Final Results

Mobile Streams plc 26 March 2008 Mobile Streams Plc ('Mobile Streams' or the 'Company') Full Year Results Announcement 26 March 2008 Mobile Streams (AIM: MOS) today announces its full year results for the year ending 31 December 2007. Group revenue in the year was Â£9.1m, an 11% increase on 2006 (Â£8.2m). Trading EBITDA* was a loss of Â£1.2m for the period (2006: breakeven). Loss before tax was Â£4.7m (2006: Â£2.0m). Overall gross margin was 54.8% (2006: 58.6%). Financial highlights: - Revenue increased by 11% to Â£9.1m (2006: Â£8.2m) - Loss before tax Â£4.7m (2006: Â£2.0m) - Non cash charges for depreciation, amortisation, impairments and share based payments of Â£3.6m (2006: Â£0.9m) are included in the loss before tax - Trading EBITDA* loss of Â£1.2m (2006: breakeven) - Revenue growth driven by Consumer Services and Asia - Cash at 31 December 2007 of Â£2.3m (2006: Â£4.1m) - Revenues evenly balanced between Europe, North America, Latin America and Asia Pacific regions *Calculated as loss before tax, interest, amortisation, depreciation, impairments, share compensation expense and fund raising and flotation cost. Strategic highlights: - New channel manager agreements with major carrier groups, including master content partner for SingTel (music, games and download channels), Games channel for Vodafone Live in Australia, AIS in Thailand and comedy service for Hutchison 3 in UK. - Simplification of business structure establishing two business units, Managed Services and Consumer Services, to better take advantage of the recent trends in the mobile content market. - Continued investment in Consumer Services business using the ringtones.com brand. - Exclusive global off-portal mobile partnership with Private Media Group, to distribute Private's premium content through Mobile Streams' platform for off-portal mobile services. - Further development and enhancements made to Vuesia, the company's proprietary media platform, including a major new upgrade, Vuesia AI (for Artificial Intelligence), which simplifies the process of launching and managing mobile content globally through the use of automated functionality. - Content licensing agreements now include Playboy, Private Media Group, Warner Music Group, EMI Music, Sony BMG, Mondo Media's Happy Tree Friends, Electronic Arts, Glu and Paramount Pictures. - Zoombak, a GPS device and service for locating cars and pets, was launched commercially in the US in December 2007, in partnership with our strategic investor Liberty Media Commenting, Mobile Streams Chairman Roger Parry said: 'Mobile Streams' first full year as a public company was one in which the company and the mobile content industry it operates in underwent significant change. The use of mobile devices as a means to access content is still relatively undeveloped, but we believe that the Company's strengths in technology, local content and geography leaves us well positioned to participate in the Mobile Internet industry going forward.' Simon Buckingham, CEO, added: '2007 was a transition year for the mobile content industry in general and Mobile Streams in particular. Whilst the introduction of the Mobile Internet onto operator portals disrupted the traditional carrier portal business models, over time it will enable the industry and we believe our Company to move to the next level of growth. The start of 2008 has been encouraging with trading at breakeven at EBITDA* level for the first two months and cash of more than Â£2m at the end of February.' Outlook and Trading Since the beginning of the 2008 financial year, Mobile Streams has traded at around the breakeven mark at an EBITDA* level. There is a small ongoing monthly cash outflow from the investment in the Vuesia platform. Revenues from Managed Services have been solid, with growing revenue coming from the Asia Pacific region where the Company has carved out a position as the games channel manager for several network operators such as Optus Australia, Vodafone Australia, SingTel Singapore and AIS Thailand. New launches of Consumer Services powered by our Ringtones.com brand have continued in markets such as Australia and Argentina where the Company already has established operations. The Company expects to see a continuation in these market trends during 2008, with overall revenues from managed operator services remaining broadly flat along with continued launches of consumer services, albeit with small initial volumes, in select markets where Mobile Streams has current operations and the search engines are establishing partnerships with local mobile operators. *Calculated as loss before tax, interest, amortisation, depreciation, impairments, share compensation expense and fund raising and flotation cost. Enquires: Mobile Streams (020 7395 2000) Simon Buckingham, Chief Executive Officer James Colquhoun, Finance Director CHAIRMANS STATEMENT Group revenue in 2007 was Â£9.1m, an 11% increase on 2006 (Â£8.2m). Trading EBITDA * was a loss of Â£1.2m for the period (2006: breakeven). Loss before tax was Â£4.7m (2006: Â£2.0m). During 2007, Mobile Streams invested heavily in building a global mobile content business covering 13 subsidiaries on 4 continents. Leveraging its expertise and technology platform across multiple operating regions both increases Mobile Streams' return on technology investment and assists its global customers with the implementation of their mobile strategies. The Company's global footprint and geographical scale has enabled it to reduce its dependence on any one customer or region. 2007 was a year of significant change for the mobile content industry. The traditional means of distributing mobile content through portals operated by mobile network operators was challenged by the fact that growth from this revenue source by and large stalled during the period. As such, mobile operators turned to new business partnerships with internet companies such as Google and Yahoo! to take their mobile content business to the next level. However, these initiatives were largely experimental and proved demanding to deploy technically. This transition and instability created an environment which led to losses being accumulated by the Company as it waited for delayed mobile internet launches. In the context of these industry changes 2007 was a transitional year for the Company, its first full year as a public company. The management was required to respond to the changes in market climate, to integrate the three acquisitions made during 2006 and to explore new business models such as platforms and content creation. As the year progressed, it became clear to management that the Company would need to pare back and focus its activities, which contributed to the end of year losses. As such, two company divisions were created - Managed Services for mobile content supplied to mobile network operators and media companies - and Consumer Services to focus on the emerging Mobile Internet. Building an on and off portal presence in its operating markets enables Mobile Streams to leverage its local content, billing relationships and market presence to achieve scale and maximize future returns. This enables the Company to serve the current operator portal business model whilst investing in new deployments of search engines such as Google and Yahoo! by the network operators. Outlook and Trading Since the beginning of the 2008 financial year, Mobile Streams has traded at around the breakeven mark at an EBITDA* level. There is a small monthly cash outflow from the investment in the Vuesia platform. Revenues from Managed Services have been solid, with growing revenue coming from the Asia Pacific region where the Company has carved out a position as the games channel manager for several network operators such as Optus Australia, Vodafone Australia, SingTel Singapore and AIS Thailand. New launches of Consumer Services powered by our Ringtones.com brand have continued in markets such as Australia and Argentina where the Company already has established operations. The Company expects to see a continuation in these market trends during 2008, with overall revenues from managed operator services remaining broadly flat along with continued launches of consumer services, albeit with small initial volumes, in select markets where Mobile Streams has current operations and the search engines are establishing partnerships with local mobile operators. Roger Parry Chairman *Calculated as loss before tax, interest, amortisation, depreciation, impairments, share compensation expense and fund raising and flotation cost. CHIEF EXECUTIVE'S STATEMENT Traditionally, mobile network operators have managed their mobile content portals, usually appointing master content providers such as Mobile Streams to aggregate and refresh content channels within the portal. This business model limited the number of suppliers whose content would be presented in the portal. For incumbent suppliers such as Mobile Streams it meant relatively consistent and predictable revenue streams. In order to stimulate new growth in mobile content, the mobile operators formed partnerships with mobile portals such as Yahoo! and Google. This trend started mainly in the UK and European regions in 2007. Consumers immediately migrated away from using the operator portals as a means to discover and purchase content and turned instead to the Google search box that they were familiar with from the PC Internet. Despite this there was little new growth in Mobile Internet usage, rather the usage simply migrated from on-portal to off-portal traffic. Mobile Streams anticipated these developments and hired its first head of consumer services in mid 2006 to prepare for their launch. Whilst our position as an operator portal supplier would be reduced, the overall opportunity for the Company would be enlarged. To use the case of Vodafone, Mobile Streams supplied the comedy channel to Vodafone Live in the UK, but would now have the opportunity to sell not just comedy content but more music, games, graphics and adult content too. What we did not anticipate was the time it would take for these deployments to be stabilised from a technology standpoint. Additionally, the operators continued to tweak the Mobile Internet model as they sought to change the balance between on and off portal search traffic, which affected management and development of the services. The instability and immaturity in consumer services has led the Company to delay the timescales over which it expects the Consumer Services business to reach critical mass and scale, locally and globally. Mobile Streams solidified its key operator relationships in Europe, North America, Latin America and Asia during 2007. We have a number of key supplier relationships with network operators on several continents. Our business covers the main types of mobile content that consumers are most interested in; music, adult and games. We have the opportunity to distribute this content on and off portal. The Company's strategic partnership with Liberty Media remained strong during the year, resulting in the successful launch in the USA in December 2007 of Zoombak, the mobile location services company. Mobile Streams earns an annual management service fee, a capped percentage of Zoombak's revenues and profits and holds warrants over 10% of the Zoombak equity. 2008 will see the full deployment and rollout of Zoombak in the US and other markets such as the UK. As such, I am convinced that there is significant incremental opportunity for Mobile Streams to strengthen its results by leveraging all the investments it has made and knowledge it has gained in 2007 and for the nine years that the Company has been operating. As the Mobile Internet opens up around the world over time, I am confident that the Company is well placed to benefit. Simon Buckingham Chief Executive Officer FINANCIAL REVIEW Group revenue in the year was Â£9.1m, an 11% increase on 2006 (Â£8.2m). Trading EBITDA* was a loss of Â£1.2m for the period (2006: breakeven). Loss before tax was Â£4.7m (Â£2.0m). Overall gross margin was 54.9% (2006: 58.6%). We now have a genuine global distribution footprint with 13 subsidiaries on 4 continents. Leveraging our expertise and technology platform across multiple operating regions both increases our return on technology investment and assists our global customers with the implementation of their mobile strategies. Our global footprint and geographical scale has enabled us to reduce our dependence on any one customer or region, and facilitate our growth. The Group has adopted International Financial Reporting Standards for the first time. The principal impact of this change is the requirement to separately identify intangible assets acquired in business combinations. The impact of these changes are detailed in note 26 of the accounts. Â£1,467,000 was invested during the year on property, plant and equipment, and intangibles assets. This was predominantly for the further development of the Vuesia platform. The Group continue to invest in the development of the Vuesia platform, albeit at a much reduced rate as it focuses on earning returns from investments in prior years. The Group incurred an impairment charge of Â£2,206,000 relating to goodwill and intangible assets. The impairment charge under IFRS differs to the impairment charge under UK GAAP as follows: Impairment under UK GAAP 1,583,000 Additional impairment under IFRS 623,000 Total 2,206,000 The additional impairment under IFRS relates to deferred tax on intangibles assets acquired via business acquisitions. IAS 12 requires the group to add deferred tax on intangibles assets acquired via business combinations to goodwill and test for impairment annually. Further detail of the impairment can be seen at note 12. The Group incurred a net cash outflow from operations of Â£0.4m (2006: outflow Â£1.7m); net cash outflows from investing activities were Â£1.4m (2006: outflow Â£3.8m). The cash balance at 31 December 2007 was Â£2.3m (2006: Â£4.1m). Basic earnings per share amounted to a loss of 12.024 per share (2006: loss of 6.753p). Adjusted earnings per share (excluding depreciation, amortisation, impairments, flotation/fund raising costs and share compensation expense) amounted to a loss of 1.785p (2006: profit of 0.325p). J Colquhoun Finance Director *Calculated as loss before tax, interest, amortisation, depreciation, impairments, share compensation expense and fund raising and flotation cost. Accounting policies Summary of significant accounting policies Basis of preparation The consolidated financial statements of Mobile Streams are for the 12 months ended 31 December 2007. They have been prepared in accordance with applicable International Financial Reporting Standards as adopted by the EU. All references to IFRS in these statements refer to IFRS as adopted by the EU. The policies set out below have been consistently applied to all years presented and comparative information has been restated and represented under IFRS. Mobile Streams' consolidated financial statements have been previously prepared in accordance with UK's Generally Accepted Accounting Principles (GAAP) until 31 December 2006. UK GAAP differs in some areas to IFRS. In preparing the 2007 consolidated financial statements certain accounting, valuation and consolidation methods have been adjusted to comply with IFRS. The comparative figures for 2006 have been restated to reflect these adjustments, unless otherwise described in the accounting policies. The date of transition to IFRS was 1 January 2006. A conversion statement explaining reconciliations and descriptions of the effect of the transition from UK GAAP to IFRS on equity, net income and cash flows has been provided in note 26. Preparation of financial statements in accordance with IAS 1 requires the use of some key assumptions and other sources of estimation uncertainty. It requires management of Mobile Streams to exercise judgement when applying accounting policies. The specific areas involving a higher degree of judgement and/or complexity and areas where assumptions/estimates are significant to the financial statements are disclosed in note 2. The historical cost convention has been applied, except as modified to account of the revaluation of certain financial instruments, as set out in the accounting polices. Consolidation - subsidiaries Subsidiaries are all entities over which the group has the power to govern the operating and financial policies generally accompanying a shareholding of more than half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date on which control is lost. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of a business combination is measured as the fair value of assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition, in line with IFRS 3, Business Combinations. Any assets acquired and liabilities and contingent liabilities assumed that are identifiable are measured initially at their fair values at the acquisition date. Goodwill is stated after separating out identifiable intangible assets. The excess of the cost of a business combination over the fair value of the identifiable net assets acquired is recorded as goodwill. If the cost of a business combination is less than the fair value, the difference is recognised directly in the income statement. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated in full. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Subsidiaries' accounting policies have been changed where necessary to ensure consistency with the policies adopted by the Group. Foreign currency translation (a) Presentational currency The consolidated and parent company financial statements are presented in British pounds. (b) Transactions and balances Foreign currency transactions are translated into the presentational currency using the exchange rates prevailing at the date the transaction occurs. Any exchange gains or losses resulting from these transactions and from the translation of monetary assets and liabilities at balance date are recognised in the income statement. Any translation gains or losses on non-monetary items are recognised in equity to the extent that they relate to gains and losses on non-monetary items which are recorded in equity. Otherwise, these translation gains or losses are recognised in the income statement. (c) Group companies The financial results and position of all group entities that have a presentation currency different from the presentation currency of the Group are translated into the presentation currency as follows: i assets and liabilities for each balance sheet are translated at the closing exchange rate at the date of balance sheet ii income and expenses for each income statement are translated at average exchange rates (unless it is not a reasonable approximation, in which case translated at dates of transactions) iii all resulting exchange differences are recognised as a separate component of equity (cumulative translation reserve) Property, plant and equipment All property, plant and equipment (PPE) are stated at cost, less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the purchase of the items. Depreciation is calculated to write off the cost of property, plant and equipment less estimated residual value on a straight line basis over their estimated useful lives. The following rates and methods have been applied: Leasehold improvements Over the life of the lease Plant and equipment 33% straight line Office furniture Between 10% and 33% straight line The asset's residual value and useful live is reviewed, and adjusted if required, at each balance sheet date. The carrying amount of an asset is written down immediately to its recoverable amount if the carrying amount is greater than its estimated recoverable amount. Gains/losses on disposal of assets are determined by comparing proceeds received to the carrying amount. Any gain/loss is included in the income statement. Intangible assets (a) Goodwill Goodwill represents the excess of the cost of a business combination over the fair value of net identifiable assets of the acquired entity at the date of acquisition. This goodwill for subsidiaries is included in intangible assets (the purchase method). Intangibles acquired in a business combination are acquired at fair value. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units for impairment testing. Excess of the fair value of net assets over the cost of the combination is recognised immediately after acquisition in the income statement. (b) Customer relationships Customer relationships represent relationships that have been acquired through business combinations. To meet this definition, the intangibles must be identifiable either by being separable, or by arising from contractual or other legal rights. Intangibles acquired through business combinations are recognised at fair value. Where a reliable estimate of useful life of the intangible can be obtained, the intangible asset is to be amortised using the straight line basis, over the useful life. Where there is an indication of impairment of intangibles, the intangible will be tested for impairment. The estimated useful live of customer relationships is 5 years. (c) Technology based assets Technology based assets represent assets that have been acquired through business combinations. To meet this definition, the intangibles must be identifiable either by being separable, or by arising from contractual or other legal rights. Intangibles acquired through business combinations are recognised at fair value. Where a reliable estimate of useful life of the intangible can be obtained, the intangible asset is to be amortised using the straight line basis, over the useful life. Where there is an indication of impairment of intangibles, the intangible will be tested for impairment. The estimated useful live of technology based assets is 5 years. (d) Non-compete agreement The non-compete agreement was acquired through the business combination of Mobile Streams (Hong Kong) Limited. To meet this definition, the intangible must be identifiable either by being separable, or by arising from contractual or other legal rights. Intangibles acquired through business combinations are recognised at fair value. The estimated useful live of the non-compete agreement is 3.5 years. The intangible asset is to be amortised using the straight line basis, over the useful life. Where there is an indication of impairment of intangibles, the intangible will be tested for impairment. (e) Media content Media content represents intangible assets that have acquired from third parties and also these that are internally generated. Content expenditure is charged to income in the year in which it is incurred unless it meets the recognition criteria of IAS 38 Intangible Assets. For internally generated media content to meet the criteria of an intangible the Group must demonstrate the following criteria. Firstly the technical feasibility of completing the asset so that it will be available for use, its intention to complete the intangible (or sell it), its ability to use or sell the intangible, that the intangible will generate future economic benefit, adequate resources to complete the intangible and the expenditure can be reliably measured. Intangible assets, if capitalised, are amortised on a straight-line basis over the period of the expected benefit. Intangibles acquired from third parties are recognised at cost. Where a reliable estimate of useful life of the intangible can be obtained, the intangible asset is to be amortised using the straight line basis, over the useful life. Where there is an indication of impairment of intangibles with a definite life, the intangible will be tested for impairment. The estimated useful life of content is 2 years. (f) Media platform development Media platform developments represent intangible assets that have internally generated including capitalised direct staff costs. Platform expenditure is charged to income in the year in which it is incurred unless it meets the recognition criteria of IAS 38 Intangible Assets. To meet this criteria the Group must demonstrate the technical feasibility of completing the asset so that it will be available for use, its intention to complete the intangible (or sell it), its ability to use or sell the intangible, that the intangible will generate future economic benefit, adequate resources to complete the intangible and the expenditure can be reliably measured. Intangible assets, if capitalised, are amortised on a straight-line basis over the expected useful life. Where there is an indication of impairment of intangibles with a definite life, the intangible will be tested for impairment. The estimated useful life of media platform development is 3 years. (g) Software Software represents assets that have been acquired from third parties. To meet this definition, the intangibles must be both identifiable and either separable, or arise from contractual or other legal rights. Intangibles acquired from third parties are stated at cost less accumulated amortisation and impairment losses. Where a reliable estimate of useful life of the intangible can be obtained, the intangible asset is to be amortised using the straight line basis, over the useful life. Where there is an indication of impairment of intangibles with a definite life, the intangible will be tested for impairment. Amortisation is shown in 'depreciation, amortisation and impairment' in the income statement. Impairment of assets Assets that have an indefinite useful life, such as goodwill, are not subject to amortisation, but are instead tested annually for impairment and also tested whenever an event or change in situation indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are also tested for impairment whenever an event or change in situation indicate that the carrying amount may not be recoverable. An impairment loss is recognised in the income statement as the amount by which the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is determined by the higher of the fair value of an asset less costs to sell and the value in use. In order to assess impairment, assets are grouped at the lowest levels for which separate cash flows can be identified (cash-generating units). Impairment is shown in 'depreciation, amortisation and impairment' in the income statement. Research and development Research expenditure is expensed in the year in which it is incurred. Development expenditure is charged to income in the year in which it is incurred unless it meets the recognition criteria of IAS 38 Intangible Assets. Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held with financial institutions, and other short-term highly liquid investments with original maturities of three months or less. Taxation Current tax is the tax currently payable based on taxable profit for the year. Deferred income tax is provided, using the liability method, on temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax is not provided on initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. Deferred income tax is determined using tax rates known by the balance sheet date and are expected to apply when the deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax liabilities are provided in full, with no discounting. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statements, except where they relate to items that are charged or credited directly to equity, in which case the related deferred tax is also charged or credited directly to equity. Provisions Provisions, including those for legal claims, are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of economic benefits will be required to settle the obligation and the amount has been reliably estimated. Provisions are measured at the present value of best estimate of the expenditure required to settle the present obligation at the balance sheet date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the increases specific to the liability, including risks specific to the liability. Financial Assets The Group can classify its financial assets and liabilities into the below categories depending on the purpose for which they were acquired. The classification is determined at initial recognition and is re-evaluated at every reporting date. a) Loans and receivables Trade receivables are classified as loans and receivables. Trade receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and where there is no intention of trading. They are included as current assets, unless maturity is greater than 12 months after balance sheet date. Trade receivables are included in trade and other receivables in the balance sheet. Trade receivables are recognised initially at fair value and later measured at amortised cost using the effective interest method, less provision for impairment. An impairment provision for trade receivables is established when there is evidence the Group will not be able to collect all amounts due according to the terms of the receivables. The provision is calculated as the difference between the receivable's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. b) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They form part of non-current assets unless management intends to dispose of the investment within 12 months of balance sheet date. The Groups available for sale investments consist of unlisted securities. All available-for-sale financial assets are measured at fair value at balance sheet date, with subsequent changes in value recognised in equity. Gains and losses arising from financial instruments classified as available-for-sale are only recognised in profit or loss when they are sold or when the investment is impaired. In the case of impairment, any loss previously recognised in equity is transferred to the income statement. Losses recognised in the income statement on equity instruments are not reversed through the income statement but charged to equity. Losses recognised in prior period consolidated income statements resulting from the impairment of debt securities are reversed through the income statement, if the subsequent increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss. The Group assesses at each balance sheet date whether there is evidence that financial assets are impaired. Financial Liabilities Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument. All financial liabilities are recorded initially at fair value, net of direct issue costs. A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires. Trade payables The Group's financial liabilities consist of trade and other payables, which are measured at amortised cost using the effective interest rate method. Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest-related charges are reported in the income statement are included in the income statement line items 'finance costs' or 'finance income'. Revenue recognition Revenue includes the fair value of sale of goods and services, net of value-added tax, rebates and discounts and after eliminating intercompany sales within the Group. Revenue is recognised as follows: a) Sales of goods Sales of goods are recognised when a Group entity has delivered media content to the end consumer, who has accepted the product and collectability of the related receivable is reasonably assured from the customer. b) Rendering of services Rendering of services are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction, on the basis of the actual service provided as a proportion of the total services to be provided. c) Interest income Interest receivable is recognised in the income statement using the effective interest method. If the collection of interest is considered doubtful, it is suspended and excluded from interest income in the income statement. d) Deferred income Revenue that has been collected from customers but where the above conditions are not met is recorded in the balance sheet under other debtors and deferred income and released to the income statement when the conditions are met. Share based payments Employees (including Directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares ('equity-settled transactions'). Equity settled transactions The Group has applied the requirements of IFRS 2 Share-based Payments to all grants of equity instruments. The cost of equity settled transactions with employees is measured by reference to the fair value at the grant date of the equity instruments granted. The fair value is determined by using the Black-Scholes method. The cost of equity-settled transactions is recognised, together with a corresponding increase in retained earnings, over the periods in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award ('vesting date'). At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market conditions and of the number of equity instruments that will ultimately vest. Market conditions are taken into account in determining the fair value of the options granted, at grant date, and are subsequently not adjusted for. The movement in cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in equity. No expense or increase in equity is recognised for awards that do not ultimately vest. Awards where vesting is conditional upon a market condition are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are charged to the share premium account. Shares to be issued Shares to be issued are recorded in Balance Sheet when the Group has an obligation to issue shares. Shares to be issued relate to deferred consideration on the acquisition of Mobile Streams Europe GmbH (formerly Cyoshi Mobile GmbH). The shares are valued at the market value as of date of acquisition. Leased assets In accordance with IAS 17, all the Groups leases are determined to be operating leases and the payments made under them are charged to the income statement on a straight line basis over the lease term. Lease incentives are spread over the term of the lease. Operating leases are leases in which the risks and rewards of ownership are not transferred to the lessee. Standards and interpretations not yet applied The following new Standards and Interpretations, which are yet to become mandatory, have not been applied in the 2007 group financial statements. Standard or Interpretation Effective for in reporting periods starting on or after IAS 1 Presentation of Financial Statements (revised 2007) 1 January 2009 IFRS 2 Amendment to IFRS 2 Share-based Payment - Vesting 1 January 2009 Conditions and Cancellations IAS 23 Borrowing Costs (revised 2007) 1 January 2009 IAS 32 Presentation and IAS 1 Presentation of Financial 1 January 2009 Statements - Puttable Financial Instruments and Obligations Arising on Liquidation IAS 27 Consolidated and Separate Financial Statements 1 July 2009 (Revised 2008) IFRS 3 Business Combinations (Revised 2008) 1 July 2009 IFRS 8 Operating Segments 1 January 2009 IFRIC 11 IFRS 2- Group and Treasury Share Transactions 1 March 2007 IFRIC 12 Service Concession Arrangements 1 January 2008 IFRIC 13 Customer Loyalty Programmes 1 July 2008 IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, 1 January 2008 Minimum Funding Requirements and their Interaction Standards management expect to effect the Group Amendment to IAS 1 Presentation of Financial Statements (effective from 1 January 2009) This amendment affects the presentation of owner changes in equity and introduces a statement of comprehensive income. Preparers will have the option of presenting items of income and expense and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of other comprehensive income). This amendment does not affect the financial position or results of the Group but will give rise to additional disclosures. Management is currently assessing the detailed impact of this amendment on the Group's financial statements. Amendment to IFRS 2 Share-based Payment - Vesting Conditions and Cancellations (effective from 1 January 2009) This amendment affects share based payments. All cancellations, whether by the entity or by other parties, should receive the same accounting treatment. Under IFRS 2, a cancellation of equity instruments is accounted for as an acceleration of the vesting period. Therefore any amount unrecognised that would otherwise have been charged is recognised immediately. Any payments made with the cancellation (up to the fair value of the equity instruments) is accounted for as the repurchase of an equity interest. Any payment in excess of the fair value of the equity instruments granted is recognised as an expense. Vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. Under IFRS 2, features of a share-based payment that are not vesting conditions should be included in the grant date fair value of the share-based payment. The fair value also includes market-related vesting conditions. This will not affect the Group as the only current condition on share based payments relates to service. No other standard is expected to effect the financial statements. The Group does not intend to apply any of these pronouncements early. CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2007 Notes 2007 2006 Â£000's Â£000's Revenue 27 9,098 8,223 Cost of sales 27 (4,108) (3,402) Gross profit 4,990 4,821 Selling and marketing costs (623) (251) Administration expenses (5,127) (4,505) Other operating expenses (116) (106) Depreciation, amortisation and impairment 5 (3,357) (530) Flotation/fundraising costs - (1,296) Share based compensation (240) (325) Restructuring costs (363) - Operating loss (4,836) (2,192) Finance costs 6 - (14) Finance income 6 180 237 Loss before income tax (4,656) (1,969) Income tax expense 9 432 (83) Loss for period (4,224) (2,052) Attributable to: Attributable to equity shareholders of Mobile Streams Plc (4,224) (2,052) Total and continuing earnings per share Pence per Pence per share share Basic and basic 7 (12.024) (6.753) CONSOLIDATED BALANCE SHEET As at 31 December 2007 Notes 2007 2006 Â£000's Â£000's Assets Non-current Goodwill 12 977 2,464 Intangible assets 12 2,516 2,923 Property, plant and equipment 11 409 405 Available for sale financial assets 13 467 382 4,369 6,174 Current Trade and other receivables 14 3,248 2,743 Cash and cash equivalents 15 2,301 4,073 5,549 6,816 Total assets 9,918 12,990 Equity Equity attributable to the equity holders of Mobile Streams Plc Called up share capital 19 71 69 Share Premium 10,468 10,290 Shares to be issued 19 479 637 Translation reserve (182) (178) Retained earnings (6,001) (2,017) Total equity 4,835 8,801 Liabilities Non-current Deferred tax liabilities 17 306 735 Current Trade and other payables 16 4,283 3,341 Provisions 18 442 - Current tax liabilities 52 113 4,777 3,454 Total liabilities 5,083 4,189 Total equity and liabilities 9,918 12,990 The financial statements were authorised for issue by the Board of Directors and were signed on its behalf by: 25 March 2008 J A Colquhoun Finance Director CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2007 Equity attributable to the equity holders of Mobile Streams Plc Called Share Shares to be Translation Retained Total up share premium issued reserve earnings Equity capital Â£000's Â£000's Â£000's Â£000's Â£000's Â£000's Balance at 1 January 2006 1 165 - - (290) (124) Exchange differences on translation of foreign operations - - - (178) - (178) Net income recognised directly in equity - - - (178) - (178) Loss for the year to 31 December 2006 - - - - (2,052) (2,052) Total recognised income and expense for the period - - - (178) (2,052) (2,230) Employee share based compensation - - - - 325 325 Shares issued 68 10,125 - - - 10,193 Shares to be issued - - 637 - - 637 Balance at 31 December 2006 69 10,290 637 (178) (2,017) 8,801 Balance at 1 January 2007 69 10,290 637 (178) (2,017) 8,801 Exchange differences on translation of foreign operations - - - (4) - (4) Net income recognised directly in equity - - - (4) - (4) Loss for the year to 31 December 2007 - - - - (4,224) (4,224) Total recognised income and expense for the period - - - (4) (4,224) (4,228) Employee share based compensation - - - - 240 240 Shares issued 2 178 - - - 180 Shares to be issued - - (158) - - (158) Balance at 31 December 2007 71 10,468 479 (182) (6,001) 4,835 CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2007 Notes 2007 2006 Â£000's Â£000's Cash flows from operating activities Result for the period before tax (4,656) (1,969) Adjustments Share based payments 240 325 Depreciation 123 48 Amortisation 1,028 482 Interest received (180) (237) Impairment of intangibles and goodwill 2,206 - Interest expense - 14 Changes in trade and other receivables (505) (571) Changes in trade and other payables 1,384 370 Income tax paid (64) (192) Total cash flows from operating activities (424) (1,730) Cash flows from investing activities Additions to property, plant and equipment (180) (454) Additions to other intangible assets (1,282) (802) Acquisitions of subsidiaries (net of cash acquired) - (2,379) Available for sale financial assets (87) (382) Interest received 180 216 Total cash flows from investing activities (1,369) (3,801) Cash flows from financing activities Interest paid - (14) Issue of share capital (net of expenses paid) 23 9,494 Total cash flow from financing activities 23 9,480 Net change in cash and cash equivalents (1,770) 3,949 Cash and cash equivalents at beginning of period 4,073 268 Exchange (losses) on cash and cash equivalents (2) (144) Cash and cash equivalents at end of period 15 2,301 4,073 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. General information Mobile Streams Plc (the Company) and its subsidiaries (together 'the Group') deliver mobile media solutions via distribution, content and an integrated technology platform, Vuesia. The Group has subsidiaries based around the world in Europe, Asia, North America and Latin America. The Group has made various strategic acquisitions to build its market share in these regions. The Company is a public limited company incorporated in the United Kingdom. The address of its registered office is Medius House, 63-69 New Oxford Street, London, WC1A 1DG. The Company is listed on the London Stock Exchange's Alternative Investment Market. These consolidated financial statements have been approved for issue by the Board of Directors on 25 March 2008. 2. Critical accounting estimates and judgements Estimates and judgements are evaluated on a regular basis and are based on historical experience and other factors, such as expectations of future events that are believed to be reasonable under the circumstances. 2.1 Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. These estimates, by definition, will rarely equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (a) Goodwill The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy. The recoverable amount of cash-generating units has been determined based on value-in-use calculations. These calculations require estimates to be made. Refer to note 12. (b) Income taxes The Group is subject to income taxes in various jurisdictions. Judgement is required in determining the worldwide provision for income taxes. There are many transactions/calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome is different to what is initially recorded, such differences will impact the income tax and deferred tax provisions. (c) Intangible assets The Group is required to identify and assess the useful life of intangible assets and determine if there is a finite or indefinite life. Judgement is required in determining if an intangible asset has a finite life and the extent of this finite life in order to calculate the amortisation charge on the asset. The Group tests annually whether intangible assets have suffered any impairment, in accordance with the accounting policy. The recoverable amount of cash-generating units have been determined based on value-in-use calculations. These calculations require estimates to be made. Where there is no method of valuation for an intangible asset, management will make use of a valuation technique to determine the value of an intangible if there is no evidence of a market value. In doing so certain assumptions and estimates will be made. Refer to note 12. d) Share based payments The Group is required to measure the fair value of equity settled transactions with employees at the grant date of the equity instruments. The fair value is determined by using the Black-Scholes method. This requires assumptions regarding interest free rates, share price volatility and expected life of an employee share option. The volatility of the Company's share price on each date of grant was calculated as the average of volatilities of share prices of companies in the Peer Group on the corresponding dates. The volatility of share price of each company in the Peer Group was calculated as the average of annualized standard deviations of daily continuously compounded returns on the Company's stock, calculated over 1, 2, 3, 4 and 5 years back from the date of grant, where applicable. The risk-free rate is the yield to maturity on the date of grant of a UK Gilt Strip, with term to maturity equal to the life of the option. In our experience the expected life of an employee share option is 5 years. e) Deferred taxation Judgement is required by management in determining whether the Group should recognise a deferred tax asset. Management considered whether there is sufficient certainty its tax losses available to carry forward would ultimately be offset against future earnings, this judgement impacts on the degrees to which deferred tax assets are recognised (see note 9). 3. Directors' and Officers' remuneration and interests The Directors are regarded as the key management personnel of the Mobile Streams Plc. Charges in relation to remuneration received by key management personnel for services in all capacities during the years ended 31 December 2007 are as follows: 2007 2006 Â£000's Â£000's Short- term employee benefits - salaries/remuneration 240 369 - social security costs 24 35 Share-based payments - 169 264 573 4. Services provided by the group's auditor and network firms During the year the Group (including its overseas subsidiaries) obtained the following services from the Group's auditor at costs detailed below: 2007 2006 Â£000's Â£000's Fees payable to company auditor for the audit of parent company and consolidated accounts 64 44 Non-Audit services: Fees payable to the Company's auditor and its associates for other services: The audit of company's subsidiaries pursuant to legislation 5 4 Interim procedures 15 - Tax compliance and advisory services 7 41 Advisory work on acquisitions - 92 Advice relating to fund raising and initial public offering, including acting as reporting accountant - 116 91 297 5. Depreciation, amortisation and impairment 2007 2006 Â£000's Â£000's Depreciation 123 48 Amortisation 1,028 482 Impairment of goodwill 1,496 - Impairment of other intangible assets 529 - Impairment of content 181 - 3,357 530 The Group incurred a total impairment charge of Â£2,206,000 relating to goodwill and intangible assets. The impairment charge under IFRS differs to the impairment charge under UK GAAP as follows: Impairment under UK GAAP 1,583,000 Additional impairment under IFRS 623,000 Total 2,206,000 The additional impairment under IFRS relates to deferred tax on intangibles assets acquired on business acquisition. IAS 12 requires the Group to add deferred tax on intangibles assets acquired via business combinations to goodwill and impair test annually. Further detail of the impairment can be seen in note 12. 6. Finance receivable/(PAYABLE) 2007 2006 Â£000's Â£000's Interest receivable 121 216 Other interest receivable 59 21 180 237 Bank interest payable - (14) Net interest receivable 180 223 7. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period. Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below. 31 December 31 December 2007 2006 Pence per Pence per share share Basic and diluted earnings per share (12.024) (6.753) Â£000's Â£000's Loss for the financial period (4,224) (2,052) For adjusted earnings per share Â£000's Â£000's Loss for the financial period (4,224) (2,052) Add back: flotation/fund raising costs - 1,296 Add back: share compensation expense 240 325 Add back: impairment of intangibles and goodwill 2,206 - Add back: depreciation and amortisation 1,151 530 Adjusted loss for the period (627) 99 Weighted average number of shares Number of Number of shares shares For basic earnings per share 35,128,404 30,384,461 For diluted earnings per share 35,128,404 31,872,658 Pence per Pence per share share Adjusted basic earnings per share (1.785) 0.325 Adjusted diluted earnings per share - 0.311 The adjusted EPS has been calculated to reflect the underlying profitability of the business by excluding the flotation and fund raising costs, and share compensation expense. The Company is required to issue a further 620,268 shares to satisfy the deferred consideration relating to the acquisition Mobile Streams Europe GmbH (formerly Cyoshi Mobile GmbH) and 629,020 shares under share options schemes. These have been excluded in calculating the dilated earnings per share as losses were incurred during the period. 8. Directors and employees Staff costs during the year were as follows: 2007 2006 Â£000's Â£000's Wages and salaries 3,360 2,569 Social security costs 449 281 Pension costs - - 3,809 2,850 Less: staff costs capitalised within (732) (380) media platform costs 3,077 2,470 The average number of employees during the year was: 2007 2006 Number Number Management 7 7 Administration 94 71 101 78 Remuneration in respect of Directors was as follows: 2007 2006 Â£000's Â£000's Emoluments 278 404 278 404 The amounts set out above include remuneration in respect of the highest paid director as follows: 2007 2006 Â£000's Â£000's Emoluments 104 175 104 175 9. income tax expense The tax charge is based on the loss for the year and represents: 2007 2006 Â£000's Â£000's Loss for the year before taxation (4,656) (1,969) Loss multiplied by standard rate of corporation tax in the United Kingdom of 30% (1,397) (591) Expected tax expense (1,397) (591) Adjustment for tax-rate differences 7 - Adjustment for non-deductible expenses Expenses not deductible for tax purposes 837 450 Deductions following exercise of EMI options (66) (25) Relating to goodwill impairment/amortisation (344) (26) Excess of depreciation over capital allowances 348 (37) Prior year tax adjustments 37 - Overseas taxation and losses 138 312 Actual tax expense, net (432) 83 Comprising Current tax expense (3) 109 Deferred tax (expense), income, resulting from the (429) (26) - origination and reversal of temporary differences (429) (26) Please refer to note 17 for information on the entity's deferred tax assets and liabilities. The Group has approximately Â£2.6m trading losses to offset against future trading profits. At this stage no deferred tax asset has been recognised and will not be recognised until such time as the expansion of the relevant companies within the Group beyond their initial set up phase deems it appropriate. The Company has a deferred tax asset estimated at Â£12,000 relating to a potential UK corporation tax deduction in respect to employee share options. Due to the uncertainty of the timing of exercise and the current expansion phase no deferred tax asset has been recognised at this stage. 10. DIVIDENDS No dividend was paid or proposed during the year (2006: Â£nil). 11. Property, plant and equipment Leasehold Office Total improvements furniture, plant and equipment Â£000's Â£000's Â£000's Cost At 1 January 2007 44 461 505 Additions - 127 127 Disposals - - - At 31 December 2007 44 588 632 Depreciation At 1 January 2007 4 96 100 Provided in the year 8 115 123 Disposals - - - At 31 December 2007 12 211 223 Net book amount at 31 December 2007 32 377 409 Leasehold Office Total improvements furniture, plant and equipment Â£000's Â£000's Â£000's Cost At 1 January 2006 - 152 152 Additions 44 340 384 Disposals - (31) (31) At 31 December 2006 44 461 505 Depreciation At 1 January 2006 - 81 81 Provided in the year 4 44 48 Foreign exchange movement - 2 2 Disposals - (31) (31) At 31 December 2006 4 96 100 Net book amount at 31 December 2006 40 365 405 12. intangible assets Mobile Streams' intangible assets comprise its Vuesia Media Platform, acquired customer relationships, technology-based assets, non-compete agreements, and media content. Other intangibles consists of customer relationships, technology based assets, and non-compete agreements. Intangible assets are amortised in line with the Groups accounting policies. Media platform development Media Other and software content Goodwill intangibles Total Â£000's Â£000's Â£000's Â£000,s Â£000's Cost At 1 January 2007 978 151 2,464 2,364 5,957 Additions - internally generated 1,040 - - - 1,040 - externally acquired 110 181 9 - 300 At 31 December 2007 2,128 332 2,473 2,364 7,297 Accumulated amortisation and impairment At 1 January 2007 271 15 - 284 570 Amortisation 497 57 - 474 1,028 Impairment - 181 1,496 529 2,206 At 31 December 2007 768 253 1,496 1,287 3,804 Net book value at 31 December 2007 1,360 79 977 1,077 3,493 Media platform development Media Other and software content Goodwill intangibles Total Â£000's Â£000's Â£000's Â£000's Â£000's Cost At 1 January 2006 255 - - - 255 Additions - internally generated 633 - - - 633 - externally acquired 90 151 2,464 2,364 5,069 At 31 December 2006 978 151 2,464 2,364 5,957 Accumulated amortisation At 1 January 2006 88 - - - 88 Amortisation 183 15 - 284 482 At 31 December 2006 271 15 - 284 570 Net book value at 31 December 2006 707 136 2,464 2,080 5,387 Impairment The main changes in the carrying amounts of goodwill result from the impairment of previously recognised goodwill. Impairment is included in 'Depreciation, amortisation and impairment' expenses in the income statement. The net carrying amount of goodwill can be analysed as follows: Subsequent to the annual impairment test for 2007, the carrying amount of goodwill is allocated to the following cash generating units: 2007 2006 Â£000's Â£000's The Nickels Group - 310 Mobile Streams Europe GmbH - 1,186 Mobile Streams (Hong Kong) Limited 977 968 977 2,464 The recoverable amounts for the cash-generating units given above were determined based on value-in-use calculations, covering a three year forecast assuming growth from further developing the existing customer relationships and broadening the content repertoire offering. Growth and discount rates used in the valuation of cash-generating units were as follows: The Nickels Group Mobile Streams Europe Mobile Streams (Hong GmbH Kong) Limited Growth rates 3% 3% 3% Discount rates 30% 16% 17% Key assumptions relating to the valuation of intangibles and goodwill were based on past experience. This includes assumptions for discount rate, growth rates and projected cashflows for cash generating units. The forecast for Mobile Steams' European was adjusted in 2007 for a decline in on portal revenues and slower than expected increase in off-portal revenues. Impairment testing, taking into account these developments, resulted in the full impairment of goodwill. The forecast for The Nickels Group Inc was adjusted in 2007 for a decline in revenues. Impairment testing, taking into account these developments, resulted in the full impairment of goodwill. The impairment review of Mobile Streams' (Hong Kong) Limited showed no indication of impairment. The related impairment loss of Â£2,025,000 (2006: nil) was included in 'depreciation, amortisation and impairment' in the income statement and attributed as follows: Customer Goodwill Total relationships Â£000's Â£000's Â£000's The Nickels Group 144 310 454 Mobile Streams' GmbH 385 1,186 1,571 529 1,496 2,025 As a result of the developments in the European business during 2007, Mobile Streams' management expects lower revenue growth and profits from Mobile Streams Europe GmbH and the Nickels Group. Expectations were revised due to increased competition and a slower than expected opening up of the mobile internet, and in The Nickels Group due to slower revenue growth and lower operating profits from the Nickels Group are due to fewer hit title ringtones from its content repertoire and increased competition. Apart from the consideration described in determining the value in use of the cash generating units described above, the management of Mobile Streams in not currently aware of any other probable changes that would necessitate changes in its key estimates. Other intangible assets Mobile Streams' other intangible assets comprise acquired customer relationships, technology based assets, own software development and media content. The carrying amounts for the reporting periods under review can be analyzed as follows: 2007 The Nickels Group Mobile Streams GmbH Mobile Streams (Hong Kong) Limited Â£000's Â£000's Â£000's Customer relationships 7 443 25 Technology-based assets - 140 450 Non-compete agreement - - 12 7 583 487 2006 The Nickels Group Mobile Streams GmbH Mobile Streams (Hong Kong) Limited Â£000's Â£000's Â£000's Customer relationships 193 1,078 32 Technology-based assets - 183 578 Non-compete agreement - - 16 193 1,261 626 Customer relationships recognized on the acquisition of Mobile Streams Europe GmbH and The Nickels Group were subject to impairment testing and were consequently partially impaired. All amortisation and impairment charges are included in 'depreciation, amortisation and impairment of non-financial assets' in the income statement. Total impairment relating to The Nickels Group (Â£454,000) and Mobile Streams' GmbH (Â£1,571,000) are shown in the American and European operating segments respectively. Media content An impairment of Â£181,000 relating to media content was recorded in Mobile Streams Plc. During the year the Group invested in media content, revenues generated from this content have been below expectation, consequently management has conducted an impairment review and subsequently recorded an impairment. Impairment charges are included in 'depreciation, amortisation and impairment' in the income statement. 13. Available for sale assets The Group, through its wholly owned subsidiary Mobile Streams Inc, has invested Â£382,000 in Mobile Greetings Inc. The investment was in the form of interest bearing convertible loan stock, but was converted to share capital during the period. Mobile Greetings' principal activities are the creation and publication of mobile phone content. The Group, through the parent company invested Â£85,000 in FunkySexyCool Inc in the form of share capital. 2007 2006 Â£000's Â£000's At 1 January 382 - Additions 85 382 Disposals - - At 31 December 467 382 Available for sale assets have been fair valued at the carrying amount at the balance sheet date. Management deem there to be no change in the fair value during the period. In valuing 'available for sale assets', management were required to make key assumptions and estimates relating to expected cashflows, growth rates and discount rates. Assumptions and estimates were based on past experience. 14. Trade and other receivables 2007 2006 Â£000's Â£000's Trade receivables 1,480 2,221 Accrued receivables 1,068 522 Other taxes 85 - Prepayments 615 - 3,248 2,743 The carrying value of trade receivables is considered a reasonable approximation of fair value. All of Mobile Streams trade and other receivables have been reviewed for indicators of impairment. Certain trade receivables, on the basis of age and collectability were found to be impaired and a provision of Â£37,000 (2006: Â£Nil) has been recorded accordingly. In addition, some of the unimpaired trade receivables are past due as at the reporting date. The age of financial assets past due but not impaired is as follows: 2007 2006 Â£000's Â£000's Not more than 3 months 48 114 More than 3 months but not more than 6 months 15 5 More than 6 months but not more than 1 year 1 - More than 1 year - 2 15. Cash and cash equivilents Cash and cash equivalents include the following components: 2007 2006 Â£000's Â£000's Cash at bank and in hand 2,301 4,073 16. Trade and other payables 2007 2006 Â£000's Â£000's Trade payables 1,051 1,244 Other taxation and social security 152 91 Other payables 237 208 Accruals and deferred income 2,843 1,798 4,283 3,341 All amounts are short term. The carrying values are considered to be a reasonable approximation of fair value. 17. Deferred Taxation assets and liabilities Recognised Balance 1 Recognised in Recognised in Balance 1 in Tax rate Balance 31 Jan 2006 income equity Jan 2007 income adjustment Dec 2007 Â£000's Â£000's Â£000's Â£000's Â£000's Â£000's Â£000's Deferred tax liability: Intangibles - 650 - 650 (344) - 306 Property, plant and equipment - 85 - 85 16 (7) 94 Losses available - - - - (94) - (94) - 735 - 735 (422) (7) 306 Deferred tax on intangibles has decreased as a result of impairment and amortisation. Deferred tax on property, plant and equipment increased a result of excess depreciation over capital allowances. The tax rate adjustment relates to a movement in the UK corporate tax rate from 30% to 28% effective 1 April 2008. This requires the Group to adjust deferred tax on property, plant and equipment to the new rate. 18. Provisions Onerous Other Trade Total contracts receivables Â£000's Â£000's Â£000's Â£000's Balance 1 January 2007 - - - - Movement 130 275 442 Balance 31 December 2007 130 275 37 442 During the year the Company entered into a number of contracts with ongoing service and financial obligations, in some instances the cost of the ongoing obligations are in excess of the anticipate future associated revenues, where this is the case the anticipated future losses have been provided for. Future losses have been estimated based on current and forecasted analysis of the relevant contacts, all of which be concluded during 2008. Provisions have also been made for legal costs and compensation payments required to settle litigation relating to intellectual property rights infringement and claims from former employees. Due to the inherent uncertainties of the outcome of such claims management has estimated the total cost of settlement based on advice received from legal advisers. Management anticipates that all outstanding claims will be resolved during 2008. 19. SHARE CAPITAL Number of shares (000's) Balance at 1 January 2007 34,640 New share issues 1,008 Balance at 31 December 2007 35,648 The Company only has one class of shares. The total number of shares issued is 35,647,924 (December 2006: 34,639,691) with a par value of Â£0.002 per share. All issued shares are fully paid. 2007 2006 Â£000's Â£000's Authorised 69,150,000 ordinary shares of Â£0.002 each 138 138 (2006: 69,150,000) Allotted, called up and fully paid: 35,647,924 ordinary shares of Â£0.002 each (2006: 34,639,691 ordinary shares of Â£0.002 each) 71 69 On 23 January 2006 a bonus issue on a 48 for 1 basis was made to existing shareholders of fully paid up ordinary shares. On 9 May 2007 the Company issued 206,756 fully paid ordinary shares of Â£0.002 per share at a value of Â£0.77 per share as part of the consideration for the purchase of the share capital of Mobile Streams Europe GmbH (formerly Cyoshi Mobile GmbH). During the year the Company issued a total of 801,477 fully paid ordinary shares of Â£0.002 each as a consequence of the exercise by employees of options over shares in the Company. The average exercise price paid on these shares was Â£0.026 per share. (2006: 848,000 at Â£0.127) Shares to be issued 2007 2006 Â£000's Â£000's Balance 1 January 637 - Movement (158) 637 Balance 31 December 479 637 The Company is required to issue a further 620,268 shares to satisfy the deferred consideration relating to the acquisition Mobile Streams Europe GmbH (formerly Cyoshi Mobile GmbH) Options The table below summarises the exercise terms of the various options over ordinary shares of Â£0.002 each which have been granted, and were still outstanding at 31 December 2007 and 31 December 2006. At 31 December At 31 December 2006 2007 Period of option Ordinary shares Ordinary shares of of Â£0.002 each Â£0.002 each Date of issue Exercise Earliest date Latest date Number price Enterprise Management Incentive Scheme 19 Nov 2004 Â£0.03183* 19 Nov 2005** 18 Nov 2014 275,625 436,925 01 Mar 2005 Â£0.03183* 1 Mar 2006** 28 Feb 2015 - 490,000 01 Feb 2006 Â£0.8163 1 Feb 2007*** 31 Jan 2016 117,600 120,050 17 Aug 2006 Â£0.46 17 Aug 2007**** 16 Aug 2016 33,500 61,500 07 Dec 2006 Â£0.40 7 Dec 2007**** 06 Dec 2016 287,550 454,050 25 Jul 2007 Â£0.28 25 Jul 2008**** 24 Jul 2017 227,000 - 20 Sep 2007 Â£0.225 20 Sep 2008**** 19 Sep 2017 320,000 - ISO Sub-Plan 19 Nov 2004 Â£0.03183* 19 Nov 2005*** 18 Nov 2014 12,250 12,250 Global Share Option Plan 19 Nov 2004 Â£0.03183* 19 Nov 2005** 18 Nov 2014 - 9,800 01 Feb 2006 Â£0.03183* 19 Nov 2005** 31 Jan 2016 116,375 116,375 01 Feb 2006 Â£0.8163 1 Mar 2006** 31 Jan 2016 52,675 52,675 19 Apr 2006 Â£0.76 19 Apr 2007**** 18 Apr 2016 207,468 207,468 02 Aug 2006 Â£0.465 2 Aug 2007**** 01 Aug 2016 116,426 116,426 08 Aug 2006 Â£0.465 8 Aug 2007**** 07 Aug 2016 210,000 210,000 17 Aug 2006 Â£0.46 17 Aug 2007**** 16 Aug 2016 44,225 92,675 07 Dec 2006 Â£0.40 7 Dec 2007**** 06 Dec 2016 208,450 210,450 27 Jun 2007 Â£0.39 27 Jun 2008**** 26 Jun 2017 66,250 - 20 Sep 2007 Â£0.225 20 Sep 2007**** 19 Sep 2017 360,000 - Stand Alone Option Plans 01 Feb 2006 Â£0.03183* 1/2/2006***** 31 Jan 2016 24,500 24,500 15 Feb 2006 Â£0.87 15 Feb 2007**** 14 Feb 2016 689,655 689,655 15 Feb 2006 Â£0.002 1 Mar 2006****** 28 Feb 2015 - 155,077 * Original issue price was Â£0.078. Due to recapitalisation the adjusted issue price is Â£0.03183. ** 50% of the issued options can be exercised on the later of the first anniversary of the grant date (date shown above) or the date the shares are traded on a stock exchange. 100% of the issued options can be exercised on the later of the second anniversary of the grant date or the date the shares were traded on a stock exchange. *** 100% of the issued options can be exercised on the later of the first anniversary of the grant date (date shown above) or the date the shares are traded on a stock exchange. **** 33.33 % of issued options can be exercised on or after the first anniversary of the grant date, 66.67% of the issued options can be exercised on or after the second anniversary of the grant date, 100% of the issued options can be exercised on or after the third anniversary of the grant date. ***** Options exercisable immediately issued to employee who left the company after a number of years of service. ****** Options issued pursuant to a non-dilute agreement upon IPO. 20. Share based payments The Group operates a number of share option schemes in order to attract and maintain key staff. The remuneration committee can grant options over shares in the Company to employees of the Group. Options are granted with a fixed exercise price equal to the market price of the shares under option at the date of grant. The contractual life of an option is 10 years. The Company has made grants throughout 2007. Details of the option plans in place and exercise periods are shown above in note 19. Exercise of an option is subject to continued employment. Options were valued using the Black-Scholes option-pricing model. The fair value per option granted during the year and the assumptions used in the calculation are shown below: Date of grant 2 Jan 2007 2 Jan 2007 2 Jan 2007 27 Jun 2007 27 Jun 2007 27 Jun 2007 25 Jul 2007 Share price at grant (Â£) 0.3550 0.3550 0.3550 0.3900 0.3900 0.3900 0.2800 Exercise price (Â£) 0.3550 0.3550 0.3550 0.3900 0.3900 0.3900 0.2800 Shares under option 5,000 5,000 5,000 22,083 22,083 22,083 226,667 Vesting period (years) 1 2 3 1 2 3 1 Volatility 86.34% 86.34% 86.34% 82.12% 82.12% 82.12% 70.20% Option Life (years) 10 10 10 10 10 10 10 Expected life (years) 5 5 5 5 5 5 5 Risk-free rate 5.00% 5.00% 5.00% 5.6615% 5.6615% 5.6615% 5.5142% Dividend yield 0.00% 0.00% 0.00% 0% 0% 0% 0% Fair value (Â£) 0.1245 0.1724 0.2056 0.1320 0.1830 0.2190 0.0825 Date of grant 25 Jul 2007 25 Jul 2007 20 Sep 2007 20 Sep 2007 20 Sep 2007 Share price at grant (Â£) 0.2800 0.2800 0.2250 0.2250 0.2250 Exercise price (Â£) 0.2800 0.2800 0.2250 0.2250 0.2250 Shares under option 226,667 226,667 75,667 75,667 75,667 Vesting period (years) 2 3 1 2 3 Volatility 70.20% 70.20% 70.10% 70.10% 70.10% Option Life (years) 10 10 10 10 10 Expected life (years) 5 5 5 5 5 Risk-free rate 5.5142% 5.5142% 5.0873% 5.0873% 5.0873% Dividend yield 0% 0% 0% 0% 0% Fair value (Â£) 0.1162 0.1404 0.0659 0.0926 0.1120 The volatility of the Company's share price on each date of grant was calculated as the average of volatilities of share prices of companies in the Peer Group on the corresponding dates. The volatility of share price of each company in the Peer Group was calculated as the average of annualized standard deviations of daily continuously compounded returns on the Company's stock, calculated over 1, 2, 3, 4 and 5 years back from the date of grant, where applicable. The risk-free rate is the yield to maturity on the date of grant of a UK Gilt Strip, with term to maturity equal to the life of the option. In our experience the expected life of an employee share option is 5 years. 2007 2006 Number Weighted Number Weighted (000's) average (000's) average exercise exercise price price Outstanding at 1 January 3,524 Â£0.391 1,882 Â£0.032 Granted 988 Â£0.251 2,704 Â£0.549 Forfeited (341) Â£0.403 (214) Â£0.286 Exercised (801) Â£0.026 (848) Â£0.127 Outstanding at 31 December 3,370 Â£0.435 3,524 Â£0.391 Exercisable at 31 December 1,050 Â£0.439 786 Â£0.029 2007 2006 Range of Weighted Number of Weighted average Weighted Number of Weighted average exercise average Shares remaining life (years): average Shares remaining life (years): prices exercise (000's) exercise (000's) price Expected Contractual price Expected Contractual Â£0 - Â£0.50 Â£0.325 2,302 3.0 8.9 Â£0.191 2,430 3.2 8.9 Â£0.51 - Â£1.50 Â£0.834 1,068 3.1 8.2 Â£0.832 1,094 3.1 9.1 The weighted average share price during the period for options exercised over the year was Â£0.584 (2006: Â£0.757). The total charge for the year relating to employee share based payment plans was Â£240,000 (2006:Â£325,000), all of which related to equity-settled share based payment transactions. 21. Capital commitments The Group has no capital commitments as at 31 December 2007. (2006: Â£45,000 (US$90,000)). 22. Contingent liabilities Various intellectual property right infringements and legal claims have been made against the Group. Unless recognised as a provision (see note 18), management considers these claims to be unjustified and the probability that they will require settlement at the Group's expense is remote. This evaluation has been backed up by external independent legal advice. (2006: Â£Nil) 23. OPERATING LEASES The Group has commitments under operating leases for land and buildings and other leases to pay the following amounts in the next twelve months. Land and Buildings Other 2007 2006 2007 2006 Â£000's Â£000's Â£000's Â£000's Annual commitments under non-cancellable operating lease expiring: Within one year 139 118 4 13 Within two to five years 157 246 - 2 After five years - 13 - - 377 296 377 4 15 Lease payments recognised as an expense during the period amount to Â£252,000 (2006: Â£174,000). 24. Major Non-Cash transactions The Group entered into a barter transaction with MTV to exchange media rights and wholly owned content for onscreen advertising totalling Â£178,000. 25. Related party transactions During the period the Group entered in to a trading relationship Zoombak LLC, a related party by virtue of shared director and chief executive officer. During the period revenue of Â£193,000 (2006: Â£Nil) was earned, of which Â£118,000 remained outstanding at the balance sheet date. 26. Transition to IFRS 26.1 Basis of transition to IFRS The Group's financial statements for the year ended 31 December 2007 will be the first annual financial statements that comply with IFRS. These financial statements have been prepared as described in the Groups accounting policies. The Group has applied IFRS 1 in preparing these consolidated financial statements. Mobile Streams' transition date is 1 January 2006. The Group prepared its opening IFRS balance sheet at that date. In preparing these consolidated financial statements in accordance with IFRS 1, the Group has applied mandatory exceptions and certain optional exemptions from full retrospective application of IFRS. 26.1.1 Exemptions from full retrospective application elected by the Group a) Cumulative translation differences exemption The Group has elected to set the previously accumulated cumulative translation adjustments relating to retranslation of the net investment in foreign operations to zero at 1 January 2006. As this had previously been included with retained earnings in the UK GAAP financial statements, no adjustment is shown on the transition to IFRS reconciliations. 26.2 Reconciliations between IFRS and UK GAAP The following reconciliations provide a quantification of the effect of transition to IFRS from UK GAAP. The following reconciliations provide details of the impact of transition on - equity at 1 January 2006 - equity at 31 December 2006 -net income 31 December 2006 There has been no cash flow effect as a result of the transition to IFRS, therefore no reconciliation is required. The changes to the cash flow are presentational only. The changes are the different presentation of interest, where interest paid is now included in financing activities and interest received in investing activities, and also taxation is included in operating, whereas previously it was disclosed separately. 26.2.1 Reconciliation of equity at 1 January 2006 Notes UK GAAP Effect of IFRS transition to IFRS Â£000's Â£000's Â£000's Assets Non-Current Other intangible assets a - 176 176 Property, plant and equipment b 247 (176) 71 247 - 247 Current Trade and other receivables 1,524 - 1,524 Cash and cash equivalents 268 - 268 1,792 - 1,792 Total assets 2,039 - 2,039 Equity Equity attributable to shareholders of Mobile Streams Called up share capital 1 - 1 Share premium 165 - 165 Retained earnings (315) - (315) (149) - (149) Total equity (149) - (149) Liabilities Current Provisions 18 - 18 Trade and other payable 2,170 - 2,170 2,188 - 2,188 Total Liabilities 2,188 - 2,188 Total equity and liabilities 2,039 - 2,039 Explanation of the effect of the transition to IFRS as at 1 January 2006 (a) Other intangible assets Reallocation of media platform development from Property, Plant & Equipment 176 Total impact - increase intangible assets 176 (b) Property, Plant & Equipment Reallocation of media platform development to Intangible assets (176) Total impact - decrease Property, Plant & Equipment (176) Detailed explanatory notes: (i) Media platform development Media platform development costs were previously capitalised as tangible assets as allowed under UK GAAP. Under IFRS, software components are recognised as intangibles assets unless they form an integral part of computer hardware. The media platform development costs do not form an integral part of computer hardware and have therefore been re-classified as intangible assets. Accumulated depreciation in relation to the media platform development costs has been reversed and replaced by amortisation in accordance with the Group's accounting policies. As the same useful life applies the net effect of reversing depreciation and accounting for amortisation is nil. (ii) Translation reserve The Group has decided to apply the IFRS exemption allowed under IAS 21 to reset the translation reserve to nil at opening balance sheet date. The previously accumulated translation reserve is set to nil and applied against retained earnings at that date. The gain or loss on future disposals of the relevant foreign entities will be adjusted only by the accumulated translation adjustments arising after the opening IFRS balance sheet date. 26.2.3 Reconciliation of equity at 31 December 2006 Notes UK GAAP Effect of IFRS transition to IFRS Â£000's Â£000's Â£000's Assets Non-Current Goodwill a 3,565 (1,101) 2,464 Other intangible assets b 136 2,725 2,861 Property, plant and equipment c 1,112 (644) 468 Available-for-sale asset 382 - 382 5,195 980 6,175 Current Trade and other receivables 2,742 - 2,742 Cash and cash equivalents 4,073 - 4,073 6,815 - 6,815 Total assets 12,010 980 12,990 Equity Equity attributable to shareholders of Mobile Streams Called up share capital 69 - 69 Share premium 10,290 - 10,290 Shares to be issued d 294 343 637 Translation reserve e (153) (25) (178) Retained earnings f (1,974) (43) (2,017) Total equity 8,526 275 8,801 Liabilities Non-Current Deferred tax liabilities g 85 650 735 85 650 735 Current Trade and other payables h 3,286 55 3,341 Current tax liabilities 113 - 113 3,399 55 3,454 Total Liabilities 3,484 705 4,189 Total equity and liabilities 12,010 980 12,990 Explanation of the effect of the transition to IFRS as at 31 December 2006 Â£000's (a) Goodwill Reverse accumulated amortisation of goodwill for period to 31/12/06 123 Re-calculation of goodwill on business combinations (2,022) Account for deferred tax liability on intangibles under business combinations per IAS 12 743 Accrue expenses relating to business combinations - invoices received after reporting date 23 Account for changes to opening balance sheet of acquired entities on business combinations 32 Total impact - decrease goodwill (1,101) (b) Other intangible assets Recognise intangible assets on business combinations 2,365 Take up amortisation of intangibles on business combinations for period to 30/12/06 (284) Reallocation of media platform development from Property, Plant & Equipment 644 Total impact - increase other intangible assets 2,725 (c) Property, Plant & Equipment Reallocation of media platform development to Intangibles (644) Total impact - decrease Property, Plant & Equipment (644) (d) Shares to be issued Re-calculate cost of shares to be issued on business combinations 343 Total impact - increase shares to be issued 343 (e) Translation reserve Reset translation reserve to nil per IFRS exemption adopted (25) Total impact - decrease translation reserve (25) (f) Retained earnings Reverse amortisation of goodwill for period to 31/12/06 123 Take up amortisation of intangibles on business combinations for period to 31/12/06 (284) Deferred tax on amortisation of intangibles under business combinations 93 Reset translation reserve to nil per IFRS exemption adopted 25 Total impact - decrease retained earnings (43) (g) Deferred tax liabilities Account for deferred tax liability on intangibles under business combinations 743 Offset deferred tax asset on amortisation of intangibles under business combinations (93) Total impact - increase deferred tax liability 650 (h) Trade and other payables Accrue expenses relating to business combinations - invoices received after reporting date 23 Account for changes to opening balance sheet of acquired entities on business combinations 32 Total impact - increase trade and other payables 55 Detailed explanatory notes: (i) Business combinations - Goodwill & Intangibles In accordance with the Group's accounting policies regarding the recognition of intangible assets and goodwill and in accordance with IFRS 3 Business Combinations, certain amounts previously classified as goodwill under UK GAAP following acquisitions made in the period have been re-classified as intangibles under IFRS. Identifiable intangible assets on business combinations (acquisitions) have been recorded at fair value and have therefore increased intangible assets. This has in turn reduced the amount of goodwill recorded on business combinations. Under IFRS goodwill cannot be amortised, but instead must be tested annually for impairment. Intangible assets with a finite useful life are amortised over their useful life. The recognition of intangible assets on business combinations results in a deferred tax liability based on the company tax rate in the region the intangible assets belong, hence increasing goodwill on business combinations. As the intangible assets are amortised over the useful life, the corresponding deferred tax liability is reduced and a tax credit recorded in the income statement. In determining cost of business combinations, the deferred consideration of shares to be issued is to be valued at the date of acquisition. Previously reported figures included the cost of the deferred consideration of shares to be issued based on the share price at reporting date. This has been amended to show the cost of shares at date of acquisition. An amendment has also been posted for costs relating to acquisition that were incurred after the balance sheet date, but are known with certainty. These costs have been shown as accrued liabilities. (ii) Media platform development As per explanatory notes in 26.2.1 above. (iii) Translation reserve As per explanatory notes in 26.2.1 above. 26.2.5 Reconciliation of net income for the year ended 31 December 2006 Notes UK GAAP Re-classifications Effect of IFRS transition to IFRS Â£000's Â£000's Â£000's Â£000's Revenue 8,223 - - 8,223 Cost of Sales (3,402) - - (3,402) Gross profit 4,821 - - 4,821 Selling and marketing costs - (251) - (251) Administration expenses a (5,556) 357 (161) (5,360) Other operating expenses (1,296) (106) - (1,402) Operating loss (2,031) - (161) (2,192) Finance costs (14) - - (14) Finance income 237 - - 237 Loss before income tax (1,808) - (161) (1,969) Income tax expense b (176) 93 (83) Loss for period (1,984) - (68) (2,052) Explanation of the effect of the transition to IFRS as at 31 December 2006 Â£000's (a) Administration costs Reverse amortisation of goodwill for period to 31/12/06 123 Take up amortisation on intangibles on business combinations for period to 31/12/06 (284) Total impact - increase administration costs (161) (b) Income tax expense Deferred tax asset on amortisation of intangibles under business combinations 93 Total impact - decrease income tax expense 93 Detailed explanatory notes: (i) Business combinations - Goodwill & Intangibles As per explanatory notes in 26.2.2 above. (ii) Media platform development As per explanatory notes in 26.2.1 above. 27. Segment reporting Strategy The Directors consider there to be one class of business, being the distribution of licensed mobile phone content. As at 31 December 2007, the Group is organised into 4 geographical segments: Europe, North America, Latin American, and Asia. All operations are continuing. All inter-segment transfers are priced and carried out at arm's length. The segment results for the year ended 31 December 2007 are as follows: Europe North America Latin America Asia Totals Â£000's Â£000's Â£000's Â£000's Â£000's Total gross segment sales - from external customers 3,276 1,917 2,177 1,728 9,098 Operating result 3,276 1,917 2,177 1,727 9,098 Cost of goods sold (1,267) (712) (919) (1,210) (4,108) Employee expense (1,748) (657) (303) (400) (3,108) Depreciation and amortisation (530) (79) (27) (34) (670) Other operating expenses (985) (707) (1,015) (422) (3,129) Segment operating results (1,254) (238) (87) (338) (1,917) Interest revenue 87 31 56 6 180 Income tax expense (100) - 92 5 (3) Segment assets 11,932 3,012 1,775 990 Segment liabilities (2,143) (4,054) (2,511) (1,431) 17,709 (10,139) Capital expenditure 1,231 77 59 100 1,467 Segment impaired losses (1,752) (454) - - (2,206) The segment results for the year ended 31 December 2006 are as follows: Europe North America Latin America Asia Totals Â£000's Â£000's Â£000's Â£000's Â£000's Revenue - from external customers 3,539 1,882 2,324 478 8,223 Segment revenues 3,539 1,882 2,324 478 8,223 Cost of goods sold (1,359) (889) (1,014) (318) (3,580) Employee expense (1,036) (796) (365) (273) (2,470) Depreciation, amortisation and impairment of non financial assets (275) (8) (31) (375) (61) Other operating expenses (1,544) (176) (466) (103) (2,289) Segment operating results (675) (40) 471 (247) (491) Interest revenue 288 - - 2 290 Interest expense (12) (54) (2) - (68) Income tax expense 100 - 9 - 109 Segment assets 12,303 2,524 1,389 423 16,639 Segment liabilities (1,795) (3,216) (1,967) (493) (7,471) Capital expenditure 970 258 15 14 1,257 The totals presented in the Groups operating region segments reconcile to the entity's key financial figures as presented in its financial statements as follows: 2007 2006 2007 2006 Â£000's Â£000's Segment revenues Total segment revenues 9,098 8,223 Entity's revenues 9,098 8,223 Segment results Total segment operating results reported (1,917) (491) Interest revenue 180 237 Unallocated operating income and expenses (713) (405) Entity's operating result (2,450) (659) Result from equity accounted investments Finance costs - (14) Other financial result (2,206) (1,296) Entity's result for the period before tax (4,656) (1,969) Segment assets Total segment assets 17,709 16,639 Consolidation (7,791) (3,649) Entity's assets 9,918 12,990 Segment liabilities Total segment liabilities 10,139 7,471 Consolidation (5,056) (3,282) Entity's liabilities 5,083 4,189 28. Business combinations On 19 April 2006, the Group acquired 100% of the share capital of Mobile Streams Europe GmbH (formerly Cyoshi Mobile GmbH). Details of net assets acquired and goodwill are as follows: Purchase consideration Â£000's - cash paid 1,388 - shares issued 159 - shares to be issued 478 - direct costs relating to the acquisition 96 Net assets acquired (19) Cost of business combination 2,102 Identifiable intangible assets: - customer relationships (1,252) - technology based assets (213) Goodwill before deferred tax 637 Deferred tax recognised on intangible assets 549 Total goodwill recognised 1,186 The goodwill is attributable to the significant future benefits expected to arise from Cyoshi's position of leading independent producer and distributor of mobile media across Europe. This acquisition strengthens the Group's reach in Europe. The assets and liabilities arising from the acquisition are as follows: Fair value Acquiree's Â£000's carrying amount Â£000's Cash and cash equivalents 11 11 Receivables 113 113 Payables (105) (105) Net assets required 19 19 Purchase consideration settled in cash 1,388 Cash and cash equivalents in subsidiary acquired (10) Cash outflow on acquisitions 1,378 Part of the purchase consideration for the acquisition is in the form of shares issued and shares to be issued. The fair value of shares issued was determined based on 206,756 shares issued at the share price at the date of acquisition, being Â£0.77 per share, giving a total fair value of Â£159,202. Fair value of shares to be issued was determined based on 620,268 shares to be issued at the share price at the date of acquisition, being Â£0.77 per share, giving a total fair value of Â£477,606. Since acquisition Mobile Streams Europe GmbH has generated a profit of Â£41,000. Had the acquisition taken place on 1 January 2006 it would have contributed Â£441,000 revenue and a loss of Â£6,000 to the Group in the year to 31 December 2006. On 4 August 2006, the Group acquired 100% of the share capital of The Nickels Group. Details of net assets acquired and goodwill are as follows: Purchase consideration Â£'000 - cash paid 230 - deferred cash 123 - direct costs relating to the acquisition 15 Net assets acquired 79 Total purchase consideration 447 Identifiable intangible assets: - customer relationships (210) Goodwill before deferred tax 237 Deferred tax recognised on intangible assets 73 Total goodwill recognised 310 The goodwill is attributable to the strengthening of the Groups' content generation and distribution business as well as providing a strategic foothold into the west coast of the US and access to unique music content in high performing and unique genres, including mobile rights to one of the world's best selling artists. The assets and liabilities arising from the acquisition are as follows: Fair value Acquiree's Â£000's carrying amount Â£000's Payables (79) (79) Net liabilities acquired (79) (79) Purchase consideration settled in cash 230 Cash and cash equivalents in subsidiary acquired - Cash outflow on acquisitions 230 Since acquisition The Nickels Group Inc has generated a loss of Â£5,000. Had the acquisition taken place on 1 January 2006 it would have contributed Â£497,000 of revenue and Â£98,000 of profit for the Group in the year to 31 December 2006. On 8 August 2006, the Group acquired 100% of the share capital of Mobile Streams (Hong Kong) Limited (formerly Mobilemode Limited). Details of net assets acquired and goodwill are as follows: Purchase consideration Â£000's - cash paid 685 - shares issued 700 - direct costs relating to the acquisition 162 Net liabilities acquired (8) Total purchase consideration 1,539 Identifiable intangible assets: - customer relationships (35) - technology based assets (638) - Non compete agreements (17) Goodwill before deferred tax 849 Deferred tax recognised on intangible assets 121 Total goodwill recognised 970 The goodwill is attributable to the increased distribution and relationships in the Asia Pacific region, with a number of network operators. The acquisition provides the Group with a comprehensive position in Asia Pacific and the immediate benefit of a strong management team with strong relationships with network operators. The assets and liabilities arising from the acquisition are as follows: Fair value Acquiree's carrying Â£000's amount Â£000's Cash and cash equivalents 163 163 Receivables 221 221 Fixed assets 2 2 Payables (363) (363) Income tax (15) (15) Net assets acquired 8 8 Purchase consideration settled in cash 685 Cash and cash equivalents in subsidiary acquired (163) Cash outflow on acquisition 522 Part of the purchase consideration for the acquisition is in the form of shares issued. The fair value of shares issued was determined based on 1,537,736 shares issued at the share price at the date of acquisition, being Â£0.455 per share, giving a total fair value of Â£699,670. Since acquisition Mobile Streams (Hong Kong) Limited and its subsidiaries has generated a loss Â£99,000. Had the acquisition taken place on 1 January 2006 it would have contributed Â£1,184,000 revenue and a loss of Â£188,000 for the Group in the year to 31 December 2006. 29. Risk management objectives and policies The Group is exposed to currency and liquidity risk, which result from both its operating and investing activities. The Group's risk management is coordinated in close co-operation with the board of Directors, and focuses on actively securing the Group's short to medium term cash flows by minimising the exposure to financial markets. . The most significant financial risks to which the Group is exposed to are described below. Also refer to the accounting policies. Foreign currency risk The Group is exposed to translation and transaction foreign exchange risk. The currencies where the Group is most exposed to volatility are US Dollars, Euro, and Argentine Peso. Currently, there is generally an alignment of assets and liabilities in a particular market, and no hedging instruments are used. In Latin American markets, cash in excess of working capital is converted into a hard currency such as US Dollars. The Company will continue to review its currency risk position as the overall business profile changes. Foreign currency denominated financial assets and liabilities, translated into Euros at the closing rate, are as follows. 2007 2006 Â£000's Â£000's US EURO â‚¬ ARS Other US EURO â‚¬ ARS Other Nominal amounts $ $ $ $ Financial assets 969 308 773 1,772 784 247 604 620 Financial liabilities 907 22 368 1,331 746 105 419 760 Short-term exposure 62 286 405 441 38 142 185 (140) Financial assets - - - - - - - - Financial liabilities - - - - - - - - Long-term exposure - - - - - - - - The following table illustrates the sensitivity of the net result for the year and equity in regards to the Group's financial assets and financial liabilities and the British Pound to US Dollar, Euro and Argentine Peso exchange rates. Percentage movements used for sensitivity analysis are as follows. Both of these percentages have been determined based on the average market volatility in exchange rates in the previous 12 months. 2007 2006 US Dollar 3% 7% EURO 6% 2% Argentine Peso 4% 7% If the British Pound had strengthened against the US Dollar, Euro and Argentine Peso by the percentages above retrospectively, then this would have had the following impact: 2007 2006 Â£000's Â£000's US EURO ARS Total US EURO ARS Total $ â‚¬ $ $ â‚¬ $ Net result for the year 2 2 8 12 1 4 20 25 Equity 31 20 3 54 48 - 12 60 If the British Pound had weakened against the US Dollar, Euro and Argentine Peso by the percentages above retrospectively, then this would have had the following impact: 2007 2006 Â£000's Â£000's US EURO ARS Total US EURO ARS Total $ â‚¬ $ $ â‚¬ $ Net result for the year (2) (2) (8) (12) (1) (4) (20) (25) Equity (31) (20) (3) (54) (48) - (12) (60) Liquidity risk The Group/Company seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The Group currently has no borrowing arrangement in place and prepares cashflow forecasts which are reviewed at Board meetings to ensure liquidity. As at 31 December 2007, the Groups liabilities have contractual maturities which are summarised below: 31 December 2007 Current Non-current Within 6 months 6 to 12 months 1 to 5 years Later than 5 years Â£000's Â£000's Â£000's Â£000's Trade payables 4,253 30 - - This compares to the maturity of the Groups financial liabilities in the previous reporting period as follows: 31 December 2006 Current Non-current Within 6 months 6 to 12 months 1 to 5 years Later than 5 years Â£000's Â£000's Â£000's Â£000's Trade payables 3,280 61 - - This information is provided by RNS The company news service from the London Stock Exchange

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