year adjustments (48) Total recognised gains and losses (269)

22 Cash Flow Statement Year ended Year ended Year ended 30 Sept 30 Sept 30 Sept Net cash inflow from operating activities Returns on investments on servicing of finance - interest paid (17) (7) (3) Capital expenditure - payments to acquire tangible fixed assets (57) (109) (39) Net cash (outflow)/inflow before management of liquid resources and financing (17) (1) 3 Financing: Issue of ordinary share capital Repayment of other long term loans - (17) 17 Repayment of bank loans - (16) - Capital element of hire purchase contracts (7) - (30) Increase/(decrease) in cash in year 61 (21) 27 22

23 Notes to the financial statements 1. Accounting policies The accounting policies adopted by the Company and set out in its statutory accounts are as follows: (i) (ii) (iii) (iv) (v) (vi) (vii) (x) Basis of preparation The financial statements are prepared under the historical cost convention. Compliance with Accounting Standards The financial statements have been prepared in accordance with applicable Accounting Standards which have been consistently applied. Turnover Turnover represents amounts receivable for services net of VAT and trade discounts. Revenue from service contracts is accrued evenly over the period of the contract except that set-up revenues are recognised over the length of the set-up period on a percentage to completion basis. Some contracts are financed by a process of invoice discounting with a finance house and in such cases an appropriate proportion of the funds received are carried forward to future periods in which the income is recognised. Research and Development Research expenditure is written off to the profit and loss account in the year which it is incurred. Development expenditure is written off in the same way unless the directors are satisfied as to the technical, commercial and financial viability of individual projects. In this situation, the expenditure is deferred and amortised over the period during which the Company is expected to benefit. Tangible Fixed Assets and Depreciation Tangible fixed assets are stated at cost or valuation less depreciation and permanent diminutions in value. Depreciation is provided at rates calculated to write off the cost or valuation less estimated residual value of each asset over its expected useful life, as follows: Computer equipment Fixtures, fittings and equipment Office equipment Leasing Depreciation Rate 33.3% straight line 25% reducing balance 25% reducing balance Rentals payable under operating leases are charged against income on a straight line basis over the lease term. Deferred Taxation The Company has adopted Financial Reporting Standard No.19 on deferred taxation which requires deferred tax to be provided in full in respect of taxation deferred by timing differences between the treatment of certain items for taxation and accounting purposes. Recognition of the deferred tax asset is limited to the extent that the Company anticipates making sufficient taxable profits in the future to absorb the reversal of the underlying timing differences. The deferred tax balance has not been discounted. Prior period adjustment During 2005 the Company changed its accounting policy for revenue recognition to reflect the turnover policy adopted in paragraph (iii) above. The adoption of Financial Reporting Standard No.19 on deferred taxation detailed in paragraph (vii) above has also resulted in a prior period adjustment. The policy of allocation of costs between cost of sales and administration expenses has also been changed to reclassify all such costs as operating expenses which the Directors believe more effectively reflects the different type of costs incurred by the Company. 23

24 2. Turnover The total turnover for the year has been derived from its principal activity wholly undertaken in the United Kingdom. 3. Operating loss/profit Operating (loss)/profit is stated after charging: Year ended Year ended Year ended 30 Sept 30 Sept 30 Sept Depreciation of tangible fixed assets Depreciation of assets held under hire purchase agreements Auditors remuneration Operating lease rentals Particulars of employees Year ended Year ended Year ended 30 Sept 30 Sept 30 Sept Technical, sales and management The average payroll costs of the above were: Year ended Year ended Year ended 30 Sept 30 Sept 30 Sept Wages and salaries Social security costs Directors emoluments The Directors aggregate emoluments in respect of qualifying services were: Year ended Year ended Year ended 30 Sept 30 Sept 30 Sept Emoluments receivable