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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Mobestar | LSE:MOBS | London | Ordinary Share | GB00B12B4Q16 | ORD 1P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 1.375 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
Mobestar MOBESTAR HOLDINGS PLC Final Results for the year ended 31 December 2007 Company Registration Number 05681286 REPORT AND FINANCIAL STATEMENTS For the year ended 31 DECEMBER 2007 Directors and Advisors DIRECTORS Paul Robinson, Executive Chairman Peter Richards, Chief Executive Officer Suzanne Newnes-Smith, Finance Director Stephen Doyle, Chief Technology Officer SECRETARY Suzanne Newnes-Smith REGISTERED OFFICE Unit 46, Surrey Technology Centre 40 Occam Road Surrey Research Park Guildford Surrey GU2 7YG BANKERS National Westminster Bank Plc Piccadilly & New Bond Street Branch 63-65 Piccadilly London W1J 0AJ Barclays Bank Plc Soho Square Business Centre London W1D 3QR AUDITORS BDO Stoy Hayward LLP Emerald House East Street Epsom Surrey KT17 1HS NOMINATED ADVISER Dowgate Capital Advisors Limited 46 Worship Street London EC2A 2EA BROKERS Midas Investment Management Limited 2nd Floor, Arthur House Chorlton Street Manchester M1 3FH SOLICITORS Martineau Johnson 35 New Bridge Street London EC4V 6BW REGISTRARS Share Registrars Limited Craven House West Street Farnham Surrey GU9 7EN Chairman's Statement 2007 was a transitional year for the Group as the mobile community business emerged from being an experimental concept to a business initiative that is starting to live up to analysts' predictions. The Group installed mDate in its first major brand, Gaydar, in the UK in August and is rolling the service out internationally to the point where there will be up to nine operational countries by September 2008. Each new country provides a new revenue stream. A number of new customers were also signed up including Whitelabel Dating and Bonefish which have subsequently 'gone live' and are earning revenues. Whilst the proving of large scale deployments has been successful the rollout and take up of the services have been slower than expected as Mobestar's customers and their end users adopt the services. During the year the Group invested heavily in developing capabilities that enable the Group to deliver its products in any country in the world using a 'cookie cutter' approach. Complementary products such as mCast, Mic and Morf were also developed in order to accelerate the growth and take up of the Group's base products mDate and mSpace. The company's response to this rapidly evolving market will yield results in the long term as Mobestar today is positioned as one of the few Group's that can offer a range of mobile solutions that both increase it's customers revenues and end users. The board is confident that the Group's investment in technological innovation will lead to attractive returns to shareholders. Since 'live running' the services the Group has gained invaluable experience in maximising revenues from each customer installation. This in turn has provided a solid platform which should enable the Group to refine its forecasts of revenues and growth. Marketplace : The Group's customers are community owners to whom it delivers mobile applications such as mDate and mCast, that will start to deliver additional revenues, increased customers and new channels of distribution (to complement their own internet services) from the first day of the installation. These targeted companies will own media, sports, dating and online personals communities which have an infinite potential for membership and revenue growth. Mobestar's applications will expand the size of these communities. Strategy : The directors consider there to be one class of business which is the provision of mobile community services. The Group aims to provide a functional suite of global mobile community applications that will be revenue generating from the date that they are installed. Mobestar creates revenues by providing their services to large branded internet communities such as Gaydar and Whitelabel Dating which allows their members to search and locate other members and communicate with pictures, text and video creating large volumes of premium traffic. Board and Staff: The Mobestar board has been significantly strengthened with the joining of Suzanne Newnes-Smith (Finance Director) and Stephen Doyle (Chief Technology Officer). 2007 also saw the consolidation and integration of Mobile Life as the Group's first acquisition. The Group has further consolidated it's team in two locations Guildford (Finance & Administration, Sales and Support) and Bristol (Development). Prospects : The sales pipeline for the Group's products is now expanding as the demand continues to grow for its products. The Group's products that have been delivered and tested in live environments have been proven and are establishing a good reputation in their respective markets. The Group is steadily signing contracts with new customers in a number of international locations such as Telefuture in the Netherlands and Bronzedot in the United States. Financial: The Group generated £63,000 turnover for the year (£18,000, 2006). The Loss before tax for the year was £2,170,000 (2006: £1,937,000). In the interim financial statements provisional fair values were attached to the acquisition of Mobile Life. The provisional valuation is no longer considered to be appropriate. The directors consider the fair value of the computer software acquired to be £343,000. At the year end the Group had cash balance of £34,000 (2007 £1,237,000). On 23 April 2008 the Group announced that it raised £550,000 through the placing of 3,989,078 new ordinary shares. The cash raised will be used to provide general working capital to the Group as well as development capital to enable the Group to accelerate its current products in new markets. Paul Robinson Chairman Directors' Report The directors present their report and the financial statement's for the year ended 31 December 2007. Mobestar Holdings plc is a public listed company and domiciled in England, and quoted on AIM. Principal activities The Group's principal activities during the year were the provision of mobile community services. Results for the year and dividends The Group loss for the year after taxation was £1,916,000 (2006: £1,937,000). The directors do not recommend the payment of a dividend (2006: £nil). Business review and future developments The directors' comments concerning the results and the future prospects of the Group are included in the Chairman's statement. Key Performance Indicators Order book and live operations During the year the Group signed contracts with three customers, of which one began live operation in 2007. Since the year end the group has signed a further five contracts with three systems now operating live. The group is in discussion with a number of potential new customers and expects to sign further contracts shortly. Events since the end of the Year On the 23 May 2008 Stephen Doyle was appointed to the board of Mobestar. On the 23 April 2008 the company raised £550,000 through the placing of 3,989,078 ordinary shares. Directors The following directors have held office since 1 January 2007: Paul Robinson Chairman Peter Richards Chief Executive Officer Leo Brand Non Executive Director Resigned 11 June 2007 Michael Wilkinson Finance Director Resigned 16 May 2007 Suzanne Newnes-Smith Finance Director Appointed 17 October 2007 Principal risks and uncertainties The Group business, strategy and market place could be affected by a number of risks and uncertainties. The Directors have set out the major risks and uncertainties below. Emerging market risk The mobile applications market place is rapidly evolving but is not yet a mature market with established business models. The directors have developed a number of business models and a range of mobile solutions to enable a rapid response to changes in this nascent market. Dependencies on management team The success of the business is dependent substantially on the Executive Directors and senior managers. To reduce this risk all key and senior personnel will be incentivised with stock options. Financial risk management The management of the business and the nature of the Group's strategy are subject to a number of risks. The Group uses a variety of financial instruments including cash, equity funding, trade receivables and trade payables that arise from its operations. These financial instruments could expose the Group to a number of financial risks. Currently no derivative products are used to manage foreign currency or interest rate risks. The main risks arising from the Group's financial instruments are as follows: Market risk Market risk encompasses currency risk, fair value interest risk and price risk. They are not considered to be a material risk to the business. Liquidity risk The Group closely monitors its cash forecasts at board meetings on a monthly basis to ensure it has sufficient liquidity for the business and takes early action if additional funds are required. Funds are provided by issues of capital, bank borrowings and from operations. Credit risk The Group's principal financial assets are bank deposits, cash and trade receivables. The credit risk associated with cash and highly liquid funds is mitigated by the selection of bankers with high credit ratings. The credit risk associated with trade receivables to date has been small due to the companies turnover. This risk will be monitored as turnover increases. Significant shareholdings Amount % Holding Peter Richards 6,000,000 15.2 Paul Robinson 5,824,000 14.7 30.1% of the Group's shares are not in Public Funds. Creditor payment policy The Group does not follow a code or standard on payment practice. Payment terms are normally agreed with individual suppliers at the time of order placement and are honoured, provided that goods and services are supplied in accordance with the contractual conditions. Any variation of payment terms is discussed and agreed with the supplier. At the year end, the Group's trade creditors were equivalent to 101 (2006: 26) days' costs. The Group had no trade creditors during the year. Research and development The Group maintains a research and development centre in Bristol which has a staff of four. In the opinion of the directors, continuity of investment in this area is essential for the maintenance of the Group's market position and for future growth. Disclosure of information to the auditors The directors in office on 16 June 2008 have confirmed that, as far as they are aware, there is no relevant audit information of which the auditors are unaware. Each of the directors have confirmed that they have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the auditor. Auditors BDO Stoy Hayward were appointed as auditors to the Group in accordance with section 385 of the Companies Act 1985. A resolution to reappoint BDO Stoy Hayward will be proposed at the next Annual General Meeting. Approved by the board of directors and signed on behalf of the board Suzanne Newnes-Smith Secretary Date: 16 June 2008 Statement of Directors' Responsibilities in Respect of the Accounts The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company, for safeguarding the assets of the Company, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a Directors' Report which complies with the requirements of the Companies Act 1985. The directors are responsible for preparing the annual report and the financial statements in accordance with the Companies Act 1985. The directors are also required to prepare financial statements for the group in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs) and the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. The directors have chosen to prepare financial statements for the company in accordance with UK Generally Accepted Accounting Practice. Group Financial Statements International Accounting Standard 1 requires that financial statements present fairly for each financial year the Group's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the preparation and presentation of financial statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. A fair presentation also requires the Directors to: -- consistently select and apply appropriate accounting policies; -- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and -- provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance. Parent Company Financial Statements Company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to: -- select suitable accounting policies and apply them consistently; -- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; -- make judgments and estimates that are reasonable and prudent; and -- state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements. Financial statements are published on the Group's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein. Report of the Independent Auditors Independent auditor's report to the shareholders of Mobestar Holdings plc We have audited the group and parent company financial statements (the ''financial statements'') of Mobestar Holdings plc for the year ended 31 December 2007 which comprise the consolidated income statement, the consolidated and company balance sheets, the consolidated cash flow statement, the consolidated statement of changes in equity and the related notes. These financial statements have been prepared under the accounting policies set out therein. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the annual report and group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and for preparing the parent company financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the statement of directors' responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in accordance with the Companies Act 1985 and whether the information given in the directors' report is consistent with those financial statements. We also report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed. We read other information contained in the annual report and consider whether it is consistent with the audited financial statements. This other information comprises only the Directors and Advisors, the Chairman's Statement and the Directors' Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Our report has been prepared pursuant to the requirements of the Companies Act 1985 and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of the Companies Act 1985 or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's and company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion: -- the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group's affairs as at 31 December 2007 and of its loss for the year then ended; -- the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the parent company's affairs as at 31 December 2007; -- the financial statements have been properly prepared in accordance with the Companies Act 1985; and -- the information given in the directors' report is consistent with the financial statements. Emphasis of matter - going concern In forming our opinion on the financial statements, which is not qualified, we have considered the adequacy of the disclosures made in note 3 to the financial statements concerning the group's ability to continue as a going concern. The group incurred a net loss of £1,916,000 during the year to 31 December 2007 and the continued operational existence of the group is dependent upon the availability of further external funding. These conditions, along with other matters disclosed in note 3 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern. BDO Stoy Hayward LLP Chartered Accountants and Registered Auditors Epsom Financial statements for the year ended 31 December 2007 Consolidated income statement 2007 2006 Note £'000 £'000 Revenue 63 18 ======= ======= Amortisation of intangible assets - (20) Impairment of intangible assets (188) - Other administrative costs (2,063) (2,007) ======= ======= Total administrative costs (2,251) (2,027) ======= ======= Operating loss (2,188) (2,009) Finance income 8 33 72 Finance costs 10 (15) - ======= ======= Net finance income 18 72 ======= ======= Loss before tax (2,170) (1,937) Income tax 11 254 - Loss for the year attributable to equity holders of the parent 4 (1,916) (1,937) ======= ======= Loss per share: Pence Pence Basic and diluted 5 (4.91) (5.21) ======= ======= All results for the Group are derived from continuing operations in both the current and preceding periods. Financial statements for the year ended 31 December 2007 Consolidated balance sheet Notes 2007 2006 £'000 £'000 ASSETS Non-current assets Intangible fixed assets 12 729 595 Property, plant and equipment 13 101 40 ------- ------- 830 635 Current assets Trade and other receivables 14 349 65 Cash and cash equivalents 34 1,237 ------- ------- 383 1,302 ------- ------- TOTAL ASSETS 1,213 1,937 ======= ======= LIABILITIES Current Liabilities Trade and other payables 15 894 456 Financial liabilities - borrowings 16 125 - ------- ------- 1,019 456 Non-current Liabilities Financial liabilities - borrowings 16 63 - Deferred tax liabilities 17 - - ------- ------- 63 - ------- ------- TOTAL LIABILITIES 1082 456 ------- ------- NET ASSETS 131 1,481 ======= ======= EQUITY Share capital 18 396 380 Share premium account 590 451 Warrants reserve 138 - Merger reserve 3,853 3,853 Share based payment reserve 20 468 195 Retained earnings (5,314) (3,398) ------- ------- TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 131 1,481 The financial statements on pages 1 to 36 were approved by the board of directors and authorised for issue on 16 June 2008 and are signed on its behalf by: Peter Richards Suzanne Newnes-Smith Chief Executive Officer Finance Director Date: 16 June 2008 Financial Statements for the year ended 31 December 2007 Consolidated statement of changes in equity Equity attributable to the equity holders of Mobestar Holdings Plc Called up Share Warrants Merger Share Retained Total Equity share premium based reserve based earnings capital payment payment reserve reserve £000's £000's £000's £000's £000's £000's £000's Balance at 1 January 2006 - - - - - (1,461) (1,461) Loss for the year to 31 December 2006 - - - - - (1,937) (1,937) ----------------------------------------------------------------------------------------------------------------------- Total recognised expense for the period - - - - - (1,937) (1,937) Acquisition in year 361 - - 3,853 - - 4,214 Employee share based compensation - - - - 195 - 195 Shares issued 19 591 - - - - 610 Fund raising costs - (140) - - - - (140) Warrants issued - - - - - - - ----------------------------------------------------------------------------------------------------------------------- Balance at 31 December 2006 380 451 - 3,853 195 (3,398) 1,481 ----------------------------------------------------------------------------------------------------------------------- Balance at 1 January 2007 380 451 - 3,853 195 (3,398) 1,481 Loss for the year to 31 December 2007 - - - - - (1,916) (1,916) ----------------------------------------------------------------------------------------------------------------------- Total recognised expense for the period - - - - - (1,916) (1,916) Employee share based compensation - - - - 273 - 273 Shares issued 16 314 - - - - 330 Fund raising costs - (37) - - - - (37) Warrants issued - (138) 138 - - - - ----------------------------------------------------------------------------------------------------------------------- Balance at 31 December 2007 396 590 138 3,853 468 (5,314) 131 ----------------------------------------------------------------------------------------------------------------------- Financial statements for the year ended 31 December 2007 Consolidated cash flow statement 2007 2006 Operating Activities Note £'000 £'000 Cash generated from operations Loss before taxation (2,170) (1,937) Adjustments for: Finance income (33) (72) Finance costs 15 - Depreciation of property, plant and equipment 65 25 Loss on disposal of property, plant and equipment 3 - Amortisation of intangible assets - 20 Impairment of intangible assets 188 - Share based payment charge 273 195 (Increase)/decrease in trade and other receivables (30) 7 Increase in trade and other payables 88 27 ---------- ----------------- Net cash used in operating activities (1,601) (1,735) ---------- ----------------- Investing Activities Purchase of intangible assets (29) (321) Purchase of property, plant and equipment (72) (37) Interest received 33 72 ---------- ----------------- Net cash used in investing activities (68) (286) ---------- ----------------- Financing activities Interest paid (15) - Proceeds from issue of ordinary share capital and warrants net of issue costs 293 1,484 Proceeds from issue of new loan 250 - Repayment of loan (62) ---------- ----------------- Net cash from financing activities 466 1,484 ---------- ----------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (1,203) (537) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,237 1,774 ---------- ----------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD 34 1,237 ========== ================= Notes to the consolidated financial statements 1 Nature of operations and general information Mobestar Holdings plc and its subsidiary's ("the Group") principal activity is the provision of mobile community services. Mobestar Holdings plc ("Mobestar") is the Group's ultimate parent company. Mobestar is incorporated and domiciled in Great Britain. The shares of Mobestar are listed on the London Stock Exchange Alternative Investment Market. The Group's registered address is Unit 46 Surrey Technology Centre, 40 Occam Road, Surrey Research Park, Guildford, Surrey GU2 7YG. 2 Basis of preparation The financial statements have been prepared in accordance with International Reporting Standards (as adopted by the EU) for the first time. The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRS are given in note 22. The consolidated report is presented in Pounds Sterling (£), which is also the functional currency of the parent company. The Group's consolidated financial statements were prepared in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) until 31 December 2006. The date of transition to IFRS was 1 January 2006. The comparative figures in respect of 2006 have been restated to reflect changes in accounting policies as a result of adoption of IFRS. The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRS are given in the reconciliation schedules, presented and explained in note 22. The accounting policies have been applied consistently throughout the Group for the purposes of preparation of this consolidated report. 3 Summary of significant accounting policies Basis of consolidation The Group's report consolidates those of the company and all of its subsidiary undertakings drawn up to 31 December 2007. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. On 12 April 2006 the shareholders of Mobestar Limited transferred their entire share holdings to Mobestar Holdings plc as part of a share exchange in consideration for the entire share capital of Mobestar Limited. This resulted in Mobestar Limited becoming a wholly owned subsidiary of Mobestar Holdings plc. The Directors consider that this is a business combination involving entities under common control and therefore falls outside the scope of IFRS 3. In accordance with IAS 8 the Directors have selected a suitable accounting policy which reflects the substance of this transaction. The Directors consider that the most appropriate guidance can be found within FRS 6 under UK GAAP. This standard states that the results and cash flows of all the combining entities are brought into the financial statements of the combined entity as if they had always been a member of the group. The results of the subsidiary are included for the whole of the year it joins the group, and corresponding figures for the previous year are also included. The difference, if any, between the nominal value of the shares issued and the nominal value of the shares received in exchange is recognised under the heading 'merger reserve' within equity. Going concern The consolidated report has been prepared on a going concern basis and the financial statements do not include the adjustments that would result if the company was unable to continue as a going concern. The directors have prepared detailed cash flow projections for the Group for the period ended 31 December 2009 which supports the decision to prepare the report on a going concern basis. The projections assume that revenue streams from the new mDate technology will increase rapidly during the course of the calendar year. Despite initial positive signs, the extent of take-up for the mDate product is unproven and hence the levels of revenue included in the projections are subject to change. Therefore there is a material uncertainty which could cast doubt on the ability of the company to continue as a going concern. The cash flow projections show that the Group will begin to generate cash in mid 2009. Additional working capital finance was raised in April 2008 of £550,000 and further external funding will be arranged when required in 2008 and the directors are confident of being able to do so. Revenue Revenue is measured by reference to the fair value of consideration received or receivable by the Group for mobile content downloads and services, and is stated net of Value Added Tax. The business solely provides wireless application software and services. Revenue is recognised upon the performance of services and the fulfilment of contractual terms. Segmental reporting A business segment is a Group of assets and operations that provide a product or service and that is subject to risks and returns that are different from other business segments. A geographic segment is a Group of assets and operations that provide a product or service within a particular economic environment and that is subject to risks and returns that are different from segments operating in different economic environments. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents. Bank overdrafts are included within the balance sheet in current financial liabilities - borrowings. Property, plant and equipment Property, plant and equipment is stated at cost or valuation, net of depreciation and any provisions for impairment. Depreciation is calculated to write down the cost less estimated residual value of all property, plant and equipment by annual instalments over their expected useful lives. The rates generally applicable are: Computer equipment 33% straight line Leasehold improvements over the term of the lease Impairment of assets For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at the cash-generating unit level. Goodwill is allocated to those cash-generating units that have arisen from business combinations and represent the lowest level within the Group at which management monitors the related cash flows. Goodwill, other individual assets or cash-generating units that include goodwill, other intangible assets with an indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. All assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Leases In accordance with IAS 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the minimum lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a finance leasing liability. The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the income statement over the period of the lease. All other leases are regarded as operating leases and the payments made under them are charged to the income statement on a straight line basis over the lease term. Lease incentives are spread over the term of the lease. Intangible assets Internally generated intangibles The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Directly attributable costs include employee costs incurred on software development along with an appropriate portion of relevant overheads. The costs of internally generated software developments are recognised as intangible assets. However, until completion of the development project, the assets are subject to annual impairment testing only. Capitalised costs are amortised over the expected product or system life commencing upon completion of the asset, and is shown within amortisation of intangible assets in the income statement. Assets acquired as part of a business combination In accordance with IFRS 3 'Business Combinations', an intangible asset acquired in a business combination is deemed to have a cost to the Group of its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will flow to the Group. Where an intangible asset might be separable, but only together with a related tangible or intangible asset, the group of assets is recognised as a single asset separately from goodwill where the individual fair values of the assets in the group are not reliably measurable. Where the individual fair value of the complimentary assets are reliably measurable, the Group recognises them as a single asset provided the individual assets have similar useful lives. Licences Licences are stated at cost less accumulated amortisation. Amortisation is calculated using the straight line method over the period of the licence agreement. Research and development Expenditure on research is recognised as an expense in the period in which it is incurred. Development costs incurred are capitalised when all the following conditions are satisfied: -- completion of the intangible asset is technically feasible so that it will be available for use or sale; -- the Group intends to complete the intangible asset and use or sell it; -- the Group has the ability to use or sell the intangible asset; -- the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits; -- there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and -- the expenditure attributable to the intangible asset during its development can be measured reliably. Development costs not meeting the criteria for capitalisation are expensed as incurred. Current and deferred tax The tax expense represents the sum of the current tax expense and deferred tax expense. Current tax is the tax currently payable based on taxable profit for the year. Taxable profit differs from 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 by using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity. Foreign currencies Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Non-monetary items that are measured at historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in the profit or loss in the period in which they arise. Financial instruments Financial assets and liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. Financial liabilities and equity Financial liabilities and equity 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. Trade receivables and trade payables Trade receivables and payables are initially recognised at fair value and thereafter at amortised cost using the effective interest rate method less any provision for impairment. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and at bank and other short-term deposits held by the Group with maturities of less than three months. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at fair value, net of direct issue costs and subsequently at amortised cost. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they relate. Equity instruments Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. Share-based payment Equity settled share-based payment All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 January 2006 are recognised in the report. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions. All equity-settled share-based payments are ultimately recognised as an expense in the income statement with a corresponding credit to "share based payment reserve". If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium. Equity Equity comprises the following: -- "Share capital" represents the nominal value of equity shares in issue. -- "Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue. -- "Merger reserve" represents the difference between the nominal value of the shares issued plus the fair value of any other consideration given, and the nominal value of the shares received in exchange. -- "Share based payment reserve" represents equity-settled share-based employee remuneration until such share options are exercised. -- "Retained earnings" represents retained profits. -- 'Warranty reserve' represents the value of the warrants to the warrant holders until such warrants are excised. Provisions, contingent liabilities and contingent assets Provisions for dilapidations, onerous leases and deemed employment exposures are recognised when there is a legal or constructive obligation as a result of past events, where it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Adoption of international standards Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group's accounting periods beginning on or after 1 June 2008 or later periods and which the Group has decided not to adopt early. These were: -- IAS 1, Presentation of financial statements: A revised Presentation (effective for accounting periods beginning on or after 1 January 2009). The revised IAS 1 is still to be endorsed by the EU. -- IFRS2, Share Based Payments (amended) (effective for accounting periods beginning on or after 1 January 2009). The amended IFRS2 is still to be endorsed by the EU. -- IAS 32, Financial Instruments (amended) (effective for accounting periods beginning on or after 1 January 2009). The revised IAS 32 is still to be endorsed by the EU. -- IFRS3 Business Combinations (amended) (effective for accounting periods beginning on or after 1 July 2009). The amended IFRS3 is still to be endorsed by the EU. -- IAS 27 Consolidated and Separate Financial Statements (amended) (effective for accounting periods beginning on or after 1 July 2009). The amended IAS 27 is still to be endorsed by the EU. -- IFRS 8. Operating Segments (effective for accounting periods beginning on or after 1 January 2009). -- IAS 23 Borrowing Costs (revised) (effective for accounting periods beginning on or after 1 January 2009). The revised IAS 23 is still to be endorsed by the EU. -- IFRIC 11, IFRS 2 - Group and Treasury Share Transactions (effective for accounting periods beginning on or after 1 March 2007). -- IFRIC 12, Service Concession Arrangements (effective for accounting periods beginning on or after 1 January 2008). -- IFRIC 12 is still to be endorsed by the EU. -- IFRIC 13, Customer Loyalty Programmes (effective for accounting periods beginning on or after 1 July 2008). IFRIC 13 is still to be endorsed by the EU. -- IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective for accounting periods beginning on or after 1 January 2008). IFRIC 14 is still to be endorsed by the EU. The directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group's results in the period of initial application. Critical accounting estimates and areas of judgement The preparation of the consolidated report under IFRS requires the Group to make estimates and assumptions that affect the application of policies and reported amounts. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are discussed below. Intangible assets The Group recognises intangible assets acquired as part of business combinations at fair value at the date of acquisition. The determination of these fair values is based upon management's judgement and includes assumptions on the timing and amount of future incremental cash flows generated by the assets and selection of an appropriate cost of capital. Furthermore, management must estimate the expected useful lives of intangible assets and charge amortisation on these assets accordingly. Impairment of property, plant and equipment and intangible assets Property, plant and equipment and intangible assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. When a review for impairment is conducted, the recoverable amount is determined based on value in use calculations prepared on the basis of management's assumptions and estimates. Depreciation of property, plant and equipment Depreciation is provided so as to write down the assets to their residual values over their estimated useful lives as set out above. The selection of these estimated lives requires the exercise of management judgement. Share based payment The directors have made numerous judgements regarding the calculation of the share based payment expense in the accounts, including, the expected volatility of the company's shares, the share price to be used in the calculation and the most appropriate risk free rate to use. In making these judgements, the directors considered the share price volatility of a number of the company's competitors and current interest rates. The actual figures used in the calculation are shown in note 20. 4 Loss from operations Loss from operations has been arrived at after charging. Year ended 31 Year ended 31 December 2007 December 2006 £'000 £'000 Net foreign exchange losses 1 - Research and development costs 514 39 Depreciation of owned assets 65 25 Amortisation - 20 Loss on disposal of fixed assets 3 - Staff costs (see note 7) 1,043 697 Auditors' remuneration Audit of the parent company and consolidated financial statements 7 10 Audit of the subsidiary company financial statements 7 9 Taxation - 15 Other services pursuant to such legislation - 56 All other services - 7 5 Earnings per share The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the average number of shares in issue during the year. Share options granted to employees are considered anti-dilutive. Reconciliation of the earnings and weighted average of shares used in the calculations are set out below. Year to 31 Year to 31 December 2007 December 2006 Loss after tax (£'000) (1,916) (1,937) Weighted average number of shares 39,022,323 37,197,307 Basic and diluted earnings per share (pence) (4.91) (5.21) 6 Dividends The directors do not propose the payment of a dividend for the period. 7 Staff costs and directors emoluments The average monthly number of employees (including executive directors) for the year for each of the Group's principal divisions was as follows: Year ended 31 Year ended 31 December 2007 December 2006 Number Number Research and development 6 3 Sales and support 5 3 Finance and administration 3 3 ----------------- -------------------------- Total 14 9 ================= ========================== The aggregate remuneration for the above persons comprised Year ended 31 Year ended 31 December 2007 December 2006 £'000 £'000 Wages and salaries 736 464 Social security costs 69 54 ----------------- -------------------------- 805 518 Share based payment 238 179 ----------------- -------------------------- 1,043 697 ================= ========================== Directors emoluments Year ended 31 Year ended 31 December 2007 December £'000 2006 £'000 Salaries and consultancy payments 201 216 Bonuses - 100 ----------------- -------------------------- 201 316 Share based payments 43 145 ----------------- -------------------------- 244 461 ================= ========================== Highest paid Director The emoluments of the highest paid director who served in the year were as follows: 2007 2006 £ £ Salary 85 97 Share based payment 59 130 ----------------- -------------------------- 144 227 ================= ========================== 8 Finance income Year ended 31 Year ended 31 December 2007 December 2006 £'000 £'000 Interest on bank deposits 33 72 ================= ========================== 9 Finance Costs Year ended 31 Year ended 31 December 2007 December 2006 £'000 £'000 Interest on bank overdrafts and loans 14 - Foreign exchange gains and losses 1 - ----------------- -------------------------- Total 15 - ================= ========================== 10 Subsidiaries Details of the Company's subsidiaries at 31 December 2007 are as follows: Name of subsidiary Place of Proportion of Proportion of Principal activity incorporation ownership voting power held % (or interest % registration) and operation Mobestar Limited UK 100 100 Mobile community services 11 Taxation Year ended 31 Year ended 31 December 2007 December 2006 £'000 £'000 Current year tax credit 118 - Tax credit relating to prior years 136 - ---------------- --------------------------- 254 - ================ =========================== The charge for the year can be reconciled to the profit per the income statement as follows: Year ended 31 Year ended 31 December 2007 December 2006 £'000 £'000 ------------------ -------------------------- Loss before tax (2,170) (1,937) ------------------ -------------------------- Tax at the domestic income tax rate 30% (2006: - 30%) (651) (581) Tax effect of expenses that are not deductible in determining taxable profit 86 156 Excess of depreciation over capital allowances (2) (56) Short term timing differences (1) 1 Schedule 20 FA2000 R&D expenditure (74) - Surrender of tax losses 223 - Unutilised losses carried forward 419 480 R&D tax reclaim for prior years 136 - R&D tax reclaim for 2007 118 - ------------------ -------------------------- Tax credit for the year 254 - ================== ========================== The Group has approximately £3.7m trading losses to offset against future trading profits. At this stage no deferred tax asset has been recognised. For details please see note 17. The deferred tax asset has not been recognised in the accounts due to the uncertainty surrounding its recoverability. The deferred tax asset can be recovered against suitable future trading profits. Intangible fixed assets Software 12 Licences development Total £'000 £'000 £'000 Cost At 1 January 2007 25 595 620 Additions - 36 36 Business combination - 343 343 Reclassification of assets - (57) (57) Disposals (25) - (25) ------------ ------------------- -------------------------- At 31 December 2007 - 917 917 ------------ ------------------- -------------------------- Amortisation At 1 January 2007 25 - 25 Impairment - 188 188 Charge for the year - - - Disposals (25) - (25) ------------ ------------------- -------------------------- At 31 December 2007 - 188 188 ------------ ------------------- -------------------------- Net book value At 31 December 2007 - 729 729 ============ =================== ========================== Cost At 1 January 2006 25 81 106 Additions - 514 514 ------------ ------------------- -------------------------- At 31 December 2006 25 595 620 ------------ ------------------- -------------------------- Amortisation At 1 January 2006 5 - 5 Charge for the year 20 - 20 ------------ ------------------- -------------------------- At 31 December 2006 25 - 25 ------------ ------------------- -------------------------- Net book value At 31 December 2006 - 595 595 ============ =================== ========================== In the Interim financial statements a provisional impairment review of the software development costs lead to an impairment charge of £758,000. The directors have undertaken a comprehensive impairment review of the software development costs and consider the criteria the provisional impairment review was based on to no longer be appropriate. The impairment review has been reversed. Property Plant and Equipment Leasehold Computer 13 Improvements equipment Total £'000 £'000 £'000 Cost At 1 January 2007 10 66 76 Additions - 79 79 Reclassification of assets - 57 57 Disposals - (11) (11) ------------ ------------- ---------------------- At 31 December 2007 10 191 201 ------------ ------------- ---------------------- Depreciation At 1 January 2007 5 31 36 Charge for the year 5 60 65 Disposals - (1) (1) ------------ ------------- ---------------------- At 31 December 2007 10 90 100 ------------ ------------- ---------------------- Net book value At 31 December 2007 - 101 101 ============ ============= ====================== Cost At 1 January 2006 - 39 39 Additions 10 27 37 ------------ ------------- ---------------------- At 31 December 2006 10 66 76 ------------ ------------- ---------------------- Depreciation At 1 January 2006 - 11 11 Charge for the year 5 20 25 ------------ ------------- ---------------------- At 31 December 2006 5 31 36 ------------ ------------- ---------------------- Net book value At 31 December 2006 5 35 40 14 Trade and other receivables 2007 2006 £'000 £'000 Trade receivables 34 - Other receivables 302 43 Prepayments and accrued income 13 22 ---------- ---------------------------------------------------- 349 65 ========== ==================================================== An allowance has been made for estimated irrecoverable amounts from the sale of goods of £NIL (2006: £NIL). This allowance has been based on the knowledge of the financial circumstances of individual debtors at the balance sheet date. At 31 December 2007 £336,000 of the receivables were denominated in sterling (2006: £NIL) The directors consider that the carrying amount of trade and other receivables approximates their fair value. In addition, some of the unimpaired trade receivables are past due as at the reporting date. The age of financial assets past due but not impaired is as follows: 2007 2006 £'000 £'000 Not more than 1 month overdue 30 - ====== =================================================== 15 Trade and other payables 2007 2006 £'000 £'000 Trade payables 264 132 Taxation and social security 146 95 Other payables 51 1 Accruals and deferred income 83 228 Deferred consideration 350 - ------- ----------------- 894 456 ======= ================= The directors consider that the carrying amount of trade and other payables approximates their fair value. In December 2007 the directors agreed that the acquisition of the trade and assets of Mobile Life in March 2007 be satisfied by the issue of new shares in Mobestar Holdings Plc rather than by cash as initially agreed. £175,000 of the deferred consideration above was satisfied by the issue of 1,346,154 shares at 13p each on 23 April 2008. 16 Bank loans and overdrafts 2007 2006 £'000 £'000 Bank overdrafts - 2 Bank loans 188 - --------- ----------------- 188 2 ========= ================= The borrowings are repayable as follows: On demand or within a year 125 2 In the second year 63 - In the third to fifth years inclusive - - After five years - - --------- ----------------- 188 2 Less: amounts due for settlement within 12 months 125 2 --------- ----------------- Amounts due for settlement after 12 months 63 - ========= ================= Bank loans of £250,000 (2006:£NIL) were arranged during the year at variable interest rates. The interest rate was 3% above Natwest's base rate and the loan is repayable over 2 years in equal monthly instalments. The director's estimate that the fair value of the Group's borrowings is equivalent to their carry value. The other principal features of the Group's borrowings are as follows: -- The Group has a 2 year loan of £250,000 (2006:£NIL) repayable by equal monthly instalments commencing June 2007 and secured by a charge over the Group's Software IPR. 17 Deferred tax 2007 2006 £'000 £'000 Analysis for financial reporting purposes: Unrecognised deferred tax assets at 31 December 1,390 838 =========== ========================== For details on the treatment of the deferred tax asset please see note 11 The movement in the year in the Group's net deferred tax position was as follows: 2007 2006 £'000 £'000 At 1 January 838 416 Tax losses for the year 550 422 Adjustment to prior year tax charge 2 - ----------- -------------------------- At 31 December 1,390 838 =========== ========================== 18 Share capital 2007 2006 2007 2006 number number £'000 £'000 of shares of shares '000 '000 Authorised 100,000,000 ordinary shares of 1p each 1,000 1,000 1 redeemable ordinary share of £50,000 50 50 ======== ======== Issued and fully paid As at 1 January 37,951 - 380 - Share for share exchange - 36,048 - 361 Issue of share capital 1,650 1,903 16 19 --------------- ------------ -------- -------- As at 31 December 39,601 37,951 396 380 =============== ============ ======== ======== The Company had one class of ordinary shares which carry no right to fixed income. During the year the Group issued 1,650,000 shares (2006: 1,902,778 shares) for £330,000 (2006: £610,278) to raise working capital. 19 Segmental Reporting The Directors consider there to be one class of business, being the provision of mobile community services. The Group's operations are all located in the UK. The following table provides an analysis of the Group's sales by geography based upon location of the Group's customers. Year Ended Year Ended 31 December 2007 31 December 2006 £'000 £'000 UK 55 18 Germany 7 - Spain 1 - ------------------------- --------------------------------- 63 18 ========================= ================================= 20 Share based payments Share option schemes The Group plan provides for a grant price equal to the average quoted market price of the Group shares on the date of grant. The vesting period is generally up to 3 years. If options remain unexercised after a period of 10 years from the date of grant, the options expire. Furthermore, options are forfeited if the employee leaves the Group before the options vest. 2007 2006 Options Weighted Options Weighted average average exercise exercise price (£) price (£) Outstanding at 1 January 2,555,000 0.63 - - Granted during the year 1,675,000 0.36 2,655,000 0.62 Forfeited during the year 1,100,000 0.66 100,000 0.48 Exercised during the year - - - - Expired during the year - - - - ---------------------------------------------------------------------------------- Outstanding at 31 December 3,130,000 0.47 2,555,000 0.63 ---------------------------------------------------------------------------------- Exercisable at 31 December 425,000 0.35 NIL - ---------------------------------------------------------------------------------- The options outstanding at 31 December 2007 had an exercise price between £1 and 20p. The inputs into the Binomial model are as follows: 2007 2006 Expected volatility 51.7% 40% Expected life 5 years 5 years Risk free rate 5.48%- 5.52% 4.51% Expected dividends - - Expected volatility was determined by calculating the historical volatility of Mobile Telecommunications Companies that provide leisure based activities for mobiles. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. The group recognised total expenses of £273,000 (2006: £195,000) relating to equity - settled share based payment transactions. The weighted average remaining contracted life of unexercised options as at 31 December 2007 is 11.0 years (31 December 2006 11.2 years). 21 Acquisition of trade and assets On 12 April 2007, Mobestar Holdings plc acquired 100 per cent of the trade and assets of Mobile Life Consulting Limited ("Mobile Life") for a deferred consideration of £350,000 cash. This transaction has been accounted for by the purchase method of accounting. Subsequently it was agreed that the consideration be satisfied by an issue of 1p ordinary shares in Mobestar Holdings plc. The deferred consideration has been shown under Trade and other payables note 15. The directors have reviewed the provisional fair values attached to the acquisition in the interim financial statements. The provisional valuation is no longer considered to be appropriate. The directors consider the fair value of the computer software acquired to be £343,000. Net assets acquired: Fair value 2007 £'000 Property, plant and equipment 7 Software 343 ----------------- 350 Satisfied by: ----------------- Deferred consideration 350 ----------------- The assets purchased have been imbedded into the Company's mDate product. It is not appropriate to separately track revenue and profit from the acquisition of the trade and assets of Mobile Life. 22 Explanation of transition to IFRS This is the first year that the Group has presented its financial statements under IFRS. The following disclosures are required in the year of transition. The last financial statements under UK GAAP were for the year ended 31 December 2006 and the date of transition to IFRS was therefore 1 January 2006. Acquisitions On transition to IFRS, the Group has chosen not to restate acquisitions occurring prior to the date of transition. An explanation of how the transition from UK GAAP to IFRS has affected the Group's financial position, financial performance and cash flows is set out below. IFRS 1 permits companies adopting IFRS for the first time to take certain exemptions from the full requirements of IFRS in the transition period. This report has been prepared on the basis that the Group has not adopted any of the exemptions available. Reconciliation of equity 1 January 2006 31 December 2006 £'000 £'000 Net assets and equity under UK GAAP 1,825 1,481 Adjustments (after taxation) IAS 19 - 'Employee Benefits' a - - ------------------- --------------------- Net assets and equity under IFRS Reconciliation of profit 1,825 1,481 =================== ===================== Reconciliation of loss Year ended Note 31 December 2006 £'000 Loss under UK GAAP (1,937) Adjustments (before taxation) IAS 19 - 'Employee Benefits' a - --------------------- Loss under IFRS (1,937) ===================== Notes to the reconciliations a. Previously, no provision was made for holiday pay. Under IAS 19 - 'Employee Benefits' the expected cost of compensated short-term absences (e.g. holidays) should be recognised when employees render the service that increases their entitlement. As a result, an accrual has been made for holidays earned but not taken. At the year end the accrual is £NIL. b. Application of IFRS has resulted in reclassification of certain items in the cash flow statement as follows: (i) under UK GAAP, payments to acquire property, plant and equipment and intangible assets were classified as part of 'Capital expenditure'. Under IFRS, payments to acquire property, plant and equipment have been classified as part of 'Investing activities.' (ii) under UK GAAP interest received was classified as part of 'Returns on investments'. Under IFRS, interest received has been classified as part of 'Investing activities'. There are no other material differences between the cash flow statement presented under IFRS and the cash flow statement presented under UK GAAP. 23 Financial Instruments - risk management The Group's principal financial instruments are trade receivables, other receivables, trade payables, other payables, deferred consideration, bank loans and cash. The main purpose of these financial instruments is to finance the Group's ongoing operational requirements. The Directors are responsible for considering all areas of risk that may affect the operations of the Group and for setting policies designed to minimise the impact the financial risk may have on the business. The major financial risks faced by the Group are interest rate risk, credit risk and liquidity risk. The Group does not trade in financial instruments. Policies for the management of these risks are shown below. a) Interest rate risk Cash balances in excess of immediate needs are placed on short-term deposits. The Group arranged a bank loan of £250,000 in the year (note 16) and repayments are made in accordance with the loan terms. Interest charged on the loan is based on 3% above bank base rates. The effect of a 1% movement in the interest rate would impact finance charges in the Income statement by £1,000 should the profile of use of facilities be similar to 2007. b) Credit risk The Group's principal financial assets are trade receivables, bank balances and cash. The main credit risk faced is attributable to the trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables of £nil (2007:£nil) which are made where there are circumstances which based on experience are evidence of a likely reduction in the recoverability of the receivable. For customers the credit risk is assessed using a number of methods and payment terms are tightened as appropriate. The Group does not prepare any formal analysis of the credit rating of its customers. At the balance sheet date 96% of total trade receivables were concentrated with two of the Group's customers (2006: nil). The balance was spread over 4 (2006: nil) customers. An analysis of ageing of trade receivables and provisions is given in note 14. c) Liquidity risk Customer payment terms can vary from contract to contract and can involve extended periods of time before invoices are raised. Regular cash flow forecasts are prepared for the Board which, together with information on cash balances, allows the Group to ensure that it will have sufficient cash to meet its liabilities when they become due. The treasury function for the Group is managed centrally. d) Fair values The directors consider that the fair value of the Group's financial assets and liabilities equate to their carrying values. e) Categories of financial assets and liabilities No financial assets nor liabilities are held for trading. Loans and receivables 2007 2006 £000 £000 Financial assets: Cash and cash equivalents 34 1,237 Trade and other receivables (current) 336 43 ------------------- ------------------ 370 1,280 =================== ================== Measured at amortised cost 2007 2006 £000 £000 Financial liabilities: Trade and other payables (current) 315 133 Deferred consideration (current) 350 - Borrowings (ageing see note 16) 188 2 853 135 h) Capital The Group considers its capital to comprise its ordinary share capital, share premium, warrants reserve, share based payment reserve, merger and accumulated retained earnings. The Directors when managing the Group's capital ensure that it retains its ability to provide a consistent return for its equity shareholders through a combination of capital growth and distributions. The Group seeks to maintain a gearing ratio that balances risks and returns at an acceptable level and to maintain a sufficient funding base to enable the Group to meets its working capital and strategic investment needs. Company balance sheet as at 31 December 2007 Notes 2007 2006 £'000 £'000 --------------------------------------------------------------------------- ------ --------------- -------------------- Fixed assets --------------------------------------------------------------------------- ------ --------------- -------------------- Investments 2 360 360 --------------------------------------------------------------------------- ------ --------------- -------------------- --------------------------------------------------------------------------- ------ --------------- -------------------- Other Debtors 3 302 - --------------------------------------------------------------------------- ------ --------------- -------------------- --------------------------------------------------------------------------- ------ --------------- -------------------- Creditors: amounts falling due within one year 4 (583) (233) --------------------------------------------------------------------------- ------ --------------- -------------------- --------------------------------------------------------------------------- ------ --------------- -------------------- Net current assets/ (liabilities) (281) (233) --------------------------------------------------------------------------- ------ --------------- -------------------- --------------------------------------------------------------------------- ------ --------------- -------------------- Net assets 79 127 --------------------------------------------------------------------------- ------ --------------- -------------------- --------------------------------------------------------------------------- ------ --------------- -------------------- Capital and reserves --------------------------------------------------------------------------- ------ --------------- -------------------- Called up share capital 5 396 380 --------------------------------------------------------------------------- ------ --------------- -------------------- Share premium account 7 728 451 --------------------------------------------------------------------------- ------ --------------- -------------------- Share based payment reserve 7 468 195 --------------------------------------------------------------------------- ------ --------------- -------------------- Profit and loss account 7 (1,513) (899) --------------------------------------------------------------------------- ------ --------------- -------------------- --------------------------------------------------------------------------- ------ --------------- -------------------- Shareholders' funds 79 127 --------------------------------------------------------------------------- ------ =============== ==================== The accounts were approved by the Board of Directors and authorised for issue on 16 June 2008 and are signed on its behalf by: Peter Richards Suzanne Newnes-Smith Chief Executive Officer Finance Director Date 16 June 2008 Notes to the company financial statements 1 Basis of preparation The Company (Mobestar Holdings plc) financial statements have been prepared in accordance with the Companies Act 1985 and UK GAAP. The financial statements have been prepared under the historical cost convention. The principle accounting policies have been set out below. The Company has not presented a profit and loss account in accordance with the exemption under Section 230 of the Companies Act 1985. The Company has taken the exemption not to prepare a cash flow statement under the terms of FRS1 (Revised 1996) Cash Flow Statements. The accounting policies have been applied consistently to all the years presented. Investments in subsidiaries Investments in subsidiaries are stated in the Company's balance sheet less any provision for impairment. Taxation Corporation tax payable is provided on taxable profits at prevailing rates. 2 Investments - Company Investment in subsidiary 2007 2006 £'000 £'000 Cost On incorporation 360 360 ------------------ ---------------------------------- Investments in subsidiary substantially comprise: Mobestar Limited 100% owned by Mobestar Holdings plc 3 Debtors 2007 2006 £'000 £'000 Other debtors 302 - ===================== ===================== 4 Creditors: amounts falling due within one year 2007 2006 £'000 £'000 Amounts owed to subsidiary 233 233 Deferred consideration 350 - ===================== ===================== 583 233 ===================== ===================== Notes to the company financial statements (continued) 5 Share capital 2007 2006 £'000 £'000 Authorised 100,000,000 ordinary shares of 1p each 1,000 1,000 1 redeemable ordinary share of £50,000 50 50 --------------- -------------------------- Allotted, called up and fully paid 39,601,490 (2006: 37,951,490) ordinary shares of 1p each 396 380 --------------- -------------------------- Details of shares issued in the year are given in note 18 of the consolidated financial statements. Options Enterprise Management Incentive Scheme On 19 April 2006 options were granted to six employees to acquire in total a maximum of 1,300,000 ordinary shares of £0.01 each, exercisable between 19 April 2006 and 19 April 2016 at an exercise price of £1.00 per share. On 23 June 2006 options were granted to four employees to acquire in total a maximum of 375,000 ordinary shares of £0.01 each, exercisable between 23 June 2006 and 23 June 2016 at an exercise price of £0.31 per share. Everyman Scheme On 2 August 2006 options were granted to two consultants of the company to acquire in total a maximum of 380,000 ordinary shares of £0.01 each, exercisable between 2 August 2006 and 2 August 2016 at an exercise price of £0.25 per share. On 2 August 2006 options were granted to two consultants to acquire in total a maximum of 500,000 ordinary shares of £0.01 each, exercisable between 2 August 2006 and 2 August 2016 at an exercise price of £0.20 per share. The options are non transferable and will lapse upon the occasion of an assignment, charge, disposal or other dealing with the rights conveyed by it in any other circumstances. 6 Share-based payments In compliance with FRS 20 - 'Share based payment', the Company has attributed a fair value to the issue of the above options and has used the Black-Scholes calculation method to calculate this fair value. The fair value of these options is being charged to the profit and loss account over the vesting period, which is a two year period from the date of grant. Details of the share options outstanding during the year ended 31 December 2007 are as follows: Number of Weighted share options Average Exercise Price £ Outstanding at 1 January 2007 2,555,000 0.63 Granted during the year 1,675,000 0.36 Forfeited during the year 1,100,000 0.66 ------------------------ ------------------------------------ 3,130,000 0.47 Outstanding at 31 December 2007 ------------------------ ------------------------------------ 425,000 0.35 Exercisable at 31 December 2007 ------------------------ ------------------------------------ The fair value of options granted as at 31 December 2007 is £607,000. For details of share based payment please see note 21 of the Group financial statements. 7 Reserves Share Profit and Share based premium loss account payment reserve £'000 £'000 £'000 At 1 January 2007 451 (899) 195 Loss for the year - (614) - Share based payment charge - - 273 Premium on share issued 277 - - ---------------- ----------------------- --------------------- 728 (1,513) 468 ================ ======================= ===================== 8 Staff costs The only staff costs incurred by the company related to its directors. Details of directors' emoluments can be found in note 7 to the consolidated financial statements. Peter Richards, Chief Executive Officer Mobestar Holdings PLC Tel. 08454 900 565 Liam Murray, Nominated Adviser Dowgate Capital Advisers Limited Tel. 0207 492 4777
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