TIDMMES
RNS Number : 3361R
Messaging International Plc
26 June 2015
Messaging International Plc ('the Company')
Final Results & Notice of AGM
Messaging International Plc, the AIM traded company and provider
of innovative messaging services, announces its results for the
year ended 31 December 2014 and gives notice of its AGM to be held
at the offices Arram Berlyn Gardner on 23 July 2015 at 10.00 a.m.
The report and accounts for the year ended 31 December 2014 will be
sent to shareholders today and will be available on the Company's
website at www.telemessage.com.
Overview
Continued progress of new product: "Secure Mobile Messaging for
Enterprise"
Gross revenues of GBP3,607,978 down 4.4% from GBP3,775,910 in
2013
Adjusted pre- tax loss for the year before goodwill impairment -
GBP334,798 (2013: loss GBP92,073)
Pre-tax loss for the year GBP2,884,798 after goodwill impairment
(2013: GBP92,073)
The results for the year have been significantly affected by the
impairment of goodwill of GBP2,550,000 reducing the carrying value
of goodwill in these financial statements to GBP803,957.
For further Messaging International www.telemessage.com
information Plc
visit Tel: + 972 3
9225252
or contact:
Guy Levit
David Foreman Cantor Fitzgerald Tel: +44 (0)
Europe 20 7894 7000
Catherine Leftley Cantor Fitzgerald Tel: +44 (0)
Europe 20 7894 7000
Chairman's Statement
Transition period
2014 marks a transition year for our wholly owned subsidiary,
TeleMessage, from its legacy Text-to-Landline product, into new
offerings including the Secure Mobile Messaging for Enterprise
solutions.
Revenues in the Text-to-Landline product have declined. Some
customers were lost due to market consolidation and, as announced
on 27 March 2015, the Company has reached an agreement on a change
of the Text-to-Landline business model with one of its key mobile
carrier customers in North America (with which the Company has
contracts on a number of other products not affected by this
change). The change transitions the Text-to-Landline service from a
standard SMS fee to a premium SMS fee resulting in a lower amount
of transmitted messages with a corresponding decline in the revenue
generated from this customer, albeit with a higher gross margin
percentage.
Since the end of 2013, the Company has been focused on
developing its new product line - Secure Mobile Messaging for
Enterprise. Unlike other messaging applications such as Viber and
WhatsApp, TeleMessage's app is targeted at business clients and
offers a "managed, secure, reliable and IT ready" application and
service. The target market has shifted from mobile carriers to
businesses. A number of existing customers have already purchased
the new products and others are currently running pilot trials. In
addition to such enterprise deals, the Company continues to explore
partnership opportunities for these products through its
relationship with carriers.
The revenues derived from our Messaging Gateway solutions have
remained solid during 2014.
The Company has directed its R&D resources to the new
product lines and, accordingly, increased its investment in
marketing to support the change in target market including the
implementation of automated sales and marketing systems, content
creation and branding, all of which should lead to higher exposure
to businesses and ultimately generate sales.
Apart from the goodwill impairment adjustment of GBP2,550,000
referred to above, the continued investment in R&D and the
increased investment in marketing have contributed towards the
increase in operating losses. In addition, in previous years, the
Company obtained funding from the Office of the Chief Scientist
which reduced our net expense on R&D. In 2014 the lower grants
from this source resulted in a higher R&D expense.
As announced on 1 April 2015, despite funding of $900k having
been approved by the BIRD foundation in mid-2014 out of which
TeleMessage could have received 70% for "Secure RCS Messaging", the
Company informed BIRD that it will not pursue this project. As a
result, the net R&D expenses in 2014 were eventually higher
than internally projected in the beginning of the year.
Financial Results
For the year ended 31 December 2014, we are reporting a pre-tax
loss of GBP2,884,798 (2013: loss GBP92,073) based on gross revenues
of GBP3,607,978 (2013: GBP3,775,910).These results are after
adjustment for the goodwill impairment of GBP2,550,000 (2013-
Nil).
The above adjustment reducing the carrying value of goodwill
arises from the Board's annual goodwill impairment review in
accordance with our accounting policy and IFRS.
Although the Board expects future products to succeed and for
revenues to grow in the long term, we have taken what we believe is
a prudent approach when carrying out an impairment review of
goodwill. This involved taking the cautious approach of only
incorporating historic growth when considering future discounted
cash flows used in calculations to generate a net present value for
goodwill.
During 2014, the Company received a far lower support from the
Israeli Office of the Chief Scientist (OCS) in relation to some
elements of R&D. In 2014, the resources provided by the OCS net
of royalties totalled GBP17,978. (2013: GBP147,552)
The group's cash balances at 31 December 2014 totalled
GBP381,109 (2013: GBP765,026).
Employee Incentives
On 31 March 2014, the Company granted 15,025,000 options over
ordinary shares of 0.5p in the Company ("Ordinary Shares") to
certain Directors, employees and consultants at an exercise price
of 1.22p being the average closing price of the Ordinary Shares
during the 30 trading days immediately preceding the grant of such
options.
In addition, the Company approved a 6% carve out bonus to senior
managers conditional on the value of the consideration of any
future sale of the Company being greater than $6,000,000 and such
sale being completed within five years.
Outlook
TeleMessage has made substantial efforts to partially compensate
for the reduction of revenues from the US mobile carrier as
described above by selling more of its legacy product. To partially
offset the loss of BIRD funding the Company has adjusted its
expenses.
Following the intensive R&D effort, the Company has now
initial revenues and additional pilots with clients for its "Secure
Mobile Messaging for Enterprise". In addition, thanks to
TeleMessage's increased marketing efforts the Company has
identified growing interest in its Messaging Gateway solutions from
several customers as well as within the developers' community.
I would like to thank our team for their hard work and
dedication over the past year in adapting to changing markets and
changing technologies as well as to our shareholders for their
continued support.
H Furman
Chairman
25 June 2015
Consolidated statement of comprehensive income for the year
ended 31 December 2014
2014 2013
GBP GBP
Continuing operations:
Revenues 3,607,978 3,775,910
Cost of revenues (1,218,844) (1,411,536)
-------------- --------------------
Gross profit 2,389,134 2,364,374
-------------- --------------------
Operating expenses
Research and development (1,235,070) (1,188,500)
Selling and marketing (865,147) (739,249)
General and administrative (552,676) (463,304)
Goodwill impairment (2,550,000) -
-------------- --------------------
Total operating expenses (5,202,893) (2,391,053)
-------------- --------------------
Operating loss (2,813,759) (26,679)
Finance costs (net) (71,039) (65,394)
Loss before taxation (2,884,798) (92,073)
Taxation (8,914) 2,914
Comprehensive loss for the
year attributable to equity
holders of the parent company (2,893,712) (89,159)
============== ====================
Other comprehensive loss
Re-measurement of loss from
defined benefit plan (71,715) (5,576)
Foreign exchange difference
on translation of foreign
operations 21,632 (3,858)
Foreign exchange difference
arising from restating the
carrying value of goodwill
associated with foreign operations (78,802) (85,286)
(128,885) (94,720)
============== ====================
Total comprehensive loss attributable
to equity holders of the parent
company (3,022,597) (183,879)
============== ====================
Loss per share
Loss per share from operations (2.50)p (0.07)p
=============== ===================
Diluted loss per share from
operations (2.50)p (0.07)p
=============== ===================
Statement of changes in equity for the year ended 31 December
2014
The group
Capital Foreign
Share redemption exchange Revenue
capital reserve reserve reserves Total
fund
GBP GBP GBP GBP GBP
As at 1 January
2013 779,361 400,039 207,746 3,340,006 4,727,152
Capital reorganisation (200,000) 200,000 - - -
Share buyback - - - (400,000) (400,000)
Loss for the
year - - - (89,159) (89,159)
Re-measurement
of loss from
defined benefit
plan - - - (5,576) (5,576)
Foreign currency
translation changes
for goodwill - - (85,286) - (85,286)
Other foreign
currency translation
changes - - (3,858) - (3,858)
Share based payments
for employee - - - - -
share options
At 31 December
2013 579,361 600,039 118,602 2,845,271 4.143,273
Loss for the
year - - - (2,893,712) (2,893,712)
Re-measurement
of loss from
defined benefit
plan - - - (71,715) (71,715)
Foreign currency
translation changes
for goodwill - - (78,802) - (78,802)
Other foreign
currency translation
changes - - 35,208 - 35,208
Share based payments - - - 56,725 56,725
At 31 December
2014 579,361 600,039 75,008 (63,431) 1,190,977
=============== =============== ================ ============== ==============
The company
Share Capital Foreign
capital redemption exchange Revenue Total
reserve reserve reserves
fund
GBP GBP GBP GBP
As at 1 January
2013 779,361 400,039 - 4,125,329 5,304,729
Capital reorganisation (200,000) 200,000 - - -
Share buyback - - - (400,000) (400,000)
Share based payments - - - - -
Loss for the
year - - - (8,193) (8,193)
At 31 December
2013 579,361 600,039 - 3,717,136 4,896,536
Share based payments - - - - -
Loss for the
year - - - (2,568,831) (2,568,831)
Foreign currency
translation gain
on capital note - - 117,839 - 117,839
============ ============= =========== ============== ==============
At 31 December
2014 579,361 600,039 117,839 1,148,305 2,445,544
============ ============= =========== ============== ==============
The following describes the nature and purpose of each reserve
within owners' equity.
Share capital: The amount subscribed for shares at nominal
value.
Share premium: The amount subscribed for share capital in excess
of nominal value.
Capital redemption reserve fund: The amount equivalent to the
nominal value of shares redeemed by the company.
Foreign exchange reserve: The effect of changes in exchange
rates arising from translating the financial statements of
subsidiary undertakings into the company's reporting currency.
Revenue reserves: Cumulative realised profits less losses and
distributions attributable to equity holders of the group.
Consolidated statement of financial position at 31 December
2014
2014 2013
GBP GBP
Non-current assets
Intangible assets 803,957 3,432,759
Property, plant and
equipment 86,526 162,655
Other investments 343,699 323,704
Total non-current
assets 1,234,182 3,919,118
------------ ------------
Current assets
Trade and other receivables 696,068 784,654
Cash and cash equivalents 381,109 765,026
------------ ------------
Total current assets 1,077,177 1,549,680
------------ ------------
Total assets 2,311,359 5,468,798
------------ ------------
Current liabilities
Trade and other payables (525,664) (616,701)
Borrowings (110,013) (199,019)
------------ ------------
Total current liabilities (635,677) (815,720)
------------ ------------
Non-current liabilities
Other payables (5,049) (23,618)
Provisions (479,656) (382,190)
Borrowings - (103,997)
------------ ------------
Total non-current
liabilities (484,705) (509,805)
------------ ------------
Total liabilities (1,120,382) (1,325,525)
------------ ------------
Net assets 1,190,977 4,143,273
Equity attributable
to owners of the
parent company
Share capital 579,361 579,361
Capital redemption
reserve 600,039 600,039
Foreign currency
translation reserve 75,008 118,602
Revenue reserves (63,431) 2,845,271
Total Equity 1,190,977 4,143,273
============ ============
Consolidated statement of cash flows for the year ended at 31
December 2014
2014 2013
GBP GBP
Cash flow from operating
activities
Operating (loss)/profit (2,813,759) (26,679)
------------ ----------
Adjustments for:
Goodwill impairment 2,550,000 -
Share based payments 56,725 -
Defined benefit plan (71,715) (5,576)
Depreciation and amortisation 100,094 64,533
Foreign currency differences (2,899) (39,461)
------------ ----------
2,632,205 19,496
------------ ----------
Operating cash flow
before working capital
movements (181,554) (7,183)
Decrease in receivables 75,086 301,617
(Decrease)/increase
in payables (105,019) 71,623
Increase in provisions 97,466 52,333
------------ ----------
67,533 425,573
------------ ----------
Cash (outflow)/inflow
from operating activities (114,021) 418,390
Investing activities
Interest received 232 235
Investments (19,995) (48,012)
Purchase of tangible
assets (14,581) (52,405)
Repurchase of shares - (400,000)
------------ ----------
Net cash used in investing
activities (34,344) (500,182)
------------ ----------
Taxation - 2,914
Financing activities
Interest and related
costs (25,068) (25,684)
Bank loan repayments (210,484) (200,073)
Net cash used from
financing activities (235,552) (225,757)
------------ ----------
Net change in cash
and cash equivalents (383,917) (304,635)
Cash and cash equivalents
and bank overdraft
at the beginning of
the year 765,026 1,069,661
Cash and cash equivalents
and bank overdraft
at the end of the year 381,109 765,026
============ ==========
Company statement of cash flows for the year ended at 31
December 2014
2014 2013
GBP GBP
Cash flow from operating
activities
Operating loss (2,563,680) (20,237)
Impairment of investments 2,550,000 -
Operating cash flow
before working capital
movements (13,680) (20,237)
Decrease/(Increase)
in receivables 11,990 (3,900)
(Decrease)/increase
in payables (9,948) 7,973
Cash flow from operating
activities (11,638) (16,164)
Investing activities
Repurchase of shares - (400,000)
------------ ----------
Net cash used in investing
activities - (400,000)
------------ ----------
Taxation (recovered)/paid - (2,969)
------------ ----------
Financing activities
Finance income 8,349 15,013
Loan repayment - 400,000
Net cash from financing
activities 8,349 415,013
------------ ----------
Net change in cash
and cash equivalents (3,289) (4,120)
Cash and cash equivalents
and bank overdraft
at the beginning of
the year 4,148 8,268
Cash and cash equivalents
and bank overdraft
at the end of the year 859 4,148
============ ==========
Notes to the group and financial statements
1. General information
Messaging International Plc is a company incorporated and
domiciled in the UK and its activities are as described in the
chairman's statement and directors' report. The principle place of
business of the company is the same as its registered office.
2. Basis of Accounting
The consolidated financial statements of the company for the
year ended 31 December 2014 have been prepared on a historical cost
basis and are in accordance with International Financial Reporting
Standards ('IFRS") as adopted by the EU. These have been applied
consistently except where otherwise stated.
The following new and amended IFRSs have been adopted during the
year:
Amendments to IAS 36: Recoverable Amount Disclosures for
Non-Financial Assets
Amendments to IAS 39: Novation of Derivatives and Continuation
of Hedge Accounting
Amendments to IFRS 10, IFRS 12 and IAS 27: Investment
Entities
Amendments to IFRS 10, IFRS 11 and IFRS 12: Consolidated
Financial Statements, Joint Arrangements and Disclosure of
Interests in Other Entities - Transition Guidance
Annual Improvements to IFRS 2009-2011 Cycle (issued by the IASB
in May 2012)
IFRIC 21 Levies
The Group has not yet adopted certain new standards, amendments
and interpretations to existing standards, which have been
published but are only effective for the Group's accounting periods
beginning on or after 1 January 2015. The new pronouncements are
listed below:
Amendments to IFRS 11: Accounting for Acquisitions of Interests
in Joint Operations (effective 1 January 2016)*
Amendments to IAS 16 and IAS 38: Clarification of Acceptable
Methods of Depreciation and Amortisation
(effective 1 January 2016)*
Amendments to IAS 16 and IAS 41: Bearer Plants (effective 1
January 2016)*
Amendments to IAS 27: Equity Method in Separate Financial
Statements (effective 1 January 2016)*
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture (effective 1
January 2016)*
Amendments to IAS 1: Disclosure Initiative (effective 1 January
2016)*
Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities:
Applying the Consolidation Exception (effective 1 January
2016)*
IFRS 15: Revenue from Contracts with Customers (effective 1
January 2017)*
IFRS 9: Financial Instruments (effective 1 January 2018)
The directors anticipate that the adoption of these standards
and interpretations in future periods will have no material effect
on the financial statements of the group.
3. Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the company and entities controlled by the company
(its subsidiaries) made up to 31 December each year. Control is
achieved where the company has the power to govern the financial
and operating policies of any subsidiary undertaking so as to
obtain benefits from its activities.
On acquisition, the assets and liabilities and contingent
liabilities of a subsidiary are measured at their fair values at
the date of acquisition. Any excess of the cost of acquisition over
the fair values of the identifiable net assets acquired is
recognised as goodwill. Any deficiency of the cost of acquisition
below the fair values of the identifiable net assets acquired (i.e.
discount on acquisition) is credited to profit and loss in the
period of acquisition.
The results of subsidiaries acquired or disposed of during the
year are included in the consolidated income statement from the
effective date of acquisition or up to the effective date of
disposal, as appropriate. Where necessary, adjustments are made to
the financial statements of subsidiaries to bring the accounting
policies used into line with those used by the group.
Details of subsidiary undertakings are set out in note 15.
All intra-group transactions and balances have been eliminated
in preparing the consolidated financial statements
4. Presentational currency
These financial statements are presented in pounds sterling
because the parent is an AIM traded company on the London Stock
Exchange. The functional currency of the trading subsidiaries is US
dollars.
5. Significant accounting policies
(a) Going concern
These financial statements have been prepared on the assumption
that the group is a going concern.
When assessing the foreseeable future, the directors have looked
at a period of twelve months from the date of approval of this
report. The forecast cash-flow requirements of the business are
contingent upon the ability of the group to retain revenues from
existing contracts and generate future revenues from future
business.
As the directors have reasonable expectations that the group has
adequate resources to continue trading for the foreseeable future
they continue to adopt the going concern basis in preparing the
financial statements.
Were the group unable to continue as a going concern,
adjustments would have to be made to the statement of financial
position of the group to reduce the value of assets to their
recoverable amounts, to provide for future
liabilities that might arise and to reclassify non-current
assets and long-term liabilities as current assets and
liabilities.
(b) Revenue recognition
The company's trading subsidiaries generate revenues primarily
from sales of messaging services to mobile operators and
corporations for use by end-customers (such as Text to
Landline).
Revenues are recognised when the revenues can be measured
reliably, it is probable that the economic benefits associated with
the transaction will flow to the company and the costs incurred or
to be incurred in respect of the transaction can be measured
reliably. Revenues are measured at the fair value of the
consideration received less any trade discounts, volume rebates and
returns.
Deferred revenue includes amounts received from customers for
which revenue has not yet been recognised.
(c) Research and development costs
Research expenditure is recognised in profit or loss when
incurred. An intangible asset arising from development or from the
development phase of an internal project is recognised if the
company can demonstrate the technical feasibility of completing the
intangible asset so that it will be available for use or sale; the
company's intention to complete the intangible asset and use or
sell it; the company's ability to use or sell the intangible asset;
how the intangible asset will generate future economic benefits;
the availability of adequate technical, financial and other
resources to complete the intangible asset; and the company's
ability to measure reliably the expenditure attributable to the
intangible asset during its development.
The asset is measured at cost less any accumulated amortisation
and any accumulated impairment losses. Amortisation of the asset
begins when development is complete and the asset is available for
use.
In the years ended 31 December 2014 and 2013, no development
costs were capitalised.
(d) Goodwill and impairment
The carrying amounts of assets are reviewed at each reporting
date to determine whether there is any indication of
impairment.
If any such indication exists then the asset's recoverable
amount is estimated. For goodwill that has an indefinite useful
life, recoverable amount is estimated at each reporting date or
more frequently when indications of impairment are identified.
An impairment loss is recognised if the carrying amount of an
asset or its cash-generating unit exceeds its recoverable amount
unless the asset is carried at a revalued amount, in which case the
impairment loss is recognised directly against any revaluation
surplus for the asset to the extent that the impairment loss does
not exceed the amount in the revaluation surplus for that same
asset. A cash-generating unit is the smallest identifiable asset
group that generates cash flows that are largely independent from
other assets and groups. Impairment losses are recognised in the
income statement in the period in which it arises. Impairment
losses recognised in respect of cash-generating units are allocated
first to reduce the carrying amount of any goodwill allocated to
the units and then to reduce the carrying amount of the other
assets in the unit (group of units) on a pro rata basis.
The recoverable amount of an asset or cash-generating unit is
the greater of its value in use and its fair value less costs to
sell. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the asset.
Impairment loss on goodwill is not reversed in a subsequent
period. An impairment loss for an asset other than goodwill is
reversed if, and only if, there has been a change in the estimates
used to determine the asset's recoverable amount since the last
impairment loss was recognised. The carrying amount of an asset
other than goodwill is increased to its revised recoverable amount,
provided that this amount does not exceed the carrying amount that
would have been determined (net of amortisation or depreciation)
had no impairment loss been recognised for the asset in prior
years. A reversal of impairment loss for an asset other than
goodwill is recognised in the income statement unless the asset is
carried at revalued amount, in which case, such reversal is treated
as a revaluation increase.
(e) Investment in subsidiary undertakings
The investment in subsidiary undertakings is stated in the
balance sheet at cost less any provision for impairment. Impairment
is recognised immediately in the income statement and is not
subsequently reversed.
(f) Property, plant and equipment
Property, plant, and equipment are stated at cost net of
accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets
at the following annual rates:
%
Computers 33
Electronic equipment 15-25
Furniture and office equipment 7-15
Leasehold improvements Over the term
of the lease
The carrying value of property plant and equipment is reviewed
for impairment when events or changes indicate the carrying value
may not be recoverable. If any such indication exists and carrying
values exceed recoverable amounts such assets are written down to
their recoverable amounts.
(g) Operating leases
Rentals applicable to operating leases, where substantially all
of the benefits and risks of ownership remain with the lessor, are
charged against income as and when incurred.
(h) Share options:
Employee share options
The group has applied the requirements of IFRS 2 "Share-based
Payments".
The group issues equity-settled and cash-settled share-based
payments to certain employees. Equity-settled share-based payments
are measured at fair value at the date of grant. The fair value
determined at the grant date is expensed on a straight-line basis
over the vesting period, based on the group's estimate of shares
that will eventually vest.
Fair value is measured by use of a Black-Scholes model. The
expected life used in the model has been adjusted, based on
management's best estimate, for the effects of non-transferability,
exercise restrictions, and behavioural considerations.
A liability equal to the portion of the goods or services
received is recognised at the current fair value determined at each
balance sheet date for cash-settled share-based payments.
Other share options and equity instruments:
Where equity instruments are granted to persons other than
employees the income statement is charged with the fair value of
services received.
This policy has been applied to the cost of warrants issued to
Mizrahi Tefahot Ltd in June 2012 as part of their loan agreement
with the company's subsidiary undertaking in Israel and is written
off to as part of the company's cost of finance over the term of
the loan.
(i) Severance pay
Pursuant to Israel's severance pay law, employees of more than
one year are entitled to one month's salary for each year employed
or a portion thereof. The cost of providing severance pay is
determined using an independent actuary. Actuarial gains and losses
are recognised immediately in the income statement in the period in
which they occur.
The value of deposited funds is based on the cash surrender
value of the insurance policies. The deposited funds include
profits accumulated up to the balance sheet date. The deposited
funds may be withdrawn only upon fulfilment of the severance pay
obligation, pursuant to Israel's severance pay law or labour
agreements.
(j) Government grants
Government grants are recognised when there is reasonable
assurance that the grants will be received and the company will
comply with the attached conditions. Government grants received
from the Office of the Chief Scientist ("OCS") are recognized upon
receipt as a liability if future financial benefits are expected
from the project that will result in royalty-bearing sales.
A liability for the loan is first measured at fair value using a
discount rate that reflects a market rate of interest. The
difference between the amount of the grant received and the fair
value of the liability is accounted for as a Government grant and
recognised as a reduction of research and development expenses.
After initial recognition, the liability is measured at ammortised
cost using the effective interest method. Royalty payments are
treated as a reduction of the liability. If no economic benefits
are expected from the research activity, the grant receipts are
recognised as a reduction of the related research and development
expenses. In that event, the royalty obligation is treated as a
contingent liability in accordance with IAS 37.
In each reporting date, the company evaluates whether there is
reasonable assurance that the royalty liability, in whole or in
part, will or will not be settled based on the best estimate of
future sales. If the estimate of future sales indicates that there
is no such reasonable assurance, the appropriate liability
reflecting the anticipated royalty payments is recognised with a
corresponding charge to research and development expenditure.
(k) Taxation
Income tax expense represents the sum of the current tax payable
and the deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from profit as reported in the same
income statement because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The company's
liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet
date.
Deferred tax is recognised on differences between the carrying
amounts of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of taxable
profit, and are accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if
the temporary difference arises from goodwill or from the initial
recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither the taxable
profit nor the accounting profit.
The carrying amount of deferred tax is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or
part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset
realised. Deferred tax is charged or credited to income statement,
except when it relates to items charged or credited directly to
equity, in which case the deferred tax is also dealt with in
equity.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the company intends to settle
its current tax assets and liabilities on a net basis.
(l) Foreign currency
Transactions in foreign currency are recorded at the rate of
exchange prevailing at the date of the transaction. All differences
are taken to the income statement. Assets and liabilities
denominated in foreign currency are translated into sterling at the
rate of exchange prevailing at the balance sheet date.
On consolidation, income and expenditure of subsidiary
undertakings are translated into sterling at average rates of
exchange in the period. Assets and liabilities are translated into
sterling at the rate of exchange ruling at the balance sheet date.
Exchange differences arising from the use of average rates for
translating the
results of foreign subsidiaries or from the translation of net
assets on the acquisition of foreign subsidiary undertakings are
taken to the group's translation reserves.
(m) Investments
Investments represent funds invested in insurance policies in
order to meet severance pay obligations pursuant to Israeli
severance pay law and staff contracts of employment relevant to the
company's principal subsidiary undertaking in Israel.
(n) Trade receivables
Trade receivables are recognised at fair value. A provision for
impairment of trade receivables is established where there is
objective evidence that the company or group will not be able to
collect all amounts due according to the original terms of the
receivables. Significant financial difficulties of the debtor,
probability that the debtor will enter bankruptcy or liquidation
and default or delinquency of payments are considered indicators
that the trade receivable is impaired. The amount of the provision
is the difference between the asset's carrying amount and the
present value of estimated future cash flows discounted at the
original rate of interest. The carrying amount of the asset is
reduced through the use of an allowance account and the amount of
the loss is recognised in the income statement within
administrative expenses. When a trade receivable is uncollectable
it is written off against the allowance account for trade
receivables.
(o) Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held
on call with banks. Bank overdrafts are shown as borrowings within
current liabilities.
(p) Trade payables
Trade payables are recognised at fair value
(p) Provisions
A provision in accordance with IAS 37 is recognised when the
Group has a present obligation (legal or constructive) as a result
of a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation. If the effect is material, provisions are measured
according to the estimated future cash flows discounted using a
pre-tax interest rate that reflects the market assessments of the
time value of money and, where appropriate, those risks specific to
the liability.
(q) Financial liabilities and equities
Financial liabilities and equities instruments are classified
according to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the group after deducting all of
its liabilities.
Ordinary shares are classified as equity. Incremental costs
directly attributable to new shares are shown in equity as a
deduction from the proceeds.
Share premium represents funds raised from shareholders in
excess of their nominal value net of issue costs.
Revenue reserves represent the cumulative net gains and losses
of the group along with increases in equity for services received
in equity settled share-based transactions.
Borrowings represent bank borrowings and are measured at
amortised cost.
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method.
(r) Borrowing costs
Borrowing costs are expensed to the comprehensive income
statement in the period incurred.
(s) Managing capital
The group's objectives when managing capital are to safeguard
the group's ability to continue as a going concern in order to
provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital. In order to maintain or adjust the capital
structure, the group may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or
sell assets to reduce debt.
6. Critical accounting judgements and key sources of estimation uncertainty
The key assumptions made in the financial statements concerning
uncertainties at the date of financial position and the critical
estimates computed by the group that may cause a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below.
Share based payments
The group has made awards of options over its unissued share
capital to certain directors, employees as part of their
remuneration package and Mizrahi Tefahot Ltd, bankers to
TeleMessage Ltd.
The valuation of share options and warrants involve making a
number of critical estimates relating to price volatility, future
dividend yields, expected life of the options and forfeiture rates.
The assumptions have been described in more detail in notes 23 and
30.
Employee benefits liability
The measurement of the liability in respect of the defined
benefit pension plans is determined using actuarial valuations. The
actuarial valuation involves making assumptions about, among
others, discount rates, expected rates of return on assets, future
salary increases and mortality rates. Due to the long term nature
of these plans, such estimates are subject to significant
uncertainty. Further details are given in Note 21.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation
of the value in use of the cash generating units to which the
goodwill has been allocated. The value in use calculation requires
the entity to estimate the future cash flows expected to arise from
the cash generating unit and a suitable discount rate in order to
calculate present value.
As set out in note 15, the carrying amount of goodwill at the
balance sheet date has required impairment of GBP2,550,000. Taking
into account exchange rate fluctuations, the carrying value at 31
December 2014 was GBP803,957 (2013: GBP3,432,759).
Property, plant and equipment
The costs of property, plant and equipment of the group are
depreciated on a straight-line basis over the useful lives of the
assets. Management estimates the useful lives of the property,
plant and equipment to be within 3 to 5 years. These are common
life expectancies applied in the industry. Changes in the expected
level of usage and technological developments could impact the
economic useful lives and the residual values of these assets,
therefore future depreciation charges could be revised. The
carrying amounts of the group's property, plant and equipment as at
31 December 2014 are disclosed in Note 16 to the financial
statements
7. Revenues
(a) Group activities
The group activities are in a single business segment, being the
development of end-user media messaging systems.
(b) Revenues by geographic market and customer location
The group's operations are located primarily in Israel and the
business is managed on the basis of one reportable segment and for
this reason the only relevant information is as set out below:
The analysis of revenues by geographical market and customer
location are is follows:
2014 2013
Customer location GBP GBP
North America 3,171,573 3,359,569
Europe and Middle East 405,494 378,194
Rest of the world 30,911 38,147
---------- ----------
3,607,978 3,775,910
========== ==========
Revenues originating from:-
2014 2013
GBP GBP
USA 2,142,978 2,305,008
Canada 1,028,596 1,054,561
Other countries 436,404 416,341
========== ==========
Revenues of GBP1,693,165 (2013: GBP1,885,040) are derived from a
single external customer located in the USA.
No disclosure has been made in relation to non current assets by
geographic market as the cost to obtain such information would be
uneconomic and of limited value by way of additional
information.
8. Operating profit
2014 2013
The operating profit GBP GBP
is stated after charging:
Staff costs 2,127,782 1,871,705
Research and development 1,271,892 1,353,451
Government grant for
research and development (36,822) (164,951)
Leasing costs 144,021 156,610
Auditors' remuneration 29,495 28,365
Fees to auditors for
other services 4,460 2,550
Goodwill impairment 2,550,000 -
Depreciation and amortisation 94,634 64,533
========== ==========
Included in the audit fee for the group is an amount of
GBP14,950 (2013: GBP14,950) in respect of the company.
9. Staff Costs
Payroll costs include: Group
2014 2013
GBP GBP
Staff payroll and related
costs 1,873,181 1,604,643
Directors' remuneration 208,188 192,618
Defined benefit scheme
expense 46,413 74,444
2,127,782 1,871,705
========== ==========
Payroll costs included above for key personnel including the
directors totalled GBP410,555 (2013: GBP530,616)
The average numbers of employees, including directors during the
year, was as follows:-
2014 2013
No. No.
Administration 2 2
Sales and marketing 8 8
Research and development 20 20
Operations 6 7
Directors 5 5
----- -----
41 42
===== =====
10 Directors' remuneration
2014 2013
An analysis of directors' remuneration GBP GBP
(who are the key management personnel)
is set out below
Executive directors 198,188 182,618
Non-executive directors 10,000 10,000
208,188 192,618
======== ========
Directors' remuneration includes pension contributions of
GBP17,004 (2013: GBP16,366)
2014 2013
GBP GBP
G Levit 178,188 162,618
I Fishman 20,000 20,000
G Simmonds 5,000 5,000
D Rubner 5,000 5,000
-------- --------
208,188 192,618
======== ========
No share options granted to directors were exercised in the
year.
H Furman has waived his right to director's fees of GBP5,000 per
annum.
There is one director enrolled under the defined benefit
scheme
11. Financial income and finance
costs 2014 2013
GBP GBP
Finance income:
Interest received 232 235
--------------- ----------------
Finance costs:
Interest payable 25,068 25,684
Loss on foreign currency transactions 46,203 39,945
--------------- ----------------
71,271 65,629
--------------- ----------------
Total 71,039 65,394
=============== ================
12. Taxation
Current tax charge/(credit 2014 2013
GBP GBP
8,194 (2,914)
======= ========
Factors affecting the tax charge in the year
Loss on ordinary activities before taxation (2,884,798) (92,073)
============ =========
Loss on ordinary activities before taxation at the applicable rate of corporation
tax 21.5%
(2013: 23.25%) (620,232) (21,407)
Effects of:
Depreciation and amortisation 20,346 15,004
Goodwill Impairment 548,250 -
US taxation (986) (1,368)
Israeli withholding tax deemed irrecoverable 13,500 -
Unused losses 47,316 4,857
Tax charge 8,194 (2,914)
============ =========
There was no tax in relation to any components of comprehensive
income.
TeleMessage Ltd in Israel was granted approved enterprise status
for its investment programme. The main benefit arising from such
status is the reduction in tax rates on income. As TeleMessage has
suffered trading losses to date it has been unable to take
advantage of tax incentives otherwise available.
The group's accumulated trading losses to date are approximately
GBP9.4 million. Trading losses of approximately GBP5.6 million in
relation to TeleMessage Ltd in Israel may be carried forward and
offset against future trading income indefinitely and without
restriction. The remaining GBP3.8 million originates from
TeleMessage Inc. in the US which can be utilised for up to 20 years
subject to restrictions.
In accordance with IAS12, the company and the group have not
recognised deferred tax assets of GBP2 million (2013: GBP2million)
whilst the level of future profits that will be generated in the
foreseeable future remains uncertain.
13 Basic and diluted loss per share
Basic loss per share has been calculated on the group's loss
attributable to equity holders of the parent company of
GBP2,893,712 (2013: loss GBP89,159) and on the weighted average
number of shares in issue, which was 115,872,148
(2013:134,064,000).
In view of the group loss for the year, share warrants and
options to subscribe for shares in the company are anti-dilutive
and therefore diluted earnings per share is the same as basic loss
per share.
14. Loss for the financial year
As permitted by Section 408 of the Companies Act 2006, the
profit and loss account for the company is not presented as part of
these financial statements.
The loss for the year dealt with in the financial statements of
the company was GBP2,568,831 (2013 - loss: GBP8,193). The loss for
the year is after impairment of the company's investment of
GBP2,550,000 (2013 - Nil).
15. Intangible assets
Goodwill and investment in subsidiary undertakings
Goodwill
2014 2013
Cost GBP GBP
At 1 January and 31 December 3,236,617 3,236,617
Impairment
At 1 January - -
Charge in the year (2,550,000) -
------------ ----------
At 1 January and 31 December 686,617 3,236,617
------------ ----------
Exchange rate changes
196,142 281,428
Exchange rate change in the year (78,802) (85,286)
------------ ----------
At 31 December 2014 117,340 196,142
------------ ----------
Carrying value at 31 December 803,957 3,432,759
============ ==========
Goodwill acquired in a business combination is allocated, at
acquisition, to cash generating units (CGUs) that are expected to
benefit from that business combination. The carrying amount of
goodwill relates wholly to the group's single trading activity and
business segment.
The recoverable amount of this cash-generating unit is
determined based on a value in use calculation, which uses cash
flow projections based on financial forecasts approved by the
directors and a discount rate of 10.0% (2013 10.0%). The discounted
rate which is calculated on a weighted average cost of capital
basis assumes a long-term growth rate of 6%. A single annual
expected future cash flow is derived from these cash flow
projections representing the directors' best estimate of annual
cash flow associated with the cash generating unit, from which the
value in use has been calculated. The expected future cash flow
used in the calculation is based on the directors' cash flow
forecast for the year ended 31 December 2014.
The directors' assessment of goodwill suggested that impairment
of GBP2,550,000 should be made to the carrying value of goodwill.
The directors believe that any reasonably possible change in the
key assumptions on which the recoverable amount is based would not
cause the aggregate carrying amount to exceed the aggregate
recoverable amount of the cash-generating unit.
The key assumptions used in the value in use calculations of
TeleMessage Ltd, the cash-generating unit, are as follows:-
2014
Revenue growth rate 6%
Annual expected future growth GBP167,684
Discount rate 10%
===========
The discount rates used are pre-tax and reflect specific risks
associated with the group's activities and its cost of
borrowings.
Company - Investment in subsidiary undertakings 2014 2013
GBP GBP
Cost of shares:
At 1 January and 31 December 3,269,000 3,269,000
Impairment (2,550,000) -
------------ ----------
719,000 3,269,000
============ ==========
The following were subsidiaries at the balance sheet date and
have been included in these consolidated financial statements.
Description
and proportion Country
of share of incorporation
Subsidiary undertakings capital owned or registration Nature of business
TeleMessage Limited Ordinary Israel Trading
100%
TeleMessage Inc * Ordinary USA Trading
100%
* held indirectly through TeleMessage Limited
16. Property, plant and equipment
Group 2014 2013
GBP GBP
Cost
At 1 January 423,237 380,045
Additions 14,581 52,405
Foreign exchange
movement 24,418 (9,213)
-------- --------
At 31 December 462,236 423,237
Depreciation
At 1 January 260,582 200,920
Depreciation in the
year 100,094 64,533
Foreign exchange 15,034 (4,871)
At 31 December 375,710 260,582
======== ========
Carrying value
At 31 December 2014
and 2013 86,526 162,655
======== ========
At 1 January 2014
and 2013 162,655 179,125
======== ========
All the above assets are included in the accounts of subsidiary
undertakings at their net book values comprising computers and
related equipment of GBP70,196 (2013: GBP145,308) and office
furniture and equipment of GBP16,330 (2013: GBP17,347).
17. Other investments
Group Company
2014 2013 2014 2013
GBP GBP GBP GBP
Investment plans for employee severance 343,699 323,704 - -
Loan note due from subsidiary undertakings - - 1,538,461 -
343,699 323,704 1,538,461 -
======== ======== ========== =====
Other investments of GBP343,699 represents the funds at 31
December 2014 (2013:GBP323,704) invested in insurance policies, in
order to meet the group's severance pay obligations to its
employees in Israel pursuant to Israeli severance pay law and staff
employment contracts.
In June 2014, The company issued its subsidiary undertaking
TeleMessage Limited a five year US dollar denominated capital note
for $2,400,000 which was equivalent to GBP1,420,622 to be repaid at
the end of the five year term or in instalments at the option of
the borrower. The loan is interest free and can only be assigned
with the approval of both parties. There were no repayments in the
period.
The carrying value of the capital note at the year end was
GBP1,538,461 giving rise to a foreign exchange translation gain of
GBP117,839 reflected in the company's reserves.
18. Trade and other receivables
Group Company
2014 2013 2014 2013
GBP GBP GBP GBP
Trade receivables 625,487 625,483 - -
Due from subsidiary undertakings after one year - - 202,130 1,636,680
Due from government authorities 1,313 31,349 1,313 13,726
Other receivables and prepaid expenses 69,268 127,822 3,281 2,430
696,068 784,654 206,724 1,652,836
======== ======== ========== ============
The amount due from subsidiary undertakings totals GBP1,622,752
comprising an interest-bearing loan of GBP202,130 and a capital
note for GBP1,420,622 (2013: GBP1,636,680 including an
interest-bearing amount of GBP216,058).
Full details of the terms relating to the capital note are given
in note17 above.
Neither overdue
or impaired More than 90
Trade Total <30 days 30-60 days 60-90 days days
receivables -
ageing
GBP GBP GBP GBP GBP GBP
2014 625,487 65,845 323,583 134,090 64,351 37,618
============== ================ ================ ============= ============== ================
2013 625,483 15,109 317,916 155,479 85,804 51,175
============== ================ ================ ============= ============== ================
The average credit period given for trade receivables at the end
of the year is 63 days (2013:60 days).
19. Trade and other payables
Group Company
2014 2013 2014 2013
GBP GBP GBP GBP
Trade payables 105,888 214,495 - -
Taxes and social security 223,979 230,891 - -
Accruals and other payables 195,798 171,315 19,500 29,448
525,665 616,701 19,500 29,448
======== ======== ======= =======
The average credit period taken for trade payables at the end of
the year is 66 days (2013: 58 days).
20. Borrowings
Group Group Company Company
2014 2013 2014 2013
GBP GBP GBP GBP
Due within one year 110,013 199,019 - -
Due after one year - 103,997 - -
110,013 303,016 - -
======== ======== ======== ========
In June 2012, the company's subsidiary, TeleMessage Ltd, signed
an agreement for a loan of US$1,000,000 from Mizrahi Tefahot Bank
Ltd.
Under the terms of the agreement, repayments are over 36 equal
monthly instalments with an interest rate based on the London
Interbank Offered Rate plus 5.5%.
21. Provisions - severance pay liability
Under Israeli severance pay law, part of the compensation
payments, pursuant to which the fixed contributions paid by the
company into pension funds and/or policies of insurance companies
release the group from any additional liability to employees for
whom such contributions were made. These contributions and
contributions for compensation represent defined contribution
plans. The company accounts for that part of the payment of
compensation that is not covered by contributions in defined
contribution plans, as above, as a defined benefit plan for which
an employee benefit liability is recognized and for which the
company deposits amounts in central severance pay funds and in
qualifying insurance policies.
Group Group
2014 2013
GBP GBP
Expense in respect of defined contribution
plan 46,582 45,200
============= =========
(a) The amounts recognised in the statement of financial position are as follows:
Group Group
2014 2013
GBP GBP
Defined benefit obligation (479,656) (382,189)
Fair value of plan assets 343,699 323,703
Benefit liability (135,957) (58,486)
========== ==========
(b) Expenses recognised in the statement of comprehensive income:
Group Group
2014 2013
GBP GBP
Net actuarial loss recognised in the
year 71,715 5,576
Total expenses included in the statement
of comprehensive income 71,715 5,576
======= ======
(c) Amounts recognised in arriving at the operating loss is as follows:
Group Group
2014 2013
GBP GBP
Current service cost 39,468 35,649
Interest cost 1,694 34,249
Return differences transferred to employer 5,251 6,075
Total expense included in statement
of income 46,413 75,973
======= =======
(d) Changes in present value of defined benefit obligation are as follows:
Group Group
2014 2013
GBP GBP
Liability at the beginning of the year 382,189 329,857
Current service cost 39,468 35,649
Interest cost 18,453 18,106
Benefits paid (3,942) (6,131)
Actuarial (loss)/gain on obligation 72,790 (12,427)
Foreign exchange differences (29,302) 17,135
Liability at the end of the year 479,656 382,189
========= =========
(e) Changes in fair value of plan assets are as follows:
Group Group
2014 2013
GBP GBP
Plan assets at the beginning of the
year 323,703 275,692
Expected return 16,662 (16,143)
Contributions by employer 33,683 29,909
Return differences transferred to employer (5,251) (6,075)
Actuarial loss 1,075 (6,885)
Foreign exchange differences (26,173) 47,205
Plan asset at the end of the year 343,699 323,703
========= =========
(f) The actuarial assumptions used are as follows:
Group Group
2014 2013
Discount rate 4.11% 4.73%
Future salary increase 3.50% 3.50%
Average expected remaining working years 12.89 13.20
22. Other payables
Royalty commitments
Under the research and development agreement with the Office of
the Chief Scientist and pursuant to applicable laws, the subsidiary
undertaking is required to pay royalties at the rate of 3% in the
first three years and a rate of 3.5% from the fourth year of sales
for products developed with funds provided by the OCS, up to an
amount equal to 100% of the grants received, plus interest at the
12-month LIBOR rate. The subsidiary undertaking is obligated to
make royalty payments in relation to the sale of products directly
funded.
2014 2013
GBP GBP
Amount outstanding at 1 January 23,618 41,022
Foreign exchange difference 1,362 (994)
Grants received in the year 17,749 149,424
Royalties paid in the year (858) (883)
Taken to statement of comprehensive
income (36,822) (164,951)
--------- ----------
Amount outstanding at 31 December 5,049 23,618
========= ==========
23. Share capital
2014 2013
GBP GBP
Issued and fully paid
115,872,148 (2013 - 115,872,148)
ordinary shares of 0.5p each 579,361 579,361
======== ========
The company has one class of ordinary share which have no rights
to fixed income.
Share options
The unapproved share option scheme was adopted by the board on
27 July 2005.
At 31 December 2014 there were 2,000,000 share options
exercisable by non-employees.
500,000 share options were granted to a sales adviser to the
company with an exercise price of 0.7p per share in addition to
1,500,000 share options issued to Arba Finance Company Ltd in 2009
with an exercise price of 0.5p per share.
During the year 15,025,000 share options were granted to
employees and directors of the company and 1,209,402 share options
lapsed or were forfeited by employees no longer with the
company.
No share options were exercised in the year
At 31 December 2014 there were 33,960,399 (2013:19,980,399)
share options held by employees and directors of the company.
Remaining share options exercisable by employees and directors
at the year end are summarised below:
Number Date Exercise Exercisable
of options granted price between
Directors:
Guy Levit 4,000,000 27.7.2007 0.5p 27.7.2009 - 27.7.2017
Guy Levit 4,000,000 28.1.2009 0.5p 28.1.2011 - 28.1.2019
Guy Levit 3,000,000 31.3.2014 1.22p 31.3.2014 - 31.3.2024
David Rubner 500,000 27.7.2005 5p 20.7.2006 - 20.7.2015
David Rubner 475,000 31.3.2014 1.22p 31.3.2014 - 31.3.2024
-------------
11,975,000
Other employees 164,402 27.7.2005 3.06p 27.7.2005 - 31.12.2014
Other employees 39,520 27.7.2005 5p 27.7.2005 - 3.8.2015
Other employees 1,163,913 1.3.2006 5p 1.3.2006 - 1.3.2016
Other employees 431,624 6.10.2006 5p 6.10.2006 - 6.10.2016
Other employees 180,940 6.10.2006 3.2p 6.10.2006 - 6.10.2016
Other employees 4,000,000 27.7.2007 0.5p 27.7.2009 - 27.7.2017
Other employees 4,000,000 28.1.2009 0.5p 28.1.2011 - 28.1.2019
Other employees 1,500,000 28.1.2009 0.5p 28.1.2011 - 28.1.2019
Other employees 10,505,000 31.3.2014 1.22p 31.3.2014 - 31.3.2024
33,960,399
=============
Details of share option valuations are given in note 30.
Warrants in issue at 31 December 2014
The company granted Mizrahi Tefahot Bank Ltd warrants to the
value of GBP100,000 to purchase ordinary shares, exercisable at any
time from the time of the grant to 13 August 2014. These warrants
were not taken up.
In February 2012 and as part of the agreement following
completion of the buyback, Pacific were granted options to
subscribe for up to 10,000,000 new ordinary shares at 0.5 pence per
share exercisable in whole or in part, which will lapse on the
earlier of three years from the date of grant or the date on which
Pacific is dissolved.
In June 2012, as part of a new loan agreement, the company
granted to Mizrahi Tefahot Bank Ltd 3,896,804 warrants exercisable
at any time from grant until June 2017. The warrants are
exercisable at a price of 0.63p per share, although in certain
circumstances the exercise price might be subject to
adjustment.
The exercise period was extended to January 2020 as part of an
agreement reached with the bank in January 2015, details of which
are given in note 27 below.
All warrants were valued under IFRS 2 using the Black Scholes
pricing model.
The fair value per warrant granted and the assumptions used in
the calculations were as follows:
14 August 19 December 20 February 17 June
Grant date 2008 2008 2012 2012
Share price
at grant date 0.60p 0.50p 0.90p 0.88p
Exercise price 0.65p 0.67p 0.50p 0.63p
Shares under
option 7,692,308 7,456,504 10,000,000 3,896,804
Vesting period Immediately Immediately Immediately Immediately
Expected volatility 226% 221% 90.7% 89.5%
Option life 6 5.67 3 5
Expected life 6 5.67 3 5
Risk free rate 3.55% 2.85% 1.12% 1.07%
Expected dividends
expressed as
dividend yield 0% 0% 0% 0%
Fair value
per option 0.5969p 0.4955p 0.6247p 0.6480p
Expected volatility was determined by calculating the historical
volatility of the Company's share price since admission of the
shares to AIM. The expected life used in the model has been
adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions, and behavioural
considerations. The risk free rate is based on the redemption yield
on US Federal Bonds with a life in line with the expected option
life.
As no warrants were issued in 2014 there is no charge recognised
in the accounts (2013: GBPNil).
Further details in relation to share options is given in note
30.
24. Financial commitments
Lease commitments
The group's subsidiary undertaking in Israel is committed to
making the following future minimum lease payments under
non-cancellable operating leases for office facilities and motor
vehicles terminating in 2020.
Future minimum commitments at 31 December 2014 are as
follows:-
2014 2013
GBP GBP
Within one year 96,469 116,826
Between two to five years 318,960 195,258
More than five years 13,157 320,575
-------- --------
428,586 632,659
======== ========
Leasing costs charged in the statement of comprehensive income
in the year ended 31 December 2014 and 2013 were GBP144,021 and
GBP156,610 respectively.
25. Related parties
A H Montpelier
The group made payments to AH Montpelier totalling GBP23,500
(excluding vat) (2013: GBP23,500) for the services of I Fishman as
a director and for the professional services of AH Montpelier
Professional (West End) Limited, Chartered Accountants a company in
which he was a director throughout the year.
Parent company management fees and interest
The company charged fees of GBP84,000 (2013:GBP84,000) for
management services of its subsidiary undertakings. Interest of
GBP8,349 (2013: GBP15,013) was charged by the company in relation
to the interest bearing element of monies due from subsidiary
undertakings which at 31 December 2014 was GBP202,130 (2013:
GBP216,058).
26 Cash and cash equivalents and net funds
At 1 At
January Cash 31 December
2014 Flow 2014
GBP GBP GBP
Group
Cash and cash equivalents 765,026 (383,917) 381,109
Borrowings (303,016) 193,003 (110,013)
---------- ---------- -------------
462,010 (190,914) 271,096
---------- ---------- -------------
Company
Cash and cash equivalents 4,148 (3,289) 859
========== ========== =============
27 Post balance sheet events
In January 2015, TeleMessage Limited signed a new loan agreement
in the amount of $ 1,000,000 from Mizrahi Tefahot Bank Ltd. Under
the terms of the new loan agreement, the loan bears an interest
rate of the London Interbank Offered Rate plus 6% to be repaid in
36 equal monthly instalments.
In addition, and as part of the agreement, the company granted
Mizrahi Tefahot Bank Ltd a further 4,500,000 warrants to purchase
ordinary shares, exercisable at any time from grant to January 24,
2020. These warrants are exercisable at a price of 0.91 pence per
share. The company also extended the exercise period of the
3,896,804 warrants, granted to Mizrahi Tefahot Bank Ltd. under the
agreement signed in 2012 from June 2017 to January 2020.
28 Controlling party
H Furman is the controlling party by virtue of his personal
shareholding in the company together with other shareholdings in
which he has a beneficial interest.
His shareholdings comprise of 68,808,276 ordinary shares
representing 59.4% of the company's ordinary share capital and
includes 34,492,934 ordinary shares owned by Prideway Holdings
Limited, a company under his control, 16,533,333 shares in the name
of Lynchwood Nominees as well as 17,782,009 owned personally.
29. Financial instruments and risk management
The group is funded by equity together with a bank loan of
GBP110,000 which represents the group's capital.
The group's objectives when maintaining capital are:
- To safeguard the entity's ability to continue as a going
concern, so that it can begin to provide returns for shareholders
and benefits for other stakeholders; and
- To provide an adequate return to shareholders by pricing
products and services commensurately with the level of risk.
Financial assets and financial liabilities are recognised in the
group's balance sheet when the group becomes a party to the
contractual provision of the instrument.
At 31 December 2014 and 31 December 2013 there were no material
differences between the fair value and the book value of the
group's financial assets and liabilities which are set out
below.
2014 2013
GBP GBP
Financial assets
Cash and cash equivalents 381,109 765,026
Trade and other short term
receivables 696,068 784,654
1,077,177 1,549,680
========== ==========
Financial liabilities (which
are included at amortised cost)
Trade and other payables 530,714 640,319
Bank borrowings 110,013 303,016
---------- ----------
640,727 943,335
========== ==========
The group's financial instruments comprise investments, cash and
cash equivalents, receivables and payables that arise directly from
its operations.
The group has not adopted a policy of using financial
derivatives and does not rely on the use of interest rate
hedges.
In common with other businesses, the group is exposed to risks
that arise from its use of financial instruments. There have been
no substantive changes to the group's response to financial
instrument risk and the methods used to measure them from previous
periods.
The main risks arising from the group's financial instruments
are currency, credit and liquidity risks.
Currency risk
The Company operates internationally and is exposed to currency
exchange risk arising from various currency exposures, primarily
with respect to the new Israeli shekel ("NIS"), US Dollar, GBP and
Euro. Currency exchange risk arises mainly from payroll and costs
incurred in NIS, sale denominated in Euro and recognized assets and
liabilities some of which denominated in GBP.
Credit risk
Credit risk arises from cash and cash equivalents as well as
credit exposures to customers.
The group's cash and cash equivalents are invested in various
financial institutions. The group's policy is spreading out its
cash investments among the various institutions and assessing on an
ongoing basis the relative credit strength of the various financial
institutions.
Trade receivables are mainly derived from sales to customers
primarily located in Israel and North America.
The group performs ongoing credit evaluations of its customers
and an allowance for doubtful accounts is determined with respect
to those amounts that the Company has determined to be doubtful of
collection. Bad debts are written-off when identified by
management.
At 31 December 2014, the group had no significant off-balance
sheet concentration of credit risk, such as forward exchange
contracts, options contract or other foreign hedging
arrangements.
At 31 December 2014, the company had significant risk
concentration by virtue of monies due from its subsidiary
undertaking in Israel. The directors review the financial
performance of its trading subsidiaries and its ability to commence
reducing its debt to the company.
Liquidity risk:
Liquidity risk arises in relation to the group's management of
working capital and the risk that the company or any of its
subsidiary undertakings will encounter difficulties in meeting
financial obligations as and when they fall due. To minimise this
risk the liquidity position and working capital requirements are
regularly reviewed by management.
Prudent liquidity risk management implies maintaining sufficient
cash and the availability of funding through an adequate amount of
committed credit facilities.
Management monitors rolling forecasts of the Company's cash and
cash equivalents on the basis of expected cash flow.
Anticipated future cash flows - Year ended 31 December 2014
Total projected cash flows
More than 5 years
First year Years 2-5
GBP GBP GBP GBP
Trade payables 105,000 105,000 -
Other financial payables 400,000 400,000 -
Bank loans 110,000 110,000 -
Royalty bearing grants 5,000 5,000 -
----------------------------- ------------- --------------- --------------------
620,000 620,000 -
============================= ============= =============== ====================
Anticipated future cash flows - Year ended 31 December 2013
Total
projected More than
cash flows First Years 5 years
year 2-5
GBP GBP GBP GBP
Trade payables 215,000 215,000 - -
Other financial
payables 425,000 425,000 - -
Bank loans 315,000 220,000 95,000 -
Royalty bearing
grants 25,000 1,000 24,000 -
-------------- ---------- --------------- ------------
980,000 861,000 119,000 -
============== ========== =============== ============
Interest rate risk
As the group's long term liabilities include a bank loan drawn
down in June 2012, the group's interest rate risk from this
borrowing which is linked to the LIBOR interest rate is not
considered to be material in terms of the effect on cash flow for
changes in the rate of interest. As a result the directors do not
consider variations in interest rates will have a significant
impact on the group's cost of finance or operating performance.
30. Share based payments - Equity settled share option scheme
Since incorporation the company has awarded share options
enabling directors and employees to subscribe for ordinary shares
of 0.5p each. Exercise of an option is subject to continued
employment. Options were valued using the Black Scholes pricing
model. The fair value per option granted and the assumptions used
in the calculations were as follows:
27 July 27 July 27 July 27 July 1 March 6 October
Grant date 2005 2005 2005 2005 2006 2006
Share price
at grant date 5p 5p 5p 5p 4.6p 2.25p
Exercise price 2.17p 3.06p 3.67p 5p 5p 5p
Shares under
option - 164,402 - 539,520 1,163,913 431,624
Vesting period < 1 < 2.5 < 1.5 < 0-4 < 4 < 3
year years years years years years
Expected volatility 39.80% 39.80% 39.80% 39.80% 158.30% 151.40%
Option life 10 10 10 10 10 10
5 - 5 - 5 - 5 - 5.25 5.25
Expected life 5.25 6 5.5 6 - 6 - 6
Risk free rate 3.86% 3.86% 3.86% 3.86% 4.40% 5.01%
Expected dividends
expressed as
dividend yield 0% 0% 0% 0% 0% 0%
Retention factor 100% 100% 100% 100% 85% 85%
Fair value 3.36p-3.39p 2.86p-3.00p 2.56p-2.64p 2.04p-2.24p 3.66p-3.72p 1.71p-1.76p
per option
Grant date 6 October 27 July 28 January 12 November 31 March
2006 2007 2009 2010 2015
Share price
at grant date 2.25p 0.38p 0.25p 0.7p 1.22p
Exercise price 3.2p 0.5p 0.5p 0.7p 1.22p
Shares under
option 180,940 8,000,000 11,000,000 500,000 15,025,000
Vesting period < 4 < 2 < 2 < 1 year < 0 -4
years years years years
Expected volatility 151.40% 194.40% 220.30% 223.29% 57%
Option life 10 10 10 10 10
5.25 5 - 5 - 5.3 -
Expected life - 6 6 6 5 - 5.5 7
Risk free rate 5.01% 4.95% 2.06% 1.53% 1.84%
Expected dividends
expressed as
dividend yield 0% 0% 0% 0% 0%
Retention factor 85% 85% 85% 85% 85%
Fair value 1.75p-1.79p 0.31p-0.32p 0.21p-0.25p 0.59p-0.69p 0.59p-0.69p
per option
The expected volatility for the options issued on 27 July 2005
is based on the volatility of similar AIM listed companies, while
the volatility of options issued on 1 March 2006, 6 October 2006,
27 July 2007, 28 January 2009, 2 November 2010 and 31 March 2015
and reflects the changing volatility of the messaging share price
arising from movements in the relevant period to date. The expected
life of the options is based on research that takes into account
the seniority of the employees to whom share options are issued.
The risk free rate is based on the redemption yield on US Federal
Bonds with a life in line with the expected option life.
Other than the options granted above, there were no movements in
options granted or outstanding to employees at the end of the
year.
In accordance with International Financial Reporting Standard 2
("IFRS2") the group is required to reflect the cost of share-based
payments in the income statement. The provisions of IFRS2 have been
applied to share options and the charge to the income statement in
respect of equity settled share based payments is as follows:
2014 2013
GBP GBP
Group 56,725 -
======= =====
Equivalent credits have been released to reserves.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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