Final Results & Notice of AGM

RNS Number : 4288G

Messaging International Plc

29 June 2012

 



Messaging International Plc ('the Company')

Final Results

                                                                              Notice of AGM

Messaging International Plc, the AIM traded provider of innovative messaging services, announces its results for the year ended 31 December 2011 and gives notice of its AGM to be held at the offices of Montpelier Chartered Accountants, 58-60 Berners Street, London W1T 3JS on 7 August 2012 at 3 p.m. The report and accounts for the year ended 31 December 2011 will be sent to shareholders on 29 June 2012 and will be available on the Company's website at www.telemessage.com.

Overview

·      Continued revenue growth - increased by 26.6% to £3,673,747 (2010: £2,901,985) 

·      Pre tax profit for the year - £361,226 (2010 Profit: £357,245) with positive cash flow generated  

·      Strengthening offering and investing in new products to offer creative and user friendly messaging products and services to existing and new clients

·      New Messaging Gateway gaining traction and being adopted by an increasing number of operators and enterprises

·      Blue-chip client list - seven new telecom operator customers added during the year

·      Healthy new business pipeline

For further information visit www.telemessage.com or contact: Guy Levit	Messaging International Plc	Tel: + 972 3 9225252
Mark Percy	Seymour Pierce Limited	Tel: [phone]
Catherine Leftley	Seymour Pierce Limited	Tel: [phone]

Chairman's statement

Operational Review

Trading has been solid for Messaging during 2011 and into 2012, as we continue to focus on developing converged messaging solutions, through our subsidiary TeleMessage, to improve the way users manage messages across various communication mediums. We have close relationships with our blue-chip client base, a highly creative R&D team and innovative messaging solutions which ensure that the company retains its place as a leading provider in this sector.

Our converged messaging products and services are provided to carriers and enterprises to deliver text, voice, video and multimedia messages to and from any communication device. Users can send, receive, and manage SMS, MMS, IP, Voice, Fax and E-mail messages from the Internet, E-Mail clients, iOS/Android Smartphones and Tablets, Fixed or Mobile phones and APIs.

Our clients include, among others, companies such as Sprint in the US, Rogers Wireless, Bell Mobility and Telus in Canada, USI in Russia and T-Mobile in Macedonia. We ensure stable revenues by either hosting messaging services for a per-message fee or by selling software licences, which are usually linked to the number of messages that can be sent through the system or to the number of active users.

As the messaging world is changing, from SMS/MMS to IP messaging, we have increased our R&D capacity to stay ahead in the market and to continue to seize opportunities in the messaging space.  Specifically, we are investing in the new standards and the emerging devices (e.g. smartphones, tablets etc) and interfaces consumers and enterprises use to send and receive messages. We have already soft launched our new Android Messenger on Google Play and our new iPad Messenger on the Apple Store to be able to demonstrate these new capabilities to our customers.

Sales of our 'Messaging Gateway' product to Mobile operators and directly to enterprises, offering a range of interfaces for content providers, enterprises and Facebook developers, continue to increase. The product enables enterprises to manage messages (mainly SMS/MMS, but also voice, fax and email) for customers and employees on a wide scale and uptake is gaining momentum particularly as more clients understand its convenience and cost-saving benefits.

Financial Results

Messaging continues to show growth and maintain profitability. For the year ended 31 December 2011, we are reporting a pre-tax profit of £361,226 (2010: £357,245) based on gross revenues of £3,673,747 (2010: £2,901,985).

The group's cash balances at 31 December 2011 totalled £543,684 (2010: £357,319).

In February 2012, the company completed the buyback of 80,007,853 ordinary shares in the company from Pacific Continental Securities UK Limited '(Pacific)' for £127,500. The acquired shares were cancelled leaving the company with 155,872,147 ordinary shares of 0.5 pence each in issue.

As part of the agreement and following completion of the buyback, Pacific were granted options to subscribe for up to 10,000,000 new ordinary shares at 0.5 pence per share exercisable in whole or in part, which will lapse on the earlier of three years from the date of grant or the date on which Pacific is dissolved. Details of the capital cancellation can be found in the circular to shareholders dated 23 November 2011. The financial effect of this capital cancelation and reorganisation is illustrated by way of pro-forma financial statements set out in the annual report.

In June 2012, the company's subsidiary, TeleMessage Ltd, signed an agreement for a loan of US$1,000,000 from Mizrahi Tefahot Bank Ltd. This loan will be used for the development of new innovative products and services as well as assisting the group's working capital requirements.

Under the terms of the agreement, repayments will be over 36 equal monthly instalments with an interest rate based on the London Interbank Offered Rate plus 5.5%.

In addition, as part of the agreement, the company will grant to Mizrahi Tefahot Bank Ltd 3,896,804 warrants exercisable at any time from grant until 17 June 2017. The warrants are exercisable at a price of 0.63p per share, although in certain circumstances the exercise price might be subject to adjustment.

Outlook

Our focus remains on increasing our presence within the telecom sector both geographically and technologically. We are a profitable company with a growing team of technical experts that has again proven its ability to provide innovative messaging services that add value to our blue chip customers, thus positioning the Company for continued growth.

I would like to thank our team for their hard work and dedication over the past year, and our shareholders for their continued support. I look forward to reporting another successful period of trading at our interims.

H Furman

Chairman

28 June 2012

Consolidated statement of comprehensive income for the year ended 31 December 2011

				2011		2010
		Notes		£		£
Continuing operations:
Revenues				3,673,747		2,901,985
Cost of revenues				(1,507,492)		(1,142,621)
Gross profit				2,166,255		1,759,364
Operating expenses
Research and development				(676,923)		(482,741)
Selling and marketing				(606,382)		(494,328)
General and administrative				(480,264)		(410,760)
Total operating expenses				(1,763,569)		(1,387,829)
Operating profit				402,686		371,535
Finance costs (net)				(41,460)		(14,290)
Profit before taxation				361,226		357,245
Taxation				(36,850)		-
Comprehensive profit for the year  attributable to equity holders of the parent company				324,376		357,245
Other comprehensive profit/(loss)
Foreign exchange difference on translation of foreign operations				3,009		(48,686)
Foreign exchange difference arising from restating the carrying value of goodwill associated with foreign operations				4,538		106,348
				7,547		57,662
Total comprehensive profit attributable to equity holders of the parent company				331,923		414,907

Earnings per share
Earnings per share from operations				0.14p		0.15p
Diluted earnings per share from operations				0.12p		0.13p

Statement of changes in equity for the year ended 31 December 2011

The Group

	Share           capital	Share premium	Foreign exchange reserve	Revenue reserves	Total
As at 1 January 2010	1,179,400	4,298,727	336,730	(1,881,674)	3,933,183
Profit for the year	-	-	-	357,245	357,245
Foreign currency translation changes for goodwill	-	-	106,348	-	106,348
Other foreign currency translation changes	-	-	(52,517)	-	(52,517)
Share based payments for employee share options	-	-	-	3,831	3,831
At 31 December 2010	1,179,400	4,298,727	390,561	(1,520,598)	4,348,090
Profit for the year	-	-	-	324,376	324,376
Foreign currency translation changes for goodwill	-	-	4,538	-	4,538
Other foreign currency translation changes	-	-	3,009	-	3,009
Share based payments for employee share options	-	-	-	1,496	1,496
At 31 December 2011	1,179,400	4,298,727	398,108	(1,194,726)	4,681,509

The company

	Share           capital	Share premium	Revenue reserves	Total
As at 1 January 2010	1,179,400	4,298,727	(67,431)	5,410,696
Loss for the year	-	-	(9,373)	(9,373)
At 31 December 2010	1,179,400	4,298,727	(76,804)	5,401,323
Profit for the year	-	-	33,204	33,204
At 31 December 2011	1,179,400	4,298,727	(43,600)	5,434,527

The following describes the nature and purpose of each reserve within owners' equity.

Share capital: The amount subscribed for shares at nominal value.

Share premium: The amount subscribed for share capital in excess of nominal value.

Foreign exchange reserve: The effect of changes in exchange rates arising from translating the financial statements of subsidiary undertakings into the company's reporting currency. 

Revenue reserves: Cumulative realised profits less losses and distributions attributable to equity holders of the group.

Consolidated statement of financial position at 31 December 2011

		Pro- forma 2011		2011		2010
		£		£		£
Non-current assets
Intangible assets		3,673,203		3,673,203		3,668,665
Property, plant and equipment		118,807		118,807		57,148
Other investments		238,230		238,230		206,362
Total non-current assets		4,030,240		4,030,240		3,932,175
Current assets
Trade and other receivables		1,144,714		1,144,714		845,225
Cash and cash equivalents		416,184		543,684		357,319
Total current assets		1,560,898		1,688,398		1,202,544
Total assets		5,591,138		5,718,638		5,134,719
Current liabilities
Trade and other payables		(706,348)		(706,348)		(464,449)
Borrowings		-		-		(44,737)
Total current liabilities		(706,348)		(706,348)		(509,186)
Non-current liabilities
Other payables		(58,100)		(58,100)		(39,582)
Provisions		(272,681)		(272,681)		(237,861)
Total non-current liabilities		(330,781)		(330,781)		(277,443)
Total liabilities		(1,037,129)		(1,037,129)		(786,629)
Net assets		4,554,009		4,681,509		4,348,090
Equity attributable to owners of the parent company
Share capital		779,361		1,179,400		1,179,400
Share premium		-		4,298,727		4,298,727
Capital redemption reserve		400,039		-		-
Foreign currency translation reserve		398,108		398,108		390,561
Revenue reserves		2,976,501		(1,194,726)		(1,520,598)
Total Equity		4,554,009		4,681,509		4,348,090

The group pro-forma statement of financial position represents the balance sheet at 31 December 2011 subsequent to the capital reorganisation approved by shareholders on 16 December 2011 and by the High Court on 25 January 2012 and illustrates the financial position at 31 December 2011 had the reorganisation taken place at that date. The pro-forma statement of financial position does not form part of the statutory financial statements

Consolidated statement of cash flows for the year ended at 31 December 2011

				2011		2010
				£		£
Cash flow from operating activities
Operating profit				402,686		371,535
Adjustments for:
Share based payments				12,056		21,331
Depreciation and amortisation				36,803		30,756
Foreign currency differences				(29,152)		(8,169)
				19,707		43,918
Operating cash inflow before working capital movements				422,393		415,453
Increase in receivables				(299,489)		(236,619)
Increase in payables				235,679		190,849
Increase in provisions				34,820		57,628
				(28,990)		11,858
Cash inflow from operating activities				393,403		427,311
Investing activities
Interest received				6,687		-
Interest and related costs				(15,762)		(22,130)
Investments				(31,868)		(48,800)
Purchase of tangible assets				(98,686)		(30,163)
Net cash used in investing activities				(139,629)		(101,093)
Taxation				(12,112)		-
Financing activities
Bank loan repayments				(55,297)		(171,590)
Net cash used from financing activities				(55,297)		(171,590)
Net change in cash and cash equivalents				186,365		154,628
Cash and cash equivalents and bank overdraft at the beginning of the year				357,319		202,691
Cash and cash equivalents and bank overdraft at the end of the year				543,684		357,319

Company statement of cash flows for the year ended at 31 December 2011

				2011		2010
				£		£
Cash flow from operating activities
Operating profit/(loss)				5,466		(38,568)
Share based payments				-		17,500
Operating cash flow before working capital movements				5,466		(21,068)
Decrease/(increase) in receivables				120,249		(9,416)
Increase in payables				7,881		2,699
Cash flow from operating activities				133,596		(27,785)
Finance income				27,738		29,195
Net cash inflow from operating activities				161,334		1,410
Net cash from financing activities				-		-
Net change in cash and cash equivalents				161,334		1,410
Cash and cash equivalents and bank overdraft at the beginning of the year				15,452		14,042
Cash and cash equivalents and bank overdraft at the end of the year				176,786		15,452

Notes to the group and financial statements

1.         General information

Messaging International Plc is a company incorporated in the UK and its activities are as described in the chairman's statement.

The financial information is a preliminary announcement for the years ended 31 December 2011 and 2010 and does not comprise statutory accounts for the purposes of Section 434 of the Companies Act 2006.

The statutory accounts have been audited by Jeffreys Henry LLP, incorporate an unqualified auditors report and do not contain an emphasis of matter paragraph or any statement under Section 498 of the Companies Act 2006.

The preliminary announcement of the results for the year ended 31 December 2011 was approved by the boards of directors on 28 June 2012.

Whilst the information in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS's, this announcement does not itself contain sufficient information to comply with IFRS's.

The statutory accounts will be sent to those shareholders who have elected to receive a paper copy shortly. Further copies will be available to the public from the Company's registered office 58-60 Berners Street, London W1T 3JS.

Statutory accounts will be available on the Company's website www.telemessage.com.

2.         Basis of Accounting

The consolidated financial statements of the company for the year ended 31 December 2011 have been prepared on a historical cost basis and are in accordance with International Financial Reporting Standards ('IFRS'') as adopted by the EU.  These have been applied consistently except where otherwise stated.

The group has adopted the following new and amended IFRSs as of 1 January 2011:

IAS 32 (amendment), 'Financial instruments: presentation - classification of rights issue', is effective from annual periods beginning on or after 1 February 2010 and amended the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro-rata to all of the existing owners of the same class of an entity's non-derivative equity instruments, or to acquire a fixed number of the entity's own equity instruments for a fixed amount in any currency. This amendment will have no impact on the company after initial application.

IAS 24 (Amendment), 'Related party transactions'. The amended standard is effective for annual periods beginning on or after 1 January 2011. It clarified definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government-related entities. The company does not expect any impact on its financial position or performance.

IFRIC 14 (Amendment), 'Prepayments of a minimum funding requirement'. The amendment to IFRIC 14 is effective for annual periods beginning on or after 1 January 2011 with retrospective application. The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. The amendment is deemed to have no impact on the financial statements of the company.

IFRIC 19, 'Extinguishing financial liabilities with equity instruments', is effective for annual periods beginning on or after 1 July 2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognised in profit or loss. The adoption of this interpretation will have no effect on the financial statements of the company.

Standards, interpretations and amendments to published standards that  are not yet effective

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 January 2011 and have not been early adopted:

IFRS 9, 'Financial instruments: classification and measurement', as issued reflects the first phase of the IASB work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January 2015. In subsequent phases, the IASB will address classification and measurement of financial liabilities and hedge accounting. The adoption of the first phase of IFRS 9 might have an effect on the classification and measurement of the company's assets. At this juncture it is difficult for the company to comprehend the impact on its financial position and performance.

IFRS 7, 'Financial instruments: disclosures (amendment), is effective for annual periods beginning on or after 1 July 2011. The amendments requires additional quantitative and qualitative disclosures relating to transfers of financial assets, where financial assets are derecognised in their entirety, but where the entity has a continuing involvement in them and where financial assets are not derecognised in their entirety. In addition to the above there has been a subsequent amendment effective for annual periods beginning on or after 1 January 2013 related to the offsetting of financial assets and financial liabilities. The adoption of these will have no effect on the financial statements of the company.

IAS 12, 'Income taxes (amendment) - Deferred taxes: recovery of underlying assets', is effective for annual periods beginning on or after 1 January 2012. It introduces a rebuttable presumption that deferred tax on investment properties measured at fair value will derecognised on a sale basis, unless an entity has a business model that would indicate the investment property will be consumed in the business. If consumed a use basis would need to be adopted. The amendments also introduce the requirement that deferred tax on non-depreciable assets measured using the revaluation model in IAS 16 should always be measured on a sale basis. The adoption of this interpretation will have no effect on the financial statements of the company.

IFRS 11 joint Arrangements is effective from 1 January 2013.  The core principle of the standard is that a party to a joint arrangement determines type of joint arrangements in which it is involved by assessing the rights and obligations and accounts for those rights and obligations in accordance with the type of joint arrangement.  Joint ventures now must be accounted for using the equity method. Joint operator which is a newly defined term recognises its assets, liabilities, revenues and expenses and relative shares thereof. The adoption of this will have no effect on the financial statements of the company.

IFRS 12 Disclosures of Interests with Other Entities is effective from 1 January 2013. It requires increased disclosure about the nature, risks and financial effects of an entity's relationship with other entities along with its involvement with other entities. The adoption of this will have no effect on the financial statements of the company.

IFRS 13 Fair Value Measurement is effective from 1 January 2013. It defines fair value, sets out in a single IFRS a framework for measuring fair value and requires disclosures about fair value measurements. It includes a three-level fair value hierarchy which priorities the inputs in a fair value measurement. The adoption of this will have no effect on the financial statements of the company.

IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosures of Interests with Other Entities along with related amendments to IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures will have an effective date of 1 January 2013. Early adoption of these standards is permitted, but only if all five are early adopted together.

IFRS 10 does not change consolidation procedures but changes whether an entity is consolidated by revising the definition of control and provides a number of clarifications on applying the new definition of control. The adoption of this will have no effect on the financial statements of the company.

IFRS 1 First-time Adoption of International Financial Reporting Standards (amendment) -Severe Hyperinflation and removal of Fixed Dates for First-time adopters has an effective date for annual periods beginning on or after 1 July 2011. This provides further guidance on how an entity should resume presenting IFRS financial statements when its functional currency ceases to be subject to severe hyperinflation. Early adoption of these standards is permitted. The adoption of this will have no effect on the financial statements of the company.

IAS 1 Presentation of Items of Other Comprehensive Income - Amendments to IAS 1 is effective for annual periods beginning on or after 1 July 2012. Items that would be reclassified to the profit and loss at a future point would be presented separately from items that will never be capitalised. The adoption of this will have no effect on the financial statements of the company.

AS19 Employee Benefits (Revised) effective for annual periods beginning on or after 1 January 2013. For defined benefit plans the ability to defer recognition of actuarial gains and losses has been removed. There are new objectives for disclosure stated in the revised standard along with new or revised disclosure requirements. Plus the recognition of termination benefits and the distinction of short-term and other long-term employee benefits have changed. The adoption of this will have no effect on the financial statements of the company.

3.         Presentational currency

These financial statements are presented in pounds sterling because the parent is an AIM traded company on the London Stock Exchange.

4.         Significant accounting policies

(a)        Going concern

These financial statements have been prepared on the assumption that the group is a going concern.

When assessing the foreseeable future, the directors have looked at a period of twelve months from the date of approval of this report. The forecast cash-flow requirements of the business are contingent upon the ability of the group to retain revenues from existing contracts and generate future revenues from future business.

As the directors have reasonable expectations that the group has adequate resources to continue trading for the foreseeable future they continue to adopt the going concern basis in preparing the financial statements.

Were the group unable to continue as a going concern, adjustments would have to be made to the statement of financial position of the group to reduce the value of assets to their recoverable amounts, to provide for future

liabilities that might arise and to reclassify non-current assets and long-term liabilities as current assets and liabilities.

(b)        Revenue recognition

The group generates revenue primarily from licensing its messaging services to service providers, corporations and other distributors as well as from hosting and maintenance fees and from the use of messaging services by end users.

The group recognise revenue when delivery of the product has occurred, a fee can be reliably measured and the ability to collect such revenues is probable.

Deferred revenue includes amounts received from customers for which revenue has not yet been recognised.

(c)        Research and development costs

Research costs are expensed to operations as incurred. Development costs are also expensed to operations as incurred if such costs do not meet the criteria for capitalisation as set forth in IAS 38, "Intangible assets".

In the years ended 31 December 2011 and 2010 no development costs have been capitalised.

(d)        Goodwill and impairment

The carrying amounts of assets are reviewed at each reporting date to determine whether there is any indication of impairment.

If any such indication exists then the asset's recoverable amount is estimated. For goodwill that has an indefinite useful life, recoverable amount is estimated at each reporting date or more frequently when indications of impairment are identified.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount unless the asset is carried at a revalued amount, in which case the impairment loss is recognised directly against any revaluation surplus for the asset to the extent that the impairment loss does not exceed the amount in the revaluation surplus for that same asset. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. Impairment losses are recognised in the income statement in the period in which it arises. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Impairment loss on goodwill is not reversed in a subsequent period. An impairment loss for an asset other than goodwill is reversed if, and only if, there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. The carrying amount of an asset other than goodwill is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss for an asset other than goodwill is recognised in the income statement unless the asset is carried at revalued amount, in which case, such reversal is treated as a revaluation increase.

(e)        Investment in subsidiary undertakings

The investment in subsidiary undertakings is stated in the balance sheet at cost less any provision for impairment. Impairment is recognised immediately in the income statement and is not subsequently reversed.

(f)         Property, plant and equipment

Property, plant, and equipment are stated at cost net of accumulated depreciation.  Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following annual rates:

	%
Computers	33
Electronic equipment	15-25
Furniture and office equipment	7-15
Leasehold improvements	10

The carrying value of property plant and equipment is reviewed for impairment when events or changes indicate the carrying value may not be recoverable.  If any such indication exists and carrying values exceed recoverable amounts such assets are written down to their recoverable amounts.

(g)        Operating leases

Rentals applicable to operating leases, where substantially all of the benefits and risks of ownership remain with the lessor, are charged against income as and when incurred.

(h)       Share options:

             Employee share options

The group has applied the requirements of IFRS 2 "Share-based Payments".

The group issues equity-settled and cash-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the group's estimate of shares that will eventually vest.

Fair value is measured by use of a Black-Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

A liability equal to the portion of the goods or services received is recognised at the current fair value determined at each balance sheet date for cash-settled share-based payments.

Other share options and equity instruments:

Where equity instruments are granted to persons other than employees the income statement is charged with the fair value of services received.

This policy has been applied to share warrants issued to Mizrahi Tefahot Ltd as part of their loan agreement with the company's subsidiary undertaking in Israel and to the company's nominated advisers in relation to reduced fees for a two year period .Details in relation to these agreements are given in notes to the financial statements.

(i)          Severance pay

Pursuant to Israel's severance pay law, employees of more than one year are entitled to one month's salary for each year employed or a portion thereof.  The cost of providing severance pay is determined using an independent actuary. Actuarial gains and losses are recognised immediately in the income statement in the period in which they occur.

The value of deposited funds is based on the cash surrender value of the insurance policies. The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon fulfilment of the severance pay obligation, pursuant to Israel's severance pay law or labour agreements.

(j)        Government grants

Government grants are recognised when there is reasonable assurance that the grants will be received and the company will comply with the attached conditions. Government investment grants related to assets, such as property, plant and equipment, are presented as a deduction from the carrying amount of the assets.

Government grants received from the Office of the Chief Scientist ("OCS") in Israel as support for a research and development project which include an obligation to pay to the State royalties that are conditional on future sales arising from the project, are recognised upon receipt as a liability,pursuant to IAS 39 'Financial Instruments: Recognition and Measurement', if future economic benefits are expected from the project that will result in royalty-bearing sales. If no such economic benefits are expected, the grants are recognised as a reduction of the related research and development expenses. In that event, the royalty obligation is treated as contingent liability in accordance with IAS 37.

At each reporting date, the company evaluates whether there is reasonable assurance that the royalty liability, in whole or in part, will or will not be settled based on the best estimate of future sales. If the estimate of future sales indicates that there is no such reasonable assurance, the appropriate liability reflecting the anticipated royalty payments is recognised with a corresponding charge to research and development expenditure.

Royalty payments are treated as a reduction of the liability.

 (k)       Taxation

             Income tax expense represents the sum of the current tax payable and the deferred tax.

             The tax currently payable is based on taxable profit for the year.  Taxable profit differs from profit as reported in the same income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.  The company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the balance sheet liability method.  Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.  Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised.  Deferred tax is charged or credited to income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the company intends to settle its current tax assets and liabilities on a net basis.

(l)         Foreign currency

Transactions in foreign currency are recorded at the rate of exchange prevailing at the date of the transaction.  All differences are taken to the income statement.  Assets and liabilities denominated in foreign currency are translated into sterling at the rate of exchange prevailing at the balance sheet date.

On consolidation, income and expenditure of subsidiary undertakings are translated into sterling at average rates of exchange in the period.  Assets and liabilities are translated into sterling at the rate of exchange ruling at the balance sheet date.  Exchange differences arising from the use of average rates for translating the results of foreign subsidiaries or from the translation of net assets on the acquisition of foreign subsidiary undertakings are taken to the group's translation reserves.

(m)       Investments

Investments represent funds invested in insurance policies in order to meet severance pay obligations pursuant to Israeli severance pay law and staff contracts of employment relevant to the company's principal subsidiary undertaking in Israel.

 (n)       Trade receivables

Trade receivables are recognised at fair value.  A provision for impairment of trade receivables is established where there is objective evidence that the company or group will not be able to collect all amounts due according to the original terms of the receivables.  Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or liquidation and default or delinquency of payments are considered indicators that the trade receivable is impaired.  The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the original rate of interest.  The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement within administrative expenses.  When a trade receivable is uncollectable it is written off against the allowance account for trade receivables.

(o)        Cash and cash equivalents

Cash and cash equivalents include cash in hand and deposits held on call with banks.  Bank overdrafts are shown as borrowings within current liabilities.

(p)        Provisions

A provision is recognised when the group has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation and the effect is material.

(q)        Financial liabilities and equities

Financial liabilities and equities instruments are classified according to the substance of the contractual arrangements entered into.  An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.

Ordinary shares are classified as equity.  Incremental costs directly attributable to new shares are shown in equity as a deduction from the proceeds.

Share premium represents funds raised from shareholders in excess of their nominal value net of issue costs.

Revenue reserves represent the cumulative net gains and losses of the group along with increases in equity for services received in equity settled share-based transactions.

Borrowings represent bank borrowings and are measured at amortised cost.

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

(r)         Borrowing costs

Borrowing costs are expensed to the comprehensive income statement in the period incurred.

(s)        Managing capital

The group's objectives when managing capital are to safeguard the group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

5          Basic and diluted loss per share

Basic earnings per share has been calculated on the group's profit attributable to equity holders of the parent company of £324,376 (2010: £357,245) and on the weighted average number of shares in issue during the year, which was 235,880,000 (2010: 235,880,000).

Diluted earnings per share has been calculated on the group's profit of £324,376 (2010: £357,245) which in addition to 235 million ordinary shares in issue, takes into account 15 million warrants and 23 million options to subscribe for ordinary shares.

6          Cash and cash equivalents

	At 1 January 2011		Cash Flow		At 31 December 2011
	£		£		£
Group
Cash and cash equivalents	357,319		186,365		543,684
Company
Cash and cash equivalents	15,452		161,334		176,786

Ends

 

END

 

 

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