Interim Results
Upstream Marketing and Comms Inc.
27 September 2007
Upstream Marketing and Communications Inc.
('Upstream' or 'the Company')
Interim Results
For the six month period ended 30 June 2007
Interim Statement
27 September, 2007, Upstream Marketing and Communications Inc. (AIM: UPS)
announces its interim results for the six month period ended 30 June 2007.
CHAIRMAN'S STATEMENT
The Board is pleased to report Upstream's unaudited interim results for the six
months ended 30 June 2007.
This is the first interim results report since completion of the reverse
acquisition of Upstream Asia Limited ('UAL'), and change of the Company's name
to Upstream Marketing and Communications Inc. (UPS) in October 2006.
Gross revenues for the period were US$ 1.973 million, representing a 63%
year-on-year increase. With US$ 2.718 million in operating expenses Upstream
posted a US$ 0.727 million loss before tax for the period (June 2006: US$ 0.086
million profit). This performance reflects the financial investment made by the
Company to achieve an expansion in the firm's revenue producing capability. This
includes one-off expenses associated with senior management hires made during
the period and acquisition activities by the Group.
UAL is a full service marketing and corporate communications network positioned
to help its client companies make the most of business opportunities in the Asia
Pacific region. The Group has offices in Beijing, Hong Kong, Shanghai, Singapore,
Sydney, Taipei and Tokyo, as well as regional and global affiliates.
The Company's objective in the period under review has been to build a solid
foundation for future growth in the business. The Directors believe that the
investment made in building a robust platform of network offices, capabilities
and sources of revenue will drive continued organic growth with increased
profitability, which will gain incremental momentum with the addition of strategic
acquisitions. In the eight months following the reverse acquisition, the
Directors believe that Upstream has made significant progress in executing its
business plan:
Financial Highlights
o Revenue for the period is 63% higher than the same period the previous year
o Revenue generated since January 2007 has been increasing consistently
on a month by month basis
o Completion of the acquisition of Macro Consulting in Australia with additional
acquisition targets under consideration
Organic Growth
A key part of Upstream's growth strategy is to continue increasing revenue
throughout each of the Company's existing Asia-Pacific regional network of offices.
In late 2006, Upstream put in place an enhanced management team, including
senior managing director hires in Beijing, Hong Kong and Singapore. These
executives, along with Upstream's existing management team have led an aggressive
business development drive which has resulted in significant revenue being
generated from such world-class companies as California Fitness, China Telecom,
Deloitte, Embraer, ESPN, Fiat, JP Morgan, Skype, Sony Ericsson, SWIFT and Yellow
Pages.
The Company has achieved revenue growth in China of approximately 117% over the
previous year, in line with its strategy of capitalizing on this buoyant market
and the opportunities provided by the Olympics. In addition, revenue in the
Southeast Asia region grew organically by 31% over the comparable period in the
prior year. Cash in the Company at the time of the reverse acquisition was used
to fund investments in the Company's operations during this period of rapid growth.
The Company is now operating on a cash positive basis while continuing to grow.
We are very encouraged by the Group's pipeline of new business, and the buoyancy
in the Asia Pacific economies. The consumer & travel and corporate & financial
sectors are showing particular promise, as is our business in China. In China,
one of the network's focus markets, the Group continued to make progress in
expanding its operations, client base and revenue. Upstream was named one of
China's 10 Most Prominent Public Relations Agencies of 2007 by influential
Chinese business newspaper Fortune Times.
A new subsidiary, Media Services Asia, focusing on online marketing and
distribution, is growing and adding new services and customers to capture
revenue from the growth in digital marketing expenditure in the Asia-Pacific
region.
The Company has also launched a second regional network brand called Camber
Communications to reach a new customer base and ensure client confidentiality
and focused client service as the Group grows.
Acquisitions
The second key part of Upstream's growth strategy is expansion through the
acquisition of complementary business.
On 29 March 2007, Upstream completed its first acquisition of its affiliate
Macro Consulting (now re-named Upstream Australia), for a maximum aggregate
consideration of £800,000 to be satisfied by the issue of up to 4 million new
ordinary shares in Upstream. The initial tranche of 1 million shares was issued
to the vendors following completion of the acquisition with the remaining three
potential future tranches of 1 million shares each, becoming payable on the
achievement of specific performance targets from 2007 to 2009.
Upstream Australian has been providing a profitable contribution to the Group
since April 2007. In addition, this sixth wholly-owned office has expanded the
Group's network capabilities and has lead to additional international
business assignments from clients.
Upstream has a solid pipeline of boutique and medium-sized acquisition targets
under consideration in strategic sectors for the Group such as public relations,
branding and design, advertising, digital marketing, and video production. The
Group's management intend to pursue acquisitions which have a sound commercial
basis, where there is a clear financial benefit to shareholders and where
management of the target company is strongly incentivised to grow their business
within the enlarged Group.
It is the Company's intention that acquisitions will provide a significant
source of the Group's growth for 2007 and beyond.
Current Trading and Outlook
Upstream's financial performance has been steadily strengthening through the
financial year as investments have started to yield returns.
The Directors believe that the Group's focus on delivering corporate and
marketing communications services in the Asia Pacific region presents an
excellent opportunity for sustainable growth and accordingly they look forward
to the future with confidence. Demand for corporate and marketing communications
services remains strong -- driven by rising consumer spending, the desire of
multinational companies to expand their business in the region, and Asia-based
companies seeking to spread their message to the global market place.
The Directors believe that the Group's strong regional management and unique
portfolio of marketing, business development mean that the Group is well
positioned to drive growth in the network's offices throughout the region at an
above market rate.
David Ketchum, Chief Executive Shahed Mahmood, Chairman
27 September 2007 27 September 2007
Enquiries:
Ajay Kejriwal
m: + 44(0)7957 488104
James Harris/Angela Peace
Strand Partners
t:+44(0) 20 7409 3494
www.aboutupstream.com
Upstream Marketing & Communications Inc.
Income Statement
For the six months ended 30 June 2007
Six month Six month Year ended 31
period ended period ended December 2006
30 June 2007 30 June 2006 Audited
Unaudited Unaudited
US$'000 US$'000 US$'000
Continuing operations
Revenue 1,973 1,211 2,693
Other income 18 - 170
--------- -------- --------
Total income 1,991 1,211 2,863
Operating expenses (2,718) (1,125) (2,952)
--------- -------- --------
Operating(loss)/profit prior to
goodwill write off (727) 86 (89)
Goodwill write off - - (10,783)
--------- -------- --------
(Loss)/profit for the period
from operations before tax (727) 86 (10,872)
Tax expense 4 (3) - -
--------- -------- --------
Net(loss)/profit for the period (730) 86 (10,872)
========= ========= =========
US cents US cents US cents
(Loss)/profit per ordinary share
- Basic 5 (0.5) 0.1 (11.5)
--------- -------- --------
Upstream Marketing & Communications Inc.
Statement of Changes in Equity
Six months ended 30 June 2007
Share capital Share Capital Foreign Profit and Total
and shares to premium reserve exchange loss equity
be issued reserve account
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
At 1 January 2006 16 136 - (1) (68) 83
Issue of new shares prior
to reverse acquisition 2 159 - - - 161
Issue of new shares on
reverse acquisition 106 3,700 - - - 3,806
Cost of issue of new shares - (9) - - - (9)
Foreign exchange - - - 14 - 14
Net loss for the period - - - - (10,872) (10,872)
Adjustment on reverse
acquisition 493 153 6,547 - - 7,193
-------- -------- -------- -------- --------- -------
At 31 December 2006 617 4,139 6,547 13 (10,940) 376
(audited)
Net loss for the period - - - - (730) (730)
On acquisition in period 335 155 - - - 490
Other share issues 10 210 - - - 220
Foreign exchange - - - 158 - 158
-------- -------- -------- -------- --------- -------
At 30 June 2007 (unaudited) 962 4,504 6,547 171 (11,670) 514
======== ======== ======== ======== ========= =======
Share capital and shares to be issued at 30 June 2007 includes an amount of
US$330,000 in connection with shares to be issued as part of the deferred
consideration for the acquisition of Macro Consulting Pty Ltd as detailed in
note 12.
Upstream Marketing & Communications Inc.
Balance Sheet
As at 30 June 2007
30 June 2007 30 June 2006 31 December
Unaudited Unaudited 2006
Audited
Note US$'000 US$'000 US$'000
Assets
Non current assets
Property, plant and equipment 123 96 88
Goodwill 454 4 -
--------- -------- --------
577 100 88
Current
Trade and other receivables 6 1,081 392 612
Cash and cash equivalents - 316 307
--------- -------- --------
1,081 708 919
--------- -------- --------
Total assets 1,658 808 1,007
========= ======== ========
Liabilities
Current
Bank overdraft 78 - -
Trade and other payables 7 1,011 473 602
Deferred income 31 - 26
Current tax provision 24 - 3
--------- -------- --------
Total liabilities 1,144 473 631
========= ======== ========
Equity
Share capital 9 632 19 617
Reserves (118) 316 (241)
--------- -------- --------
Total equity 514 335 376
========= ======== ========
Total equity and liabilities 1,658 808 1,007
========= ======== ========
Upstream Marketing & Communications Inc.
Cash Flow Statement
For the six months ended 30 June 2007
Six month Six month Year ended
period ended period ended 31 December
30 June 2007 30 June 2006 2006
Unaudited Unaudited Audited
US$'000 US$'000 US$'000
Operating activities
(Loss)/profit before taxation (727) 86 (10,872)
Adjustments for:
Interest income - - (3)
Depreciation of property,
plant and equipment 14 14 37
Share based expenses 220 - -
Write off of goodwill - - 10,783
--------- -------- --------
Operating cashflow before working
capital changes (493) 100 (55)
(Increase)/decrease in trade
and other receivables (469) 172 29
Increase/(decrease) in trade
and other payables 409 (127) (90)
Increase in deferred income 5 - 26
--------- -------- --------
Cash (used from)/generated by operations (548) 145 (90)
Tax received/(paid) 18 (9) (10)
--------- -------- --------
Net cash (outflow)/inflow used in
operating activities (530) 136 (100)
========= ======== ========
Investing activities
Acquisition of subsidiary (24) - -
Interest received - - 3
Purchases of property,
plant and equipment (49) (75) (89)
Reverse acquisition expenses - - (730)
Cash acquired on reverse acquisition - - 95
--------- -------- --------
Net cash outflow from
investing activities (73) (75) (721)
========= ======== ========
Financing activities
Issue of shares - - 928
Expenses in connection with shares issue - - (9)
--------- -------- --------
Net cash inflow from
financing activities - - 919
========= ======== ========
Net (decrease)/increase in cash
and equivalents (603) 61 98
Cash and cash equivalents
brought forward 307 104 104
Effect of exchange rate fluctuations 218 151 105
--------- -------- --------
Cash and cash equivalents
carried forward (78) 316 307
========= ======== ========
Upstream Marketing & Communications Inc.
Notes to the Interim Report
For the six months ended 30 June 2007
1 General Information
The information for the period ended 30 June 2007 does not constitute statutory
accounts as defined in Section 240 of the Companies Act 1985. The figures for
the year ended 31 December 2006 have been extracted from the 2006 statutory
financial statements prepared under International Financial Reporting Standards
(IFRS). The auditors' report on those accounts was unqualified and did not
contain a statement under section 237(2) of the Companies Act 1985. The interim
financial statements have been neither audited or reviewed by the Group's
auditors.
2 Accounting Policies
Basis of preparation
The Company was incorporated as a Corporation in the Cayman Islands which does
not prescribe the adoption of any particular accounting framework. The Board
have resolved that the Company will follow IFRS and apply the Companies Act 1985
when preparing its annual financial statements.
The principal accounting policies of the Group are set out below.
Basis of consolidation
The acquisition of Upstream Asia Limited by the Company has been accounted for
as a reverse acquisition in accordance with International Financial Reporting
Standard 3 on business combinations (IFRS3). Therefore, the income and cashflow
statements for the year ended 31 December 2006 comprises Upstream Asia Limited
and its subsidiary undertakings from 1 January 2006 to 31 December 2006 and for
the Company from 16 October 2006 to 31 December 2006. The income and cashflow
statements for the six months ended 30 June 2006 comprise Upstream Asia Limited
and its subsidiary undertakings only. The consolidated balance sheet at 31
December 2006 comprises of the Company and Upstream Asia Limited and its
subsidiary undertakings. The consolidated balance sheet at 30 June 2006
comprises of Upstream Asia Limited and its subsidiary undertakings only.
Material intra-group balances and transactions, and any unrealised gains/losses
arising from intra-group transactions, are eliminated in preparing the
consolidated financial statements.
Subsidiary
A subsidiary is a company over which the Company has the power, directly or
indirectly, to govern its financial and operating decisions so as to derive
economic benefits. The results of subsidiaries are included in the consolidated
financial statements from the date that control effectively transferred to the
Group and cease to be consolidated from the date on which control is transferred
out of the Group.
Goodwill
Goodwill arising on acquisitions represents the excess of the fair value of the
cost of the acquisition over the Group's interest in the fair value of the
identifiable assets and liabilities of the acquired entity at the date of
acquisition. Such goodwill is tested annually for impairment and carried at cost
less accumulated impairment losses. Goodwill is allocated to cash-generating
units for the purpose of impairment testing.
Impairment of assets
Property, plant and equipment and goodwill are subject to impairment testing.
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating
units). As a result, some assets are tested individually for impairment and some
are tested at cash-generating unit level, particularly goodwill.
Individual assets or cash-generating units that include goodwill with an
indefinite useful life are tested for impairment at least annually, irrespective
of whether there is any indication that they are impaired. All other individual
assets or cash-generating units are tested for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable.
An impairment loss is recognized as an expense immediately for the amount by
which the asset's or cash-generating unit's carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of fair value,
reflecting market conditions less costs to sell and value in use based on an
internal discounted cash flow evaluation. Impairment losses recognized for
cash-generating units, to which goodwill has been allocated, are credited
initially to the carrying amount of goodwill. Any remaining impairment loss is
charged pro rata to the other assets in the cash-generating unit except that the
carrying value of the asset will not be reduced below its individual fair value
less costs to sell, or value in use, if determinable.
An impairment loss on goodwill is not reversed in subsequent periods. In respect
of other assets, an impairment loss is reversed if there has been a favourable
change in estimates used to determine the assets recoverable amount and only to
the extent that the asset's carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation, if no impairment loss had
been recognized.
Property, plant and equipment
(i) Measurement bases
Property, plant and equipment are stated at cost less accumulated depreciation
and impairment losses. The cost of an asset comprises its purchase price and any
directly attributable costs of bringing the asset to the working condition and
location for its intended use. Subsequent expenditure relating to property,
plant and equipment is added to the carrying amount of the assets if it can be
demonstrated that such expenditure has resulted in an increase in the future
economic benefits expected to be obtained from the use of the assets.
When assets are sold or retired, any gain or loss resulting from their disposal,
being the difference between the net disposal proceeds and the carrying amount
of the assets, is included in the income statement.
(ii) Depreciation
Depreciation is provided to write off the cost of property, plant and equipment
less their residual values over their estimated useful lives, using the straight
line method, at the following rates :
Computer hardware and software 1-4 years
Furniture and fixtures and office equipment 3-4 years
Leasehold improvements over the term of the lease
The residual values and useful lives of property, plant and equipment are
reviewed, and adjusted if appropriate, at each balance sheet date.
Taxation
Current income tax assets and/or liabilities comprise those obligations to, or
claims from, fiscal authorities relating to the current or prior reporting
period, that are unpaid at the balance sheet date. They are calculated according
to the tax rates and tax laws applicable to the fiscal periods to which they
relate, based on the taxable result for the period. All changes to current tax
assets or liabilities are recognised as a component of tax expense in the income
statement.
Deferred income taxes are calculated using the liability method on temporary
differences. This involves the comparison of the carrying amounts of assets and
liabilities in the consolidated financial statements with their respective tax
bases. In addition, tax losses available to be carried forward as well as other
income tax credits to the Group are assessed for recognition as deferred tax
assets.
Deferred tax liabilities are always provided for in full. Deferred tax assets
are recognised to the extent that it is probable that they will be able to be
offset against future taxable income. Deferred tax assets and liabilities are
calculated, without discounting, at tax rates that are expected to apply to
their respective period of realisation, provided they are enacted or
substantively enacted at the balance sheet date.
Most changes in deferred tax assets or liabilities are recognised as a component
of tax expense in the income statement. Only changes in deferred tax assets or
liabilities that relate to a change in value of assets or liabilities that is
charged directly to equity are charged or credited directly to equity.
Financial assets
The Group's financial assets include cash and cash equivalents and trade and
other receivables.
All financial assets are recognised when the Group becomes party to the
contractual provisions of the instrument. All financial assets are initially
recognised at fair value, plus transaction costs.
Non-compounding interest and other cash flows resulting from holding financial
assets are recognised in profit or loss when received, regardless of how the
related carrying amount of financial assets is measured.
Trade and other receivables are provided against when objective evidence is
received that the Group will not be able to collect all amounts due to it in
accordance with the original terms of the receivables. The amount of the
write-down is determined as the difference between the asset's carrying amount
and the present value of estimated future cash flows.
A financial asset is derecognized only where the contractual rights to the cash
flows from the asset expire or the financial asset is transferred and that
transfer qualifies for derecognition.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together
with other short-term, highly liquid investments that are readily convertible
into known amounts of cash and which are subject to an insignificant risk of
changes in value.
Equity
Share capital is determined using the nominal value of shares that have been
issued by the legal parent.
The share premium account represents premiums received on the initial issuing of
the share capital. Any transaction costs associated with the issuing of shares
are deducted from share premium, net of any related income tax benefits.
Shares to be issued represent the estimate of shares to be issued in respect of
deferred consideration on acquisition of businesses.
Foreign currency translation differences are included in the translation
reserve.
Retained earnings include all current and prior period results as disclosed in
the income statement.
Financial liabilities
The Group's financial liabilities include trade and other payables.
Financial liabilities are recognised when the Group becomes a party to the
contractual agreements of the instrument. All interest related charges are
recognised as an expense in 'finance cost' in the income statement.
Trade payables are recognised initially at their nominal value and subsequently
measured at amortised cost less settlement payments.
Dividend distributions to shareholders are included in 'other short term
financial liabilities' when the dividends are approved by the shareholders'
meeting.
Other provisions, contingent liabilities and contingent assets
Other provisions are recognised when present obligations will probably lead to
an outflow of economic resources from the Group and they can be estimated
reliably. Timing or amount of the outflow may still be uncertain. A present
obligation arises from the presence of a legal or constructive commitment that
has resulted from past events, for example, legal disputes or onerous contracts.
Provisions are measured at the estimated expenditure required to settle the
present obligation, based on the most reliable evidence available at the balance
sheet date, including the risks and uncertainties associated with the present
obligation. Any reimbursement expected to be received in the course of
settlement of the present obligation is recognised, if virtually certain as a
separate asset, not exceeding the amount of the related provision. Where there
are a number of similar obligations, the likelihood that an outflow will be
required in settlement is determined by considering the class of obligations as
a whole. In addition, long term provisions are discounted to their present
values, where time value of money is material.
All provisions are reviewed at each balance sheet date and adjusted to reflect
the current best estimate.
In those cases where the possible outflow of economic resource as a result of
present obligations is considered improbable or remote, or the amount to be
provided for cannot be measured reliably, no liability is recognised in the
balance sheet.
Probable inflows of economic benefits to the Group that do not yet meet the
recognition criteria of an asset are considered contingent assets.
Revenue recognition
Revenue is recognized by reference to the fair value of consideration received
or receivable by the Group for services provided.
Consultancy fee income, including the recovery of direct costs, is recognized
upon completion of the provision of services which is the point at which the
invoices are then raised.
Revenue from retainer fees and services is recognized when the service is
performed in accordance with the terms of the contractual arrangement.
Operating leases
Leases where substantially all the risks and rewards of ownership of the assets
remain with the lessor are treated as operating leases. Annual rentals under
operating leases are charged to the income statement on a straight line basis
over the lease term.
Employee benefits
Employee entitlements to annual leave are recognized when they accrue to
employees. A provision is made for the estimated liability for annual leave as
result of services rendered by employees at the balance sheet date.
The Group participates in defined contribution retirement plans and pays
contributions to publicly or privately administered pension plans on a mandatory
or contractual basis. The Group has no further payment obligations once the
contributions have been paid. The contributions are recognised as employee
benefit expenses when they are due.
Foreign currencies
The financial statements are presented in United States Dollars, which is also
the functional currency of the Group.
In the individual financial statements of the consolidated entities, foreign
currency transactions are translated into the functional currency of the
individual entity using the exchange rates prevailing at the date of the
transactions. Foreign currency exchange gains and losses resulting from the
settlement of such transactions and from the translation of monetary assets and
liabilities denominated in foreign currencies at year end exchange rates are
recognised in the income statement.
In the consolidated financial statements, all individual financial statements of
subsidiaries originally presented in a currency different from the Group's
presentation currency, have been converted into United States Dollars. Assets
and liabilities have been translated into United States Dollars at the closing
rates at the balance sheet date. Income and expenses have been converted into
United States Dollars at the exchange rates ruling at the transaction dates or
at the average rates over the reporting period. Any differences arising from
this have been dealt with in the foreign exchange reserve in equity.
Other exchange differences arising from the translation of the net investment in
foreign entities are taken to shareholders equity.
Related parties
Parties are considered to be related if one party has the ability, directly or
indirectly, to control the other party or exercise significant influence over
the other party in making financial and operating decisions or vice versa.
Parties are also considered to be related if they are subject to common control
or common significant influence.
Related parties may be individuals (being members of key management personnel,
significant shareholders and/or their close family members) or other entities
and include entities which are under the significant influence of related
parties of the Group where those parties are individuals and post-employment
plans which are for the benefit of employees of the Group or any entity that is
a related party to the Group.
Segmental reporting
A segment is a distinguishable component of the Group that is engaged either in
a particular business (business segment) or conducting business in a particular
economic environment (geographical segment) which is subject to risks and
returns that are different from those of other economic environments.
3 Segmental Reporting
(a) By business segment (primary segment):
As defined under International Accounting Standard 14 (IAS14), the only material
business segment the Group has is that of marketing and public relations.
(b) By geographical segment (secondary segment):
Under the definitions contained in IAS 14, the only material geographic segment
that the Group operates in is Asia.
4 Tax Income
The Group does not operate in the United Kingdom and there is no tax arising on
its operations. The relationship between the expected tax expense at 30% and the
tax expense actually recognised in the income statement can be reconciled as
follows:
Six month Six month Year ended
period ended period ended 31 December
30 June 2007 30 June 2006 2006
Unaudited Unaudited Audited
US$'000 US$'000 US$'000
(Loss)/profit for the period
before taxation (727) 86 (10,872)
========= ======== ========
Expected tax(credit)/expense (218) 26 (1,903)
Expenses not deductible for tax - - 1,889
Other adjustments - (26) -
Losses not recognised as
deferred tax asset 221 - 14
--------- -------- --------
Actual tax expense (3) - -
========= ======== ========
5 (Loss)/Earnings per Share
The calculation of the basic (loss)/earnings per share is based on the net loss
for the period of US$730,000 (period ended 30 June 2006 : profit US$86,000, year
ended 31 December 2006 : loss US$10,872,000) divided by the weighted average
number of shares in issue during the period of 134,298,962 (period ended 30 June
2006 : 79,675,002, year ended 31 December 2006 : 94,479,385).
The impact of the warrants on the loss per share is anti-dilutive.
6 Trade and Other Receivables
30 June 2007 30 June 2006 31 December
Unaudited Unaudited 2006
Audited
US$'000 US$'000 US$'000
Trade and other receivables, gross 818 256 510
Impairment of trade and other
receivables (9) (12) (22)
--------- --------- ---------
Trade and other receivables, net 809 244 488
Other receivables 51 130 29
Deposits and prepayments 221 18 95
--------- --------- ---------
1,081 392 612
========= ========= =========
Trade and other receivables are usually due within 30 - 60 days and do not bear
any effective interest rate.
The fair value of these short term financial assets is not individually
determined as the carrying amount is a reasonable approximation of fair value.
7 Trade and Other Payables
30 June 2007 30 June 2006 31 December
Unaudited Unaudited 2006
Audited
US$'000 US$'000 US$'000
Trade and other payables 642 360 272
Other payables and accrued charges 188 61 285
Amounts due to directors 181 52 45
--------- --------- ---------
1,011 473 602
========= ========= =========
The fair value of trade and other payables is considered by management to be a
reasonable approximation of their fair value.
8 Deferred Tax Assets and Liabilities
Deferred tax assets have not been recognised in respect of the following:
30 June 2007 30 June 2006 31 December
Unaudited Unaudited 2006
Audited
US$'000 US$'000 US$'000
Unused tax losses 69 - 30
========= ========= =========
No recognition of potential deferred tax assets of the Group has been made as
recoverability of the potential asset is uncertain.
9 Share Capital
30 June 2007
Unaudited
US$'000
Authorised
4,000,000,000 ordinary shares of 0.25p 18,470
========
Allotted, issued and fully paid
136,544,795 (31 December 2006 133,541,670) ordinary shares of
0.25p 632
========
Issues in period
On 29 March 2007, 1,000,000 shares were issued as initial consideration for the
acquisition of Macro Consulting Pty Ltd as detailed in note 12.
On 8 June 2007, 2,003,125 shares were issued to an employee in accordance with
the terms of their service agreement.
Warrants
On 25 November 2004 a warrant was issued to Strand Partners Limited, the
Company's Nominated Advisor, in connection with their role in the admission of
the Company to the AIM market. The warrant entitles Strand Partners Limited to
subscribe, at a price of 10p per share, for such number of ordinary shares as
are equivalent (on a fully diluted basis) to one per cent. of the issued
ordinary share capital of the Company at that time. The issued warrant may be
exercised at any time during the period from 15 December 2004 to 14 December
2009.
The fair value of warrants granted was determined using the Black-Scholes
valuation model. Significant inputs into the calculations were:
• share price of 5p per share at date of grant of warrant
• exercise price of 10p per warrant as detailed above
• 50% volatility based on expected share price
• a risk free interest rate of 5.0%.
In total £20,000 of share based expense has been included in the share premium
account as a cost of the admission to AIM which gave rise to share based payment
reserve. No liabilities were recognised due to share based payment transactions.
10 Related Party Transactions
David Ketchum, a Director of the Company, has made a loan available to the Group
of US$123,000 (period ended 30 June 2006: US$31,000, year ended
31 December 2006: US$45,000). The balance due is unsecured, interest free and
has no fixed terms of repayment.
During the period ended 30 June 2007 the Group secured a loan from a
shareholder, Corvus Capital Inc. of US$98,000 (period ended 30 June 2006:Nil,
year ended 31 December 2006: US$98,000) which is unsecured and interest free.
The loan is repayable in 10 monthly instalments, commencing in November 2006.
The balance outstanding at 30 June 2007 was US$64,000 (30 June 2006 Nil ,
31 December 2006 US$88,000).
Another shareholder, techpacific.com (BVI) Investments Limited and its
affiliated companies, Techpacific Capital Limited and Crosby Capital Partners
(Hong Kong) Limited, has used the services of the Group for which it paid fees,
out of pocket expenses and mark ups of US$34,000 (period ended 30 June 2006:Nil,
year ended 31 December 2006: US$36,000).
11 Risk Management Objectives and Policies
The Group is exposed to a variety of financial risks which result from both its
operating and investing activities. The Group's risk management is coordinated
at its headquarters, in close cooperation with the board of directors, and
focuses on actively securing the Group's short to medium term cash flows by
minimizing the exposure to financial markets.
(a) Market risk
Market risk encompasses three types of risk being currency risk, fair value
interest rate risk and price risk. The Group's policies for managing fair value
interest rate risk are considered along with those for managing cash flow
interest rate risk as set out below. The Group is not exposed to significant
price risk.
(b) Foreign currency risk
The Group's exposure to foreign currencies is limited to its investments in
foreign subsidiaries and to its trading in overseas operations. The investments
in foreign subsidiaries are financed internally. The overseas operations trade
in their local currency and because their sales to other countries are not
significant they do not seek to hedge their foreign currency exposure. The
Directors will keep this policy under review particularly if sales to other
countries increase significantly.
(c) Credit risk
Generally, the maximum credit risk exposure of financial assets is the carrying
amount of the financial assets as shown on the face of the balance sheet (or in
the detailed analysis provided in the notes to the financial statements). Credit
risk, therefore, is only disclosed in circumstances where the maximum potential
loss differs significantly from the financial assets carrying amount.
The Group's trade and other receivables are actively monitored to avoid
significant concentrations of credit risk.
(d) Cash flow and fair value interest rate risks
Cash flow is managed by means of ensuring sufficient cash and cash equivalents
are held to support the trading activities of the Group. The cash and cash
equivalents are invested such that the maximum available interest rate is
achieved with minimal risk.
The Group currently has no financial liabilities with floating interest rates.
12 Acquisitions
On 29 March 2007 the Company acquired the entire issued share capital of Macro
Consulting Pty Ltd for a consideration comprising an initial tranche of 1
million ordinary shares of 0.25p together with up to a further 3 million shares
dependent upon the post acquisition results of the acquired business. Costs of
the acquisition amounted to US$24,000. The difference between the directors
current estimate of the total consideration payable of US$514,000 and the net
assets acquired of US$60,000 (US$454,000) has provisionally been classified as
goodwill until the directors can fully assess the fair value of any other
intangible assets acquired.
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