TIDMMES
RNS Number : 4919C
Messaging International Plc
28 June 2016
Messaging International Plc ('the Company')
Final Results
Messaging International Plc, the AIM traded company and provider
of innovative messaging services, announces its results for the
year ended 31 December 2015.
Overview
-- Continued progress of new product: "Secure Mobile Messaging"
with a decline in traditional Text-to-Landline product
-- Gross revenues of GBP3,465,182 down 4% from GBP3,607,978 in
2014
-- Adjusted pre-tax loss for the year (before goodwill
impairment) of GBP55,309 (2014: loss GBP334,798)
-- Pre-tax loss for the year GBP274,309 after goodwill
impairment (2014: GBP2,884,798)
-- The results for the year were affected by the impairment of
goodwill of GBP219,000 reducing the carrying value of goodwill in
these financial statements to GBP521,901
-- Full provision of GBP1,799,475 has been made for subsidiary
indebtedness to parent company
For further information visit www.telemessage.com
or contact:
Guy Levit Messaging International Plc Tel: Tel: + 972 3 9225252
David Foreman Cantor Fitzgerald Europe Tel: +44 (0) 20 7894 7000
Catherine Leftley Cantor Fitzgerald Europe Tel: +44 (0) 20 7894 7000
Continuing period of transition
As we described in our last interim report, the Company and its
trading subsidiary TeleMessage Ltd are transitioning from its
legacy Text-to-Landline product, to a new offering focused on
Secure Mobile Messaging for Enterprises and also the "Mass
Messaging" solution for Enterprises.
Revenues in the Text-to-Landline product have continued to
decline in 2015. Some customers were lost due to market
consolidation and, as announced on 27 March 2015, the Company
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 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 the customer,
albeit with a higher gross margin percentage.
TeleMessage has been focused on developing its new product line
- Secure Mobile Messaging for Enterprises. The huge success of
mobile messaging services like iMessage, Facebook Messenger and
WhatsApp for consumers in the USA and around the globe has
identified unmet needs for enterprises. Similar capabilities can
now be offered by enterprises to their employees, to enhance
business communications, while ensuring company governance and
controls required to meet more stringent standards, regulations and
security needs. The TeleMessage solution provides tools that are
managed, secure, reliable and IT ready.
During the year a few companies were piloting the new offering
and a few has transitioned into paying customers. TeleMessage has
also focused on partnership opportunities for these products
through its relationship with carriers. On 30 June 2015 TeleMessage
signed such a partnership agreement with Sprint, one of the top
tier North American mobile carriers, for a revenue share from
selling its products. The agreement includes a payment in tranches
for the customization of the product to meet the partner's
requirements. Following long and intensive work, Sprint launched
this product on 8 June 2016.
Financial Results
For the year ended 31 December 2015, we are reporting a pre-tax
loss of GBP274,309 (2014: loss GBP2,884,798) based on gross
revenues of GBP3,465,182 (2014: GBP3,607,978).
The results for the year are after adjusting for goodwill
impairment of GBP219,000 (2014: GBP2,550,000).
In 2015, TeleMessage made efforts to match its expenses to the
new lower level of revenues resulting from the decline in revenues
of the Text-to-Landline product. These adjustments were implemented
with the view to minimizing the impact on the future of the
company. The continued investment in R&D, which in 2015 was
without a government subsidy from the Office of Chief Scientist
(OCS), and the increased investment in marketing are the prime
reasons for the operating loss in the year.
In March 2016, TeleMessage was approved for a new conditional
grant from OCS that may cover some R&D expenses incurred in
late 2015. However, because this grant was only approved in 2016,
the relative R&D expenses reduction is not recognized in the
2015 annual results.
During 2015 TeleMessage enjoyed some Israeli royalty bearing
government funding for its marketing activities that reduced
slightly its marketing expenses.
In January 2015, TeleMessage also 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 interest at LIBOR
plus 6% and will be repaid in 36 equal monthly installments.
As part of the agreement, the Company granted Mizrahi Tefahot
Bank Ltd 4,500,000 warrants to purchase ordinary shares,
exercisable at any time from grant to 24 January 2020. Warrants are
exercisable at a price of 0.91 pence per share.
The Company has also extended the exercise period of the
3,896,804 warrants, granted to Mizrahi Tefahot Bank Ltd. in June
2012, by 5 years from 17 June 2017 to 21 January 2020.
Full provision of GBP1,799,475 has been made for subsidiary
indebtedness to the Company in view of the uncertainty surrounding
the ability of the trading subsidiaries to repay indebtedness in
the foreseeable future.
The group's cash balances at 31 December 2015 totaled GBP737,416
(2014: GBP381,109).
Outlook
TeleMessage has made considerable progress with its Secure
Mobile Messaging solution and other enterprise solutions. As of
June 2016 we have already in excess of 20,000 paying users and is
proof of the relevance of these solutions in the market. The users
are from enterprises located in North America, Europe and Israel.
We are also very excited with our strategic partnership with
Sprint.
We have recently added Mobile Device Management solutions (MDM)
as partners. MDM companies are adding our products to their partner
offerings. On September 2015, AirWatch, a leading MDM solution has
also announced its partnership with us.
With a close eye on expenses, TeleMessage has managed to
stabilise the reduction in revenues while continuing its efforts in
building its new products. It has not neglected its legacy
solutions and continues to explore many opportunities to maintain
and grow that business.
Thanks to its investment in marketing, TeleMessage has seen an
interest for the Mass Messaging solution for enterprises through
application programming interfaces to the company's Messaging
Gateway. This provides an opportunity to generate additional
revenues and profits.
To seize this opportunity and enhance its success in the Secure
Mobile Messaging and Mass Messaging for enterprises, TeleMessage
has recently launched a new website that should direct the
different type of prospects to the relevant product line.
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. I look forward to reporting our next annual
report.
Notice of Annual General Meeting
The Annual General Meeting of the Company in respect of the year
ended 31 December 2015 will be held at 130 City Road London EC1Y
2AB on 29 July 2016 at 10.00AM.
2015 2014
Notes GBP GBP
Continuing operations:
5b,
Revenues 7 3,465,182 3,607,978
Cost of revenues (1,140,630) (1,218,844)
-------------- ---------------
Gross profit 2,324,552 2,389,134
-------------- ---------------
Operating expenses
Research and development (1,009,551) (1,235,070)
Selling and marketing (829,065) (865,147)
General and administrative (490,439) (552,676)
Goodwill impairment (219,000) (2,550,000)
-------------- ---------------
Total operating expenses (2,548,055) (5,202,893)
-------------- ---------------
Operating loss 8 (223,503) (2,813,759)
Finance costs (net) 11 (50,806) (71,039)
Loss before taxation (274,309) (2,884,798)
Taxation 12 (1,337) (8,914)
Comprehensive loss for the
year attributable to equity
holders of the parent company (275,646) (2,893,712)
============== ===============
Other comprehensive loss
Re-measurement of loss from
defined benefit plan 14,805 (71,715)
Foreign exchange difference
on translation of foreign
operations (3,167) 21,632
Foreign exchange difference
arising from restating the
carrying value of goodwill
associated with foreign operations (63,056) (78,802)
(51,418) (128,885)
============== ===============
Total comprehensive loss attributable
to equity holders of the parent
company (327,064) (3,022,597)
============== ===============
Loss per share
Loss per share from operations 13 (0.24)p (2.50)p
======== ========
Diluted loss per share from
operations 13 (0.24)p (2.50)p
======== ========
The group
Capital Foreign
Share redemption exchange Revenue
capital reserve reserve reserves Total
fund
GBP GBP GBP GBP GBP
As at 1 January
2014 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
for employee
share options - - - 56,725 56,725
At 31 December
2014 579,361 600,039 75,008 (63,431) 1,190,977
Loss for the
year - - - (275,646) (275,646)
Re-measurement
of loss from
defined benefit
plan - - - 14,805 14,805
Foreign currency
translation changes
for goodwill - - (63,056) - (63,056)
Other foreign
currency translation
changes - - (3,167) - (3,167)
Share based payments-warrants 26,257 26,257
Share based payments-
employees - - - 16,541 16,541
At 31 December
2015 579,361 600,039 8,785 (281,474) 906,711
=============== =============== =========== ============== ==============
The company
Share Capital Foreign
capital redemption exchange Revenue Total
reserve reserve reserves
fund
GBP GBP GBP GBP
As at 1 January
2014 579,361 600,039 - 3,717,136 4,896,536
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
Loss for the
year - - - (2,014,932) (2,014,932)
Foreign currency
translation
gain on capital
note - - 68,096 - 68,096
========== ============= =========== ============== ==============
At 31 December
2015 579,361 600,039 185,935 (866,627) 498,708
========== ============= =========== ============== ==============
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.
Notes 2015 2014
GBP GBP
Non-current assets
Intangible assets 15 521,901 803,957
Property, plant and
equipment 16 48,207 86,526
Other investments 17 391,946 343,699
Total non-current
assets 962,054 1,234,182
------------ ------------
Current assets
Trade and other receivables 18 850,096 696,068
Cash and cash equivalents 26 737,416 381,109
------------ ------------
Total current assets 1,587,512 1,077,177
------------ ------------
Total assets 2,549,566 2,311,359
------------ ------------
Current liabilities
Trade and other payables 19 (599,274) (525,664)
Borrowings 20 (229,425) (110,013)
------------ ------------
Total current liabilities (828,699) (635,677)
------------ ------------
Non-current liabilities
Other payables 22 (44,076) (5,049)
Provisions 21 (536,976) (479,656)
Borrowings 20 (233,104) -
------------ ------------
Total non-current
liabilities (814,156) (484,705)
------------ ------------
Total liabilities (1,642,855) (1,120,382)
------------ ------------
Net assets 906,711 1,190,977
Equity attributable
to owners of the
parent company
Share capital 23 579,361 579,361
Capital redemption
reserve 600,039 600,039
Foreign currency
translation reserve 8,785 75,008
Revenue reserves (281,474) (63,431)
Total Equity 906,711 1,190,977
============ ============
Notes 2015 2014
Restated
GBP GBP
Non current assets
Investment in subsidiary
undertakings 15 500,000 719,000
Other investments 17 - 1,450,684
---------- ----------
Total non-current assets 500,000 2,169,684
---------- ----------
Current assets
Receivables due after
one year 18 42,932 315,278
Trade and other receivables 18 10,068 4,595
Cash and cash equivalents 26 7,316 859
---------- ----------
Total current assets 60,316 320,732
---------- ----------
Total assets 560,316 2,490,416
Current liabilities
Trade and other payables 19 (61,608) (44,872)
Total liabilities (61,608) (44,872)
---------- ----------
Net assets 498,708 2,445,544
Equity
Share capital 23 579,361 579,361
Capital redemption reserve 600,039 600,039
Foreign currency translation
reserve 185,935 117,839
Revenue reserves (866,627) 1,148,305
Total equity 498,708 2,445,544
========== ==========
Notes 2015 2014
GBP GBP
Cash flow from operating
activities
Operating loss (223,503) (2,813,759)
---------- ------------
Adjustments for:
Goodwill impairment 219,000 2,550,000
Share based payments 28,676 56,725
Defined benefit plan 14,805 (71,715)
Depreciation and amortisation 61,436 100,094
Foreign currency differences 1,009 (2,899)
324,926 2,632,205
---------- ------------
Operating cash flow
before working
capital movements 101,423 (181,554)
(Increase)/decrease
in receivables (154,978) 75,086
Increase/(decrease)
in payables 112,639 (105,019)
Increase in provisions 57,320 97,466
---------- ------------
14,981 67,533
---------- ------------
Cash (outflow)/inflow
from operating activities 116,404 (114,021)
Investing activities
Interest received - 232
Investments (48,248) (19,995)
Purchase of tangible
assets (18,599) (14,581)
Net cash used in investing
activities (66,847) (34,344)
---------- ------------
Taxation (387) -
Financing activities
Interest and related
costs (53,755) (25,068)
Bank loan 674,500 -
Bank loan repayments (313,608) (210,484)
Net cash from/(used
for)
financing activities 307,137 (235,552)
---------- ------------
Net change in cash
and cash equivalents 356,307 (383,917)
Cash and cash equivalents
and bank overdraft
at the beginning of
the year 381,109 765,026
Cash and cash equivalents
and bank overdraft
at the end of the year 26 737,416 381,109
========== ============
Notes 2015 2014
GBP GBP
Cash flow from operating
activities
Operating loss (2,025,425) (2,563,680)
Provision for non-
recoverable debts 1,799,475 -
Impairment of investments 219,000 2,550,000
Operating cash flow
before working capital
movements (6,950) (13,680)
Decrease/(Increase)
in receivables (14,773) 11,990
Increase/(decrease)
in payables 16,737 (9,948)
Cash flow from operating
activities (4,986) (11,638)
Investing activities - -
Net cash used in investing - -
activities
------------ ------------
Taxation (recovered)/paid - -
------------ ------------
Financing activities
Finance income 11,443 8,349
- -
Net cash from financing
activities 11,443 8,349
------------ ------------
Net change in cash
and cash equivalents 6,457 (3,289)
Cash and cash equivalents
and bank overdraft
at the beginning of
the year 859 4,148
Cash and cash equivalents
and bank overdraft
at the end of the year 26 7,316 859
============ ============
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 consolidation financial statements of the group for the year
ended 31 December 2015 have been prepared under the historical cost
convention and are in accordance with International Financial
Reporting Standards ("IFRS") as adopted by the EU. These policies
have been applied consistently except where otherwise stated.
The following new and amended IFRSs have been adopted during the
year.
-- Annual Improvements to IFRS 2011-2013 Cycle
-- IFRIC interpretation 21 Levies
There were no material changes in the financial statements as a
result of adopting new or revised accounting standards during the
year.
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 2015 and 2014, 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 amortised
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 GBP219.000 (2014:
GBP2,550,000). Taking into account exchange rate fluctuations, the
carrying value at 31 December 2015 was GBP521,901 (2014:
GBP803,957).
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 2015 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 as follows:
2015 2014
Customer location GBP GBP
North America 2,852,915 3,171,573
Europe and Middle East 582,827 405,494
Rest of the world 29,440 30,911
---------- ----------
3,465,182 3,607,978
========== ==========
Revenues originating from:-
2015 2014
GBP GBP
USA 1,822,690 2,142,978
Canada 1,030,225 1,028,596
Other countries 612,267 436,404
========== ==========
Revenues of GBP1,122,396 (2014: GBP1,693,165) 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
2015 2014
The operating profit GBP GBP
is stated after charging:
Staff costs 2,075,848 2,127,782
Research and development 1,009,551 1,235,070
Leasing costs 126,782 144,021
Auditors' remuneration 30,696 29,495
Fees to auditors for
other services 3,175 4,460
Goodwill impairment 219,000 2,550,000
Depreciation and amortisation 61,436 94,634
========== ==========
Included in the audit fee for the group is an amount of
GBP15,000 (2014: GBP14,950) in respect of the company.
9. Staff Costs
Payroll costs include: Group
2015 2014
GBP GBP
Staff payroll and related
costs 1,853,563 1,873,181
Directors' remuneration 172,314 208,188
Defined benefit scheme
expense 49,971 46,413
2,075,848 2,127,782
========== ==========
Payroll costs included above for key personnel including the
directors totalled GBP372,306 (2014: GBP410,555)
The average numbers of employees, including directors during the
year, was as follows:-
2015 2014
No. No.
Administration 2 2
Sales and marketing 6 8
Research and development 17 20
Operations 6 6
Directors 4 5
----- -----
35 41
===== =====
10 Directors' remuneration
2015 2014
An analysis of directors' remuneration GBP GBP
(who are the key management personnel)
is set out below
Executive directors 162,314 198,188
Non-executive directors 10,000 10,000
172,314 208,188
======== ========
Directors' remuneration includes pension contributions of
GBP11,215 (2014: GBP10,329)
2015 2014
GBP GBP
G Levit 161,064 178,188
I Fishman 5,000 20,000
G Simmonds 1,250 5,000
D Rubner 5,000 5,000
-------- --------
172,314 208,188
======== ========
No share options granted to directors were exercised in the
year.
H Furman has waived his right to director's GBP5,000 per
annum.
There is one director enrolled under the defined benefit
scheme.
11. Financial income and finance costs 2015 2014
GBP GBP
Finance income:
Interest received - 232
--------- ----------------
Finance costs:
Interest payable 53,755 25,068
(Gain)/loss on foreign currency transactions (2,949) 46,203
--------- ----------------
50,806 71,271
--------- ----------------
Total 50,806 71,039
========= ================
12. Taxation
Current tax charge/(credit) 2015 2014
1,337 8,194
======= ======
Factors affecting the tax charge in the year
Loss on ordinary activities before taxation (275,646) (2,884,798)
=============== ============
Loss on ordinary activities before taxation
at the applicable rate of corporation
tax 20.25% (2014: 21.5%) (55,818) (620,232)
Effects of:
Depreciation and amortisation 12,460 20,346
Goodwill Impairment 44,347 548,250
US taxation 387 (986)
Israeli withholding tax deemed irrecoverable - 13,500
Unused losses (39) 47,316
Tax charge 1,337 8,194
=============== ============
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
GBP8.4 million. Trading losses of approximately GBP5.9 million in
relation to TeleMessage Ltd in Israel may be carried forward and
offset against future trading income indefinitely and without
restriction. The remaining GBP2.5 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 (2014: 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 GBP275,646
(2014: loss GBP2,893,712) and on the weighted average number of
shares in issue, which was 115,872,148 (2014:115,872,148).
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 GBP2,014,932 after impairment of the company's
investment of GBP219,000 and the provision for non- recoverable
indebtedness from its subsidiary undertaking of GBP1,799,475
(2014-loss:GBP2,568,831 after impairment of the company's
investment of GBP2,550,000).
15. Intangible assets
Goodwill and investment in subsidiary undertakings.
2015 2014
Cost GBP GBP
At 31 December 3,236,617 3,236,617
------------ ------------
Impairment
At 1 January (2,550,000) -
Charge in the year (219,000) (2,550,000)
------------ ------------
At 31 December (2,769,000) (2,550,000)
------------ ------------
Value net of impairment at 31 December 467,617 686,617
------------ ------------
Exchange rate changes
At 1 January 117,340 196,142
Exchange rate change in the year (63,056) (78,802)
------------ ------------
At 31 December 54,284 117,340
------------ ------------
Carrying value at 31 December 521,901 803,957
============ ============
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% (2014 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 directors believe that any reasonable 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:-
2015 2014
Revenue growth rate 6% 6%
Annual expected future growth 217,705 167,684
Revenue discount factor 10% 10%
-------- --------
The discount rates used are pre-tax and reflect specific risks
associated with the group's activities and its cost of
borrowings.
The directors' re-assessment of goodwill having regard to
current trading conditions and expected future operating
performance justifies further impairment GBP219,000 (2014:
GBP2,550,000).
Company information
2015 2014
GBP GBP
Cost of shares:
At 1 January and 31
December 3,269,000 3,269,000
Impairment (2,769,000) (2,550,000)
------------------- ------------
500,000 719,000
=================== ============
Description and Country of
Subsidiary proportion of share incorporation or
undertakings capital owned registration Nature of business
TeleMessage Limited Ordinary 100% Israel Trading
TeleMessage Inc * Ordinary 100% USA Trading
* held indirectly through TeleMessage Limited
16. Property, plant and equipment
Group 2015 2014
GBP GBP
Cost
At 1 January 462,236 423,237
Additions 18,599 14,581
Foreign exchange
movement 24,137 24,418
-------- --------
At 31 December 504,972 462,236
Depreciation
At 1 January 375,710 260,582
Depreciation in the
year 61,436 100,094
Foreign exchange 19,619 15,034
At 31 December 456,765 375,710
======== ========
Carrying value
At 31 December 48,207 86,526
======== ========
At 1 January 86,526 162,655
======== ========
All the above assets are included in the accounts of subsidiary
undertakings at their net book values comprising computers and
related equipment of GBP33,312 (2014: GBP70,196) and office
furniture and equipment of GBP14,895 (2014: GBP16,330).
17. Other investments
Group Company
2015 2014 2015 2014
GBP GBP GBP GBP
Restated
Investment plans for employee severance 391,946 343,699 - -
Loan note due from subsidiary undertakings - - 1,518,780 1,450,684
391,946 343,699 1,518,780 1,450,684
======== ======== ========== ==========
Other investments of GBP391,947 represents the funds at 31
December 2015 (2014:GBP343,699) 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 $2,400,000t repayable 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.
As a result of an appraisal of the total debt due by its wholly
owned subsidiary undertaken in 2015, a revision reducing the
capital note to $2,251,713 was made with no other variations to the
terms referred to above. This change was balanced by a
reclassification of the indebtedness between the subsidiary at its
parent as set out in the table below:-
Due from TeleMessage
Limited 2015 2014
5 year capital note
- June 2014 1,518,780 1,450,684
loan - 2007 and accrued
interest 323,627 315,278
Inter- company current
account (42,932) (25,371)
1,799,475 1,740,591
========== ==========
The change in the carrying value of the capital note at year end
dates arise from variations in the exchange rate only giving rise
to foreign exchange translation gains totalling GBP185,935 to 31
December 2015 of which GBP117,839 has been recognised in foreign
exchange reserves in 2014 and GBP68,096 in 2015.
In view of the uncertainty surrounding the ability of the
trading subsidiaries to repay indebtedness in the foreseeable
future, the company's directors have taken the decision to make
full provision for non-recoverability in these accounts.
18. Trade and other receivables
Group Company
2015 2014 2015 2014 Restated
GBP GBP GBP GBP
Trade receivables 755,719 625,487 - -
Due from subsidiary after one year
(see note 17) - - 323,627 315,378
Provision for non- recoverability (280,695) -
Due from government authorities 2,713 1,313 2,713 1,313
Other receivables and prepaid expenses 91,664 69,268 7,355 3,281
850,096 696,068 53,000 319,872
======== ======== ========== ==============
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
2015 755,719 62,064 327,262 148,220 99,520 118,653
============== ================ ================ ============= ============== ================
2014 625,487 65,845 323,583 134,090 64,351 37,618
============== ================ ================ ============= ============== ================
The average credit period given for trade receivables at the end
of the year is 80 days (2014:63 days).
19. Trade and other payables
Group Company
2015 2014 2015 2014 Restated
GBP GBP GBP GBP
Trade payables 108,192 105,888 - -
Taxes and social security 268,771 223,979 - -
Due to subsidiary undertaking (see note 17) - - 42,933 25,371
Accruals and other payables 222,311 195,798 18,675 19,501
599,274 525,665 61,608 44,872
======== ======== ======= ==============
The average credit period taken for trade payables at the end of
the year is 78 days (2014: 66 days).
20. Borrowings
Group Group Company Company
2015 2014 2015 2014
GBP GBP GBP GBP
Due within one year 229,425 110,013 - -
Due after one year 233,104 - - -
462,529 110,013 - -
======== ======== ======== ========
On 24 January 2015, the company's subsidiary, TeleMessage Ltd,
signed an agreement for a loan of $1,000,000 from Mizrahi Tefahot
Bank Ltd following the full repayment of an earlier bank loan for
$1,000,000 taken out in 2012.
Under the terms of the new loan agreement, repayments are over
36 equal monthly instalments with an interest rate based on the
London Interbank Offered Rate plus 6%.
In addition and as part of the agreement, the company granted
Mizrahi Tefahot Bank a further 4,500,000 warrants to purchase
ordinary shares exercisable at any time from grant to 24 January
2020 at a price of 0.91p per share.
The company also extended the exercise period in relation to
3,896,804 warrants granted to the bank in June 2012 to January
2020.
The fair value of both new and extended warrants of GBP26,257
has been as a deduction from the bank loan in 2015 to be amortised
over the period of the term of the loan.
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
2015 2014
GBP GBP
Expense in respect of defined contribution
plan 54,025 46,582
============ =========
(a) The amounts recognised in the statement of financial position are as follows:
Group Group
2015 2014
GBP GBP
Defined benefit obligation (536,976) (479,656)
Fair value of plan assets 391,946 343,699
Benefit liability (145,030) (135,957)
========== ==========
(b) Expenses recognised in the statement of comprehensive income:
Group Group
2015 2014
GBP GBP
Net actuarial gain (loss) recognised
in the year 14,805 (71,715)
Total expenses included in the statement
of comprehensive income 14,805 (71,715)
======= =========
(c) Amounts recognised in arriving at the operating loss is as follows:
Group Group
2015 2013
GBP GBP
Current service cost 38,026 39,468
Interest cost 5,552 1,694
Return differences transferred to employer 6,393 5,251
Total expense included in statement
of income 49,971 46,413
======= =======
(d) Changes in present value of defined benefit obligation are as follows:
Group Group
2015 2014
GBP GBP
Liability at the beginning of the year 479,656 382,189
Current service cost 38,026 39,468
Interest cost 20,596 18,453
Benefits paid (218) (3,942)
Actuarial (loss)/gain on obligation (25,575) 72,790
Foreign exchange differences 24,491 (29,302)
Liability at the end of the year 536,976 479,656
========= =========
(e) Changes in fair value of plan assets are as follows:
Group Group
2015 2014
GBP GBP
Plan assets at the beginning of the
year 343,699 323,703
Expected return 15,143 16,662
Contributions by employer 32,642 33,683
Return differences transferred to employer (6,393) (5,251)
Actuarial loss (10,771) 1,075
Foreign exchange differences 17,626 (26,173)
Plan asset at the end of the year 391,946 343,699
========= =========
(f) The actuarial assumptions used are as follows:
Group Group
2015 2014
Discount rate 4.05% 4.11%
Future salary increase 3.50% 3.50%
Average expected remaining working years 12.95 12.89
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.
2015 2014
GBP GBP
Amount outstanding at 1 January 5,049 23,618
Foreign exchange difference 218 1,362
Grants received in the year - 17,749
Royalties paid in the year (920) (858)
Taken to statement of comprehensive
income (511) (36,822)
------ ---------
Amount outstanding at 31 December 3,836 5,049
====== =========
Under the Ministry of Economy "Smart Money" Marketing Fund rules
and pursuant to applicable laws, the subsidiary undertaking is
required to pay royalties at the rate of 3.5% on increased sales of
products in the US market above the 2014 level of product sales up
to an amount equal to 100% of the grant received, plus interest at
the 12-month LIBOR rate.
2015 2014
GBP GBP
Amount outstanding at 1 January - -
Grants received in the year 53,246 -
Royalties paid in the year - -
Taken to statement of comprehensive (12,390) -
income
---------- ------
Amount outstanding at 31 December 40,856 -
========== ======
23. Share capital
2015 2014
GBP GBP
Issued and fully paid
115,872,148 (2014 - 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 2015 there were 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 760,000 share options were granted to employees
and directors of the company and 1,558,922 share options lapsed or
were forfeited by employees no longer with the company.
No share options were exercised in the year
At 31 December 2015 there were 33,161,477 (2014:33,960,399)
share options held by employees and directors of the company.
Share options exercisable by employees and directors at 31
December 2015 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 475,000 31.3.2014 1.22p 31.3.2014 - 31.3.2024
11,475,000
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 9,745,000 31.3.2014 1.22p 31.3.2014 - 31.3.2024
Other employees 665,000 29.1.2015 0.91p 29.1.2015 - 29.1.2025
33,161,477
==============
Details of share option valuations are given in note 30.
Warrants in issue at 31 December 2015
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.
In addition, 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.
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:
17 June 24 January 24 January
Grant date 2012 2015 2015
Share price at grant date 0.88p 0.93p 0.93p
Exercise price 0.63p 0.91p 0.91p
Shares under option 3,896,804 3,896,804 4,500,000
Vesting period Immediately Immediately Immediately
Expected volatility 89.5% 64.2% 64.2%
Option life 5 5 5
Expected life 5 5 5
Risk free rate 1.07% 1.75% 1.75%
Expected dividends expressed
as dividend yield 0% 0% 0%
Fair value per option 0.6480p 0.5101 0.5101
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.
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 2015 are as
follows:-
2015 2014
GBP GBP
Within one year 93,102 96,469
Between two to five years 281,447 318,960
More than five years - 13,157
-------- --------
374,549 428,586
======== ========
Leasing costs charged in the statement of comprehensive income
in the year ended 31 December 2015 and 2014 were GBP126,782 and
GBP144,021 respectively.
25. Related parties
Arram Berlyn Gardner (AH) Limited
The group made payments to Arram Berlyn Gardner AH Limited
(chartered accountants) totalling GBP14,167 for the services of I
Fishman as a director and for the professional services of Arram
Berlyn Gardner AH Limited. (2014: GBP23,500 was paid to AH
Montpelier Professional (West End) Limited, Chartered Accountants,
a company in which I Fishman was a director throughout that
year.
Parent company management fees and interest
The company charged fees of GBP72,000 (2014:GBP84,000) for
management services of its subsidiary undertakings. Interest of
GBP11,443 (2014: GBP8,349) was charged by the company in relation
to an interest bearing loan. Further details are given in note 17
above.
26 Cash and cash equivalents and net funds
At 1 Movements At
January in the 31 December
2015 year 2015
GBP GBP GBP
Group
Cash and cash equivalents 381,109 356,307 737,416
Borrowings (110,013) (352,516) (462,529)
---------- ---------- -------------
271,096 3,791 274,887
---------- ---------- -------------
Company
Cash and cash equivalents 859 6,457 7,316
========== ========== =============
27 Post balance sheet events
No significant events have taken place since the year end.
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
GBP462,500 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.
Financial instruments and risk management (cont)
At 31 December 2015 and 31 December 2014 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.
2015 2014
GBP GBP
Financial assets
Cash and cash equivalents 737,416 381,109
Trade and other short term
receivables 850,096 696,068
1,587,512 1,077,177
========== ==========
Trade and other payables 643,350 530,714
Bank borrowings 462,529 110,013
---------- ----------
1,104,879 640,727
========== ==========
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, Canadian
Dollar (CAD), GBP and Euro. Currency exchange risk arises mainly
from payroll and costs incurred in NIS, sale denominated in Euro
and CAD 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 2015, 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 2015, 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 2015
Total projected cash flows
More than 5 years
First year Years 2-5
GBP GBP GBP GBP
Trade payables 108,000 108,000 -
Other financial payables 490,000 490,000 - -
Bank loans 463,000 230,000 233,000 -
Royalty bearing grants 44,500 500 44,000 -
----------------------------- ------------- --------------- --------------------
1,105,500 828,000 277,000 -
============================= ============= =============== ====================
Anticipated future cash flows - Year ended 31 December 2014
Total
projected More than
cash flows First Years 5 years
year 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 - -
============== ========== =============== ============
Interest rate risk
As the group's long term liabilities include a bank loan drawn
down in January 2015, 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 Nov 31 March 29 Jan
2006 2007 2009 2010 2014 2015
Share price
at grant date 2.25p 0.38p 0.25p 0.7p 1.22p 0.78p
Exercise price 3.2p 0.5p 0.5p 0.7p 1.22p 0.91p
Shares under
option 180,940 8,000,000 11,000,000 500,000 15,025,000 665,000
Vesting period < 4 < 2 < 2 < 1 < 0 < 1
years years years year -4 years year
Expected volatility 151.40% 194.40% 220.30% 223.29% 57% 63.98%
Option life 10 10 10 10 10 10
5.25 5 - 5 - 5 - 5.3
Expected life - 6 6 6 5.5 - 7 5-6
Risk free rate 5.01% 4.95% 2.06% 1.53% 1.84% 1.75%
Expected dividends
expressed as
dividend yield 0% 0% 0% 0% 0% 0%
Retention factor 85% 85% 85% 85% 85% 85%
Fair value
per option 1.75p-1.79p 0.31p-0.32p 0.21p-0.25p 0.59p-0.69p 0.59p-0.69p 0.47p
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 2010,31 March 2014 and 29
January 2015 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:
2015 2014
GBP GBP
Group 16,541 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
FR UWURRNOANUAR
(END) Dow Jones Newswires
June 28, 2016 06:32 ET (10:32 GMT)
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