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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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I-Mate | LSE:IMTE | London | Ordinary Share | GB00B0J0C046 | ORD 5P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 0.12 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
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0 | 0 | N/A | 0 |
RNS Number:3405K i-mate plc 20 December 2007 For immediate release 20 December 2007 i-mate plc ("i-mate" or the "Company") Interim results for the 6 months ended 30 September 2007 i-mate plc (London AIM:IMTE), the specialist in Microsoft Windows Mobile(R) devices and software applications, today announces its Interim Results for the six months ended 30th September 2007. All figures in this release are expressed in US dollars unless stated otherwise. Interim Operational Highlights * Ultimate range launched in September and October 2007 to critical acclaim, with initial sales occurring in November 2007 * The Ultimate 9502 voted the Best of CTIA 2007 - Best Smartphone October 2007 * OEM Supplier status achieved * Strategic alliances established with key suppliers * Strategic review and reorganisation substantially completed o Creating four regional profit centres o After Market Services brought in house to strengthen overall quality o Non core operating business closed o Provision made for legacy and non core stock Interim Financial Highlights * Turnover $46.2 million (2006: $110.8 million) * Adjusted Gross profit $8.5 million (2006: $26.1 million)* * Adjusted Operating (loss) / profit ($12.2) million (2006: $8.7 million)* * Adjusted net (loss) / profit ($11.4) million (2006: $9.5 million)* * Net cash position $53.5 million (31 March 2007: $65.8) * Gross profit $4.1 million (2006: $26.1 million) * Operating (loss) / profit ($30.2) million (2006: $8.7 million) * Net (loss) / profit ($29.4) million (2006: $9.5 million) Jim Morrison, Chief Executive, commented: "The first six months of trading has been a very difficult and costly period in which we have fundamentally restructured and refocused the Group. However I am delighted about the launch of our new models and the demand that they are now creating. We have improved and will continue to develop our product mix, expand our geographical footprint and enhance our relationship with Microsoft. We now have the devices and services under our control to regain and surpass our prior market position" *Adjusted results exclude non-recurring items, see note 5. For further information please contact: i-mate plc Jim Morrison / Mark Paver Tel: 00 971 4367 8500 JPMorgan Cazenove Nicholas Garrett Tel: 0207 588 2828 Buchanan Communications Mark Edwards/Jeremy Garcia/Robin Haddrill Tel: 020 7466 5000 CHAIRMAN'S STATEMENT The 6 months to 30 September 2007 as predicted, have been an extremely testing period for management and staff at i-mate. Our loss after tax reported today of $29.4 million is disappointing and is more than our expectations at the time of our pre close update as a result of greater non recurring items due to our strategic review and, reorganisation. As previously reported we have undertaken a fundamental review of the Group's operations. We have now established an operating model structured around four key sales and marketing regions (Americas, Europe, Middle East, Australasia) supported by centres of technical excellence and expertise in product development, software development and research. This refocusing and streamlining has resulted in non-recurring charges being taken to the Income Statement of $18.0 million which include providing in full for the goodwill associated with our acquisition of A Living Picture plc ("ALP") and the establishing of our After Market Services department. Our overheads are now structured to accommodate the revenue streams we expect in Q4 2007/08 and forward into the next financial year. Our stated strategy remains clear: *Design and innovate Windows-based smart phones and PDAs that are best of class *Execute an effective sales strategy, and *Continue to develop the i-mate brand The launch of our Ultimate range of devices has already resulted in the award of the industry accolade of "Best of CTIA 2007 - Best Smartphone". The first two Ultimate devices, the 6150 and 8150, have now been sold into our various commercial channels with positive feedback coming from our customers. With two additional Ultimate devices, the 8502 and 9502, and two JAMA devices, the 101 and 201 now coming off the production lines, our new range of 6 unique i-mate devices coupled with our enhanced suite of services gives the Group a great opportunity to re-establish its position as the market leader in Windows-based smart phones. I also have to report that following his appointment as Chairman of Artilium Plc, and the recent announcement that he is to chair the review of the Royal Mail for the UK Government, Richard Hooper one of our Non-Executive Directors has requested to step down from the board with effect 31 December. The Board would like to thank him for his contribution to the Company during his time with us. Our objective for the remainder of this financial year is to drive sales growth across all our territories and to begin to return to profitability and positive cash-flow. The Board believes that our new devices, enhanced manufacturer and distributor relationships together with our expanded geographical footprint give i-mate the opportunity to become a substantially larger and profitable business and therefore return to delivering value to our shareholders. Bernard Cragg Chairman 20 December 2007 Chief Executive's Statement Introduction The first 6 months of the financial year has been a challenging period for all at i-mate, during which we focused on delivering on our core set of strategic goals. Significant progress has been made on all our objectives:- * Develop our own unique, exclusive products which are technically superior to other Windows Mobile(R) devices in the marketplace The JAMA and Ultimate devices have been launched during June and October with initial sales of the Ultimate range occurring in November. Our device roadmap is strong. * Deliver an outstanding out of box experience, top class support and remote security by enhancing our suite of services All Ultimate and JAMA devices come with i-mate's "i-Q software" which delivers individual device management with enhanced security built in as standard. * Leverage our channels to market to provide global reach for our exclusive products Multiple new channels have been established including the opening of our Singapore regional office in November as a base to target the important Asian market. * Implement an operating model structured around four key sales and marketing regions supported by centres of technical excellence and expertise in product development, software development and research. i-mate's operations are now focused around the four key regions: Europe, the Americas, Australasia & Asia, and the Middle East including Africa and the Indian subcontinent. * Transform from a single supplier model with geographical restrictions to an OEM with ability to sell globally i-mate now has agreements with 3 equipment manufacturers producing quality bespoke devices exclusively for i-mate. Strategic update i-mate is continuing to evolve its business model as the specialist global provider of Microsoft Windows Mobile(R) devices and software applications. Significant restructuring actions have taken place during this half year, which have had a major impact on the financial result for the period. Our review has focused on the following key areas of the business: Regional focus In April 2007, we announced our intention to restructure the Group into four geographic regions - Europe, the Americas, Australasia & Asia, and the Middle East including Africa and the Indian subcontinent. Each of these regions is now run as a regional profit centre. Each regional business unit has access to separate Technology and Quality Assurance ("QA") functions as well as direct reporting lines to the Group's head office. As part of the reorganisation, we have streamlined our marketing function and technology centres for development, with teams based in the USA for software and in the UAE for hardware. Quality We are absolutely committed to ensuring that only the highest quality devices are shipped to market. We have therefore put into place a full QA team to work alongside our manufacturers. In addition, a separate QA team runs end user approvals and ensures controls on quality are maintained, independently of the engineering teams and factory production QA teams. Our previously outsourced after market services management have been brought in house and are based in Dubai, to further strengthen the overall quality and efficiency of our service. Again, we have incurred significant non-recurring costs of $5.8 million associated with doing this in the first half of the year. Product update We have now met our stated aim of becoming a fully fledged OEM supplier with 6 devices already being produced. i-mate has agreements with 3 equipment manufacturers producing devices exclusively for i-mate. Our product portfolio now consists of two key ranges: JAMA The JAMA range, consisting of two devices, is our entry level device platform which was launched in June 2007. The latest devices, JAMA 101 and 201 started shipping in early December which is allowing our distributors to target a new demographic of first time users of Windows Mobile 6 devices. Ultimate The Ultimate range, currently consisting of 4 devices, is our high end, high specification device platform and was launched as anticipated, in combination at GITEX, Dubai and CTIA, USA. All 4 Ultimate devices have been extremely well received by customers and industry specialists alike with the Ultimate 9502 being voted the "Best of CTIA 2007 - Best Smartphone". First shipments of the 6150 and 8150 devices have occurred in November. Software Customers and end users are now benefiting from our new and enhanced software platforms. For our resellers and enterprise customers, our new Customisation and Ordering Management System ("COMS") platform enables users to buy online in quantity and to customise their device requirements before delivery with the system able to provide order management, processing, invoicing and dispatch. The i-mate control platform allows enterprise managers and individual users to manage their devices, including the ability to lock and wipe in the event of theft or loss. Finally, club i-mate provides downloads of images, sounds and other applications once the device is in use. These three platforms have been wholly integrated into a new solution for customised device sales and enhanced support and management for our customers, professional consumers and enterprises. We are delivering a unique experience for users straight out of the box, with minimum fuss and user input. i-mate enterprise customers now have never-before-seen capabilities including zero-configuration push email and corporate policy capabilities that we believe will propel i-mate to the forefront of mobile device service standards for corporate customers and white-label services for mobile operators. This combination of new devices and upgraded services, combined with our traditional high quality technical support for customers, gives us a very powerful offering across the market going forward. Product focus The Group has focused on key product ranges and after a further review of planned new product lines, it was determined that the Urban line of devices would not meet our stringent quality tests now in place in time to penetrate their intended target markets. Therefore, the Urban range was cancelled. We have also provided for a stock write-down against legacy product supplied by our previous manufacturing partners. In addition, digital pictures frames, a market sector which was acquired through the acquisition of ALP, no longer meets with our on going strategic direction, that of the manufacture and supply of wireless integrated Pocket PCs and Smartphones and represents an unnecessary distraction. As a result we have taken undertaken an impairment review of goodwill and recorded an impairment write off against this investment and reduced the carrying value of our stock of digital picture frames with a total write off of $6.4 million. Financial review Revenue for the period was $46.2 million (2006: $110.8 million), as a direct result of the supply limitations of legacy products prior to our new devices coming on stream. Gross profit before non-recurring items was $8.5 million (2006: $26.1 million); with adjusted gross margin of 18.5% (2006: 23.6%) Margin was severely impacted by the delayed launch of new devices. The gross margin % achieved was also affected by the legacy devices coming towards the end of life. With the launch of our new devices underway we anticipate that the Group should, in the medium term, return to margin levels previously achieved. The Group operating loss before non-recurring items was $12.2 million (2006: profit $8.7 million). This was largely caused by the overall reduction in gross margin and the fixed nature of Group overheads. Distribution costs were $1.1 million (2006: $2.4 million) as a direct result of shipping fewer devices. Administration expenses before non-recurring items were $19.6 million, which is an increase of $4.7 million over the first half of 2006/7 and a reduction of $2.3 million over the second half of 2006/7. The reduction against second half 2006/7 is predominantly as a result of cost control with less marketing and sales support activities. Administration expenses also includes exchange gains of $0.9 million (2006: $0.7 million) arising from the retranslation of non-Dollar denominated net monetary assets. As previously discussed, the Group has undertaken a strategic review in the current period which has resulted in costs being treated as non-recurring in this half year. These costs include: *The reorganization into four geographic regions resulted in redundancy costs of $532,000. *The focus on quality, led to the cancellation of the Urban range of devices, resulting in $1,168,000 of costs being written off. *After market services management has been brought in house, based in Dubai, following the termination of the agreement with the contractor. We have provided for an exceptional charge of $5,800,000. (see also Note 17) *Following our goodwill impairment review of the ALP investment goodwill has been written off ($4,325,000) and the carrying value of our stock of digital picture frames has been reduced to net realisable value, resulting in a charge of $2,106,000. The original purchase was funded by the issue of 1,194,619 ordinary shares at a fair value of $3.14 and cash. *Legacy product from previous years has been reduced to net realisable value, resulting in a charge of $2,284,000. *Receivables have been hit by a non-recurring allowance of $1,811,000 in relation to technical issues on a superseded product. The combined effect of non-recurring items is to increase the Group operating loss by $18.0 million to $30.2 million. Interest receivable was $1.2 million (2006: $1.3 million). Surplus funds are currently placed on short term deposit for periods of up to three months. The loss attributable to minority interest of $539,000 (2006: profit $1,209,000) in the period arose from HTC's interest of 11.25% in Carrier Devices UK Limited, the holding company for the Group's subsidiary companies trading in our legacy HTC products. The interest, shown at $1.4 million in the Balance Sheet at 30 September 2007, was granted to HTC in September 2005 as part of the distribution agreement. The Group had cash reserves of $53.5 million at 30 September 2007 available to fund the continued development of exclusive i-mate devices, the working capital requirements for launching these devices and continuing geographical expansion. Microsoft update Our strategy continues to be to develop, manufacture and sell our own unique, exclusive products which are technically superior to other Windows Mobile devices. In this context, our relationship with Microsoft is central. In May we signed a joint Go-To-Market agreement with Microsoft. This agreement is for trialling and marketing of the i-mate COMS and i-mate Suite software products into the market. We expect strong sales into the Enterprise market through this partnership and on the back of the new device launches. People The progress we have made in this half year in re-positioning the Group for the future has been possible due to the continued dedication and belief in i-mate of the management team and staff throughout all of our offices. I continue to believe that they should participate in the growth of the Company as we restore and create future value for shareholders. As a result we will be reviewing and consolidating our share option plans, to ensure that they continue to motivate, reward and retain our people. Outlook The long-term outlook remains very much as it did when we reported our preliminary results in June this year but we are making solid progress to achieve our objectives. We have fundamentally reorganised the Group, business processes have been strengthened, routes to market are now solid and increasing and 6 new devices have been successfully launched. Whilst the Group is developing a strong pipeline of next generation products we are mindful that it is vital we successfully execute the current stage of our strategy. We remain positive about the growth opportunities for our business as we continue to leverage our excellent working relationship with Microsoft and our routes to market. The Board continues to feel confident about our trading prospects knowing the difficulties that we have faced and continue to face during this rebuilding year. While Q3 has been very slow in terms of sales, we look to an improved performance in the fourth quarter of the year and beyond as our new products begin to ship in quantity. Jim Morrison Chief Executive 20 December 2007 i-mate plc Consolidated Income Statement for the six months ended 30 September 2007 Note Six months Six months Six months Six months Year ended ended 30 ended 30 ended 30 ended 30 31 March September 2007 September 2007 September September 2007 pre non- non-recurring 2007 2006 recurring (note 5) (unaudited) (unaudited) (unaudited) (unaudited) (audited) $000 $000 $000 $000 $000 Revenue 3 46,173 - 46,173 110,787 195,481 Cost of sales (37,648) (4,390) (42,038) (84,673) (159,161) Gross profit/(loss) 8,525 (4,390) 4,135 26,114 36,320 Distribution costs (1,095) - (1,095) (2,441) (4,930) Administrative expenses (19,594) (13,636) (33,230) (14,938) (36,793) Operating (loss)/profit 4,7 (12,164) (18,026) (30,190) 8,735 (5,403) Investment revenue 6 1,181 - 1,181 1,341 3,335 (Loss)/profit before taxation (10,983) (18,026) (29,009) 10,076 (2,068) Taxation 8 (387) - (387) (576) (820) (Loss)/profit for the financial period (11,370) (18,026) (29,396) 9,500 (2,888) Attributable to: Equity holders of the parent (10,995) (17,862) (28,857) 8,291 (3,366) Minority interest 13 (375) (164) (539) 1,209 478 (11,370) (18,026) (29,396) 9,500 (2,888) Earnings per share Basic 9 (24.10c) 7.37c (2.83c) Diluted 9 (24.10c) 7.31c (2.83c) All revenue and operating results are derived from continuing operations. There is no difference between the results stated above and their historical cost equivalent. The half year results are unaudited but have been reviewed by the auditors. i-mate plc Group Statement of Changes in Equity for the six months ended 30 September 2007 Share Share Merger Share Retained Exchange Minority Total Capital Premium Reserve Based Earnings Reserve Interest Reserve $000 $000 $000 $000 $000 $000 $000 $000 Six months ended 30 September 2007 (unaudited) Opening Balances 10,549 65,735 (8,663) 1,892 31,796 (354) 1,915 102,870 Shares issued - - - - - - - - Currency differences on foreign currency net investments - - - - - 876 - 876 Share based payment provision - - - 540 - - - 540 (Loss) for the period - - - - (28,857) - (539) (29,396) Equity at end of the period 10,549 65,735 (8,663) 2,432 2,939 522 1,376 74,890 Six months ended 30 September 2006 (unaudited) Opening balances 10,430 62,120 (8,663) 591 35,162 (889) 1,437 100,188 Shares issued - - - - - - - - Currency differences on foreign currency net investments - - - - - 278 - 278 Share based payment provision - - - 502 - - - 502 Profit for the period - - - - 8,291 - 1,209 9,500 Equity at end of the period 10,430 62,120 (8,663) 1,093 43,453 (611) 2,646 110,468 Year ended 31 March 2007 (audited) Opening balances 10,430 62,120 (8,663) 591 35,162 (889) 1,437 100,188 Shares issued 119 3,615 - - - - - 3,734 Currency differences on foreign currency net investments - - - - - 535 - 535 Share based payment provision - - - 1,301 - - - 1,301 (Loss) for the year - - - - (3,366) - 478 (2,888) Equity at end of the year 10,549 65,735 (8,663) 1,892 31,796 (354) 1,915 102,870 i-mate plc Consolidated Balance Sheet as at 30 September 2007 Note 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) $000 $000 $000 Non current assets Goodwill 8 - - 4,325 Intangible assets 10 7,796 3,249 7,532 Property, plant and equipment 3,120 3,007 3,253 10,916 6,256 15,110 Current assets Inventories 5,332 21,856 11,373 Trade and other receivables 11 23,822 41,288 36,720 Corporation tax asset 442 - - Cash and cash equivalents 53,500 57,780 65,815 83,096 120,924 113,908 Total assets 94,012 127,180 129,018 Current liabilities Trade and other payables 12 19,122 15,561 25,737 Current tax liabilities - 1,151 411 Total liabilities 19,122 16,712 26,148 Net assets 74,890 110,468 102,870 Equity Share capital 14 10,549 10,430 10,549 Share premium account 65,735 62,120 65,735 Merger reserve (8,663) (8,663) (8,663) Exchange reserve 522 (611) (354) Share based payment reserve 2,432 1,093 1,892 Retained earnings 2,939 43,453 31,796 Equity attributable to equity holders of the parent 73,514 107,822 100,955 Minority interest 13 1,376 2,646 1,915 Total equity 74,890 110,468 102,870 i-mate plc Consolidated Cashflow Statement For the six months ended 30 September 2007 Note Six months Six months Year ended ended 30 ended 30 31 March September September 2007 2007 2006 (audited) (unaudited) (unaudited) $'000 $000 $000 Net cash used in operations 15 (12,236) (9,358) (2,893) Investing activities Interest received 1,181 1,341 3,335 Proceeds on disposal of property, plant and equipment - - 56 Purchase of property, plant and equipment (124) (2,068) (2,772) Expenditure on intangible assets (1,808) (1,847) (5,317) Acquisition of subsidiary - - (2,451) Net cash used in investing activities (751) (2,574) (7,149) Net decrease in cash and cash equivalents (12,987) (11,932) (4,256) Cash and cash equivalents at beginning of period 65,815 69,343 69,343 Effect of foreign exchange rate changes 672 369 728 Cash and cash equivalents at end of period 53,500 57,780 65,815 i-mate plc Notes to Interim Financial Information 30 September 2007 1. Significant accounting policies Basis of accounting This interim financial information has been prepared in U.S. Dollars, the functional currency of the Group, using accounting policies consistent with International Financial Reporting Standards (IFRS). The directors have chosen not to adopt IAS 34 "Interim Financial Reporting". Accordingly, the interim financial information has been prepared in accordance with the recognition and measurement criteria of IFRS and the disclosure requirements of the Listing Rules that would be applicable if the Company were admitted to the Official List. The same accounting policies and methods of computation have been applied in these interim financial statements as in the financial statements for the year ended 31 March 2007. The interim financial information has been prepared under the historical cost convention. The principal accounting policies are set out below. The financial information for the year ended 31 March 2007 does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. Basis of consolidation The interim financial information consolidates the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair value at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the income statement in the period of acquisition. The interest of minority shareholders is stated at the minority's proportion of the fair values of the assets and liabilities recognised. Subsequently, any losses applicable to the minority interest in excess of the minority interest are allocated against the interests of the parent. The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. 1. Significant accounting policies (continued) Goodwill Goodwill arising on businesses acquired represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognised as an asset at cost and subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment annually; any impairment is recognised immediately in profit or loss and is not subsequently reversed. Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss and is not subsequently reversed. For the purpose of impairment testing, goodwill is allocated to the relevant cash-generating unit. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit, and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes. Sales of goods are recognised when goods are delivered and title has passed. Sales in respect of services and licences are recognised on completion of contractual performance. Interest receivable is recognised as it arises. 1. Significant accounting policies (continued) Foreign currencies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of consolidated financial statements, the results and financial position of each Group company are expressed in U.S. Dollars, which is the functional currency of the Group and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historic cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period. On consolidation, the assets and liabilities of the Group's subsidiaries whose functional currency is not U.S. Dollars are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Group's retained earnings. In the event of a disposal, such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The share capital and share premium of the Company is Sterling denominated and is translated at actual historic rates. Property, plant and equipment Property, plant and equipment balances are stated at cost, net of depreciation and any provision for impairment. Depreciation is provided on all property, plant and equipment in equal annual instalments over the estimated useful lives of the assets. The rates of depreciation are as follows: Buildings 2.5% per annum Equipment, fixtures and fittings Between 33% and 50% per annum Motor vehicles 33% per annum The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income in the period of disposal. 1. Significant accounting policies (continued) Research and development Research expenditure is written off as incurred. Development expenditure relating to identifiable projects is capitalised provided it is probable that the project will generate future economic benefits and the development cost of the project can be measured reliably. In such cases, the identifiable expenditure is capitalised over the period during which the Group is expected to benefit. All other development expenditure is written off as incurred. Any capitalised development costs are amortised over the life of the products from the date of launch. If the future economic benefit of the products are curtailed or significantly reduced, the capitalised development costs will be reviewed for impairment. Any identified impairment is recognised via an impairment write-off to profit or loss in the period it is identified and is not reversed in any subsequent period. Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, a formal impairment test based on a discounted cash-flow approach is performed and the recoverable amount of the asset is estimated in order to quantify any impairment loss. Any impairment loss is recognised as an expense immediately. Inventories Inventories are stated at the lower of cost and net realisable value, measured on a FIFO basis. Cost comprises all costs in bringing the inventories to their present location and condition. Net realisable value is based on estimated selling price less further costs expected to be incurred to completion and disposal. Provision is made for obsolete, slow moving or defective items where appropriate. Leases Operating lease rentals are charged to the income statement in equal annual amounts over the lease term. Financial instruments Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. The Group's activities give rise to some exposure to the financial risks of changes in interest rates and foreign currency exchange rates. The Group has no borrowings and is principally funded by equity, maintaining all its funds in bank accounts. Surplus funds are placed in risk free cash deposits. The Group's exposure to foreign currency exchange rates arising from its net investment in currencies other than the U.S. Dollar is unhedged as this exposure is currently not viewed as material. The Group does not use derivative financial instruments for speculative purposes. Trade receivables Trade receivables in the normal course of trade do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for irrecoverable amounts. Trade payables Trade payables in the normal course of trade are not interest bearing and are stated at their nominal value. 1. Significant accounting policies (continued) Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from the net profit as reported in the 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 Group's liability for current tax is calculated using tax rates that have been enacted or subsequently enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable 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 is 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 of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Provisions Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the balance sheet date and are discounted to present value where the effect is material. Share based payments The Group issues equity-settled share based benefits to employees. These share based payments are measured at their fair value at the date of grant and the fair value of expected shares is expensed on a straight-line basis over the vesting period. Fair value is measured using the Black Scholes Model. Dividends Dividends payable to the Company's shareholders are recorded as a liability in the period in which the dividends are approved. No dividends have been paid by the Company to date and none are proposed for the current year. Non-recurring items Non-recurring items, as disclosed on the face of the income statement, are items which due to their materiality and non-recurring nature have been classified separately in order to draw them to the attention of the reader of the accounts and to highlight the impact of non-recurring items on the results of the Group. 2. Critical accounting judgements and key sources of estimation uncertainty In the process of applying the Group's accounting policies, as described in note 1, management has made the following judgements that have the most significant effect on the amounts recognised in the interim financial information. Issue of shares in subsidiary company to HTC In September 2005, Carrier Devices UK Limited (a subsidiary company) issued shares to HTC, which at that time was the Group's principal manufacturing partner. These shares were issued for no cash consideration as part of a distribution agreement and resulted in HTC owning 11.25% of the share capital of Carrier Devices UK Limited. Carrier Devices UK Limited is the holding company of a number of trading subsidiaries within the Group. Management's view was that the fair value of these shares issued to HTC was zero and that as a result no intangible asset was created by their issue. The reasons for arriving at this view were: * The resulting minority interest of 11.25% gave HTC no influence in the running of Carrier Devices UK Limited. * The minority interest had no marketable value. * Under the original agreement, additional shares were to be granted to HTC in 1.25% increments per year such that their overall shareholding would eventually be increased to 15%. As the distribution agreement was terminated at 31 May 2007, the shareholding has not been increased and remains at 11.25%. Valuation of share based payments to employees The Group estimates the expected value of share-based payments to employees and this is charged through the income statement over the vesting period of the relevant payments. The cost is estimated using the Black Scholes valuation model which requires a number of assumptions to be made such as levels of share vesting, time of exercise and share price volatility. This method of estimating the value of share based payments is intended to ensure that the actual value transferred to employees is provided for by the time such payments are made. Bad debt and inventory provisions The trade receivables balances recorded in the Group's balance sheet comprise a relatively small number of large balances. A full line-by-line review of trade receivables is carried out at the end of each month. Similarly the aged inventory records are reviewed at the end of each month. Whilst every attempt is made to ensure that the bad debt and inventory provisions are as accurate as possible, there remains a risk that the provisions do not match the level of debts which ultimately prove to be uncollectible and the inventory which ultimately proves not to be sellable above its carrying value. Taxation Under the structure of the Group, the principal operating companies, i-mate Middle East FZ-LLC and Carrier Devices Middle East FZ-LLC, operate in a tax free zone and accordingly profits from these companies are not subject to tax. No deferred tax has been provided on the accumulated unremitted earnings of these companies as it is assumed that no dividend will be paid to the parent company for the currently foreseeable future. 2. Critical accounting judgements and key sources of estimation uncertainty (continued) Warranty provision The Group provides for the expected costs of future warranty claims by estimating the annual failure rate per individual device and the average cost per repair. A review is performed quarterly of the carrying value of this provision. However there remains a risk that the provision does not match the level of actual failures and costs incurred to repair those faults. Development costs Capitalised development expenditure relating to identifiable projects is capitalised provided it is probable that the project will generate future economic benefits. There remains a risk that costs previously capitalised relate to projects that are subsequently considered uneconomic or technically inadequate, at which time they would be expensed immediately. Revenue recognition Rebates due from manufacturing partners are recognised in the income statement only once a product has commenced commercial production and purchases are occurring. 3. Segmental Information For management purposes, the Group's primary segment is geographical. The business operates in two secondary business segments, hardware and software. Revenue and the carrying value of assets in respect of software are less than 10% in the current and prior periods and so have not been disclosed separately. This may change with the potential future growth of software and service revenue. Intra-segment sales are charged on an agreed transfer pricing basis. (a) Segmental revenue Sales Inter Total $000 Intra -Segment Revenue Sales $000 $000 Six months ended 30 September 2007 (unaudited) Middle East 39,046 (20,218) 18,828 Australasia 22,843 - 22,843 Europe 3,601 - 3,601 Americas 901 - 901 66,391 (20,218) 46,173 Six months ended 30 September 2006 (unaudited) Middle East 103,713 (50,514) 53,199 Australasia 26,742 - 26,742 Europe 29,390 - 29,390 Americas 1,456 1,456 161,301 (50,514) 110,787 Year ended 31 March 2007 (audited) Middle East 158,426 (69,902) 88,524 Australasia 61,797 61,797 Europe 40,659 - 40,659 Americas 4,501 - 4,501 265,383 (69,902) 195,481 3. Segmental Information (continued) (b) Segmental result Six months Six months Year ended Pre non-recurring items ended ended 31 March 30 September 30 September 2007 2007 2006 (audited) (unaudited) (unaudited) $000 $000 $000 Middle East 1,579 5,169 4,095 Australasia 354 5,351 4,877 Europe (2,061) 6,077 3,305 Americas 917 (51) (1,496) 789 16,546 10,781 Unallocated operating expenses (12,953) (7,811) (16,184) Operating (loss)/profit (12,164) 8,735 (5,403) Investment revenue 1,181 1,341 3,335 Taxation (387) (576) (820) (Loss)/profit after taxation (11,370) 9,500 (2,888) All development, new venture start-up and the majority of sales force expansion costs are allocated to the Middle East segment. (b) Segmental result Six months Six months Year ended Including non-recurring ended ended 31 March 30 September 30 September 2007 2007 2006 (audited) (unaudited) (unaudited) $000 $000 $000 Middle East (9,840) 5,169 4,095 Australasia 500 5,351 4,877 Europe (1,399) 6,077 3,305 USA (895) (51) (1,496) (11,634) 16,546 10,781 Unallocated operating expenses (18,556) (7,811) (16,184) Operating (loss)/profit (30,190) 8,735 (5,403) Investment revenue 1,181 1,341 3,335 Taxation (387) (576) (820) (Loss)/profit after taxation (29,396) 9,500 (2,888) 4. Operating (loss)/profit Operating (loss)/profit is stated after charging/(crediting): Six months Six months Year ended ended 30 ended 30 31 March September September 2007 2007 2006 (audited) (unaudited) (unaudited) $000 $000 $000 Amortisation of intangible assets 1,438 269 1,102 Impairment of intangible assets 132 - - Impairment of goodwill 4,325 - - Depreciation of property, plant and equipment 412 232 766 Loss on disposal of property, plant and equipment - - (19) Research and development costs 182 32 237 Staff costs 8,570 5,278 12,787 Share option costs 540 502 1,301 Auditors' remuneration 207 19 228 Exchange differences (935) (706) (1,893) In addition to auditors' remuneration shown above, the auditors received the following fees for non audit services: Six months Six months Year ended ended 30 ended 30 31 March September September 2007 2007 2006 (audited) (unaudited) (unaudited) $000 $000 $000 Taxation compliance and advisory 70 81 137 Other services 67 10 83 Other financial advisory services - - 146 137 91 366 5. Non-recurring items Six months ended 30 September 2007 (unaudited) $000 $000 b. Inventory provisions Legacy products 2,284 Digital picture frames 2,106 Cost of sales 4,390 a. Reorganisation costs Redundancy costs 532 Urban write-off 1,168 c. Goodwill Impairment 4,325 d. AMS provision 5,800 e. Receivables provision 1,811 Administrative expenses 13,636 Total non-recurring items 18,026 a. Reorganisation Costs In April 2007 the Group initiated a restructuring program, resulting in the operations being split into four geographic regions - Europe, the Americas, Australasia & Asia, and the Middle East including Africa and the Indian subcontinent. The reorganisation resulted in redundancy costs totalling $532,000 being incurred. Following the restructuring, a further review of new product development was undertaken. As a result it was concluded that the Urban range of devices would not meet our stringent quality standards in time to penetrate their intended target markets. The Urban range was therefore abandoned, resulting in costs of $1,168,000 being expensed immediately. b. Inventory provisions During the period non-recurring inventory provisions totalling $4,390,000 were recorded. Provisions totalling $2,284,000 were made in relation to legacy products which are considered to be reaching the end of their product life. In addition, a $2,106,000 provision has been made against inventories held of digital picture frames, which as a result of our strategic review and restructuring are considered not to be core to our business going forward. As such a provision has been recorded to write these inventories down to there estimated realisable value. 5. Non-recurring items (continued) c. Goodwill Impairment During the period management completed an impairment review of goodwill. The goodwill relates solely to the acquisition of A Living Picture plc. As a result of the impairment review an impairment charge of $4,325,000 has been recorded during the period. d. After Market Services Provision As set out in note 17, the Group has had to establish an in-house function for after market services, based in Dubai, following the termination of the contract with the previous third party provider and the withdrawal of that contractor from all historic warranty obligations. Non-recurring costs totalling $5,800,000 have been incurred in the period for the additional warranty costs assumed by the Group, for provisions against claims under dispute with the contractor and for costs associated with the establishment of the in-house function. e. Receivables Receivables have been hit by a non-recurring allowance of $1,811,000 in relation to technical issues on a superseded product. In prior periods there were no material non-recurring items. 6. Investment revenue Six months Six months Year ended ended 30 ended 30 31 March September September 2007 2007 2006 (audited) (unaudited) (unaudited) $000 $000 $000 Bank interest receivable 1,181 1,341 2,779 Trade debtor interest receivable - - 556 1,181 1,341 3,335 7. Employee information The average number of employees, including executive Directors and key management personnel, employed by the Group during the period was: Six months Six months Year ended 30 ended 30 ended September September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) Development 43 61 74 Sales and Customer Support 33 56 56 Administration 80 36 46 156 153 176 The aggregate payroll costs of the people employed by the Group (including executive Directors) were as follows: Six months Six months Year ended ended 30 ended 30 31 March September September 2007 2007 2006 (audited) (unaudited) (unaudited) $000 $000 $000 Wages and salaries 8,027 5,009 11,931 Social security costs 543 269 856 8,570 5,278 12,787 In addition to the above, $540,000 was charged to the income statement in respect of awards to employees under share option agreements (six months to 30 September 2006:$502,000, year to 31 March 2007:$1,301,000). 8. Taxation Six months Six months Year ended ended 30 ended 30 31 March September September 2007 2007 2006 (audited) (unaudited) (unaudited) $000 $000 $000 The tax charge comprises: UK corporation tax 101 144 120 Foreign tax 286 432 700 Total current tax 387 576 820 9. Earnings per share IAS 33 requires presentation of diluted earnings per share when a company could be called upon to issue shares that would decrease net profit or increase loss per share. For a loss making company with outstanding share options, net loss per share would only be increased by the exercise of out of money options. Since it seems inappropriate to assume that options holders would exercise out-of-money options, no adjustment has been made to dilute loss per share for out-of-money share options. Basic earnings per share is calculated on the (loss)/profit of the Group attributable to equity holders of the Company and the weighted average number of shares in issue during the period. The diluted earnings per share is calculated on the weighted average number of shares in issue during the period, adjusted for the dilutive effect of share options. Six months Six months 31 months ended March ended 30 30 September 2007 September 2006 2007 (unaudited) (unaudited) (audited) (Loss)/profit for the period (28,857) 8,291 (3,366) ($'000) Weighted average number of shares in issue 119,722,916 118,528,297 118,926,503 Fully diluted weighted average number of shares in issue 119,722,916 120,693,956 118,926,503 Basic earnings per share (cents per share) (24.10) 7.37 (2.83) Diluted earnings per share (cents per share) (24.10) 7.31 (2.83) 10. Intangible fixed assets Intangible fixed assets at 30 September 2007 comprise capitalised development expenditure, net of amortisation and impairment, in respect of i-mate(TM) suite and hardware product and software development costs. 11. Trade and other receivables 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) $000 $000 $000 Trade receivables 14,147 37,919 31,419 Other receivables 678 191 212 Prepayments and accrued income 8,997 3,178 5,089 23,822 41,288 36,720 12. Trade and other payables 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) $000 $000 $000 Trade payables 4,715 11,187 18,925 Accruals and deferred income 14,403 2,803 6,271 Social security and other taxes - 635 407 Other payables 4 936 134 19,122 15,561 25,737 13. Reconciliation of movements in equity minority interest Six months Six months Year ended ended ended 31 March 30 September 30 September 2007 2007 2006 (audited) (unaudited) (unaudited) $000 $000 $000 At 1 April 2007 1,915 1,437 1,437 Share of (loss)/profit for the period (539) 1,209 478 At 30 September 2007 1,376 2,646 1,915 In September 2005, the Group issued shares in Carrier Devices UK Limited (a subsidiary which is an intermediate holding company) to HTC, then the Group's principle manufacturing partner. This 11.25% interest was granted to HTC as part of a distribution agreement. 14. Share capital 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) $000 $000 $000 Authorised 200,000,000 ordinary shares of 5p each 17,600 17,600 17,600 (translated at historic rate of $1.76) Allotted, issued and fully paid 118,528,297 ordinary shares of 5p each 10,430 10,430 10,430 (translated at historic rate of $1.76) 1,194,619 ordinary shares of 5p each 119 - 119 (translated at historic rate of $1.98) 10,549 10,430 10,549 15. Notes to the cashflow statement Six months Six months Year ended ended 30 ended 30 31 March September September 2007 2007 2006 (audited) (unaudited) (unaudited) $000 $000 $000 Operating (loss)/profit (30,190) 8,735 (5,403) Adjustments for: Amortisation of intangible assets 1,438 269 1,102 Impairment of intangible assets 132 - - Impairment of goodwill 4,325 - - Depreciation of property, plant and equipment 413 232 766 Loss/(profit) on disposal of property, plant and equipment - - (19) Share based payment provision 540 502 1,301 Operating cashflows before movements (23,342) 9,738 (2,253) in Working capital Decrease/(increase) in inventories 6,041 210 10,491 Decrease/(increase) in receivables 12,898 (4,454) 573 (Decrease) in payables (6,615) (14,522) (4,592) Cash (used)/generated from operations before tax (11,018) (9,028) 4,219 Income taxes paid (1,218) (330) (1,326) Net cash used in operations (12,236) (9,358) (2,893) 16. Financial commitments Minimum lease payments under operating leases recognised in the income statement for the period: Six months Six months Year ended ended 30 ended 30 31 March September September 2007 2007 2006 (audited) (unaudited) (unaudited) $000 $000 $000 502 341 876 At 30 September 2007, the Group had outstanding commitments for future minimum lease payments under non cancellable operating leases which fall due as follows: 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) $000 $000 $000 - within one year 1,003 922 289 - between one and five years 1,835 1,721 1,577 2,838 2,643 1,866 17. Contingent Liabilities During the period Workz International FZE, a contractor who provided management, administration and repair services for products in and out of warranty terminated their agreement with the Group and, in breach of that agreement, ceased all historic warranty cover. As a result the Group assumed responsibility for all historic warranty obligations and established an in-house management function for after-market services. Provision has been made for the related costs in the period ended 30 September 2007. The contractor is pursuing a number of claims against the Group and the matter is currently the subject of an international arbitration. The Group is contesting the contractor's claims vigorously and the Directors consider that no material unrecorded liability will accrue to the Group. This information is provided by RNS The company news service from the London Stock Exchange END IR LKLLFDLBFFBV
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