1st May 2008 07:01
Synchronica PLC01 May 2008 1 May 2008 Synchronica plc ("Synchronica" or "the Company") Final Results for the Year Ended 31 December 2007 Synchronica, the international mobile e-mail and synchronisation solutionsprovider, is pleased to announce its preliminary results for the year to 31December 2007. Financial Highlights • Results in line with market expectations • Revenues more than doubled to £2.3m (2006: £1.1m) • Loss before tax significantly reduced to £3.0m (2006: £6.7m) due to tight cost control • Diluted loss per share 4.4p reduced from 18.3p • Raised £3.5m in March 2007 to support global expansion Operational Highlights • Break-through contract win with Sun Microsystems validated the business model • Successfully launched Mobile Gateway in high growth and emerging markets • Further multiple licensing agreements signed including subsidiary of pan-African operator group and SmartTrust • Acquired all intellectual property assets and license contracts of GoodServer, a provider of e-mail enablement and integration technologies • New financial year has started strongly with two more important deals signed with Brightstar Corp, a global leader in distribution and supply chain solutions for the mobile industry and with one of the world's top five IT services companies Commenting on progress in 2007, Synchronica CEO Carsten Brinkschulte said: "Weare delighted with the Company's strong progress in 2007 and in particular withour break-through licensing agreement with Sun Microsystems. Synchronica willnow focus on the compelling opportunity to make mobile phones - especially inbooming emerging markets where fixed line usage is either expensive orunavailable - the primary means of accessing the email. The Company has seen thefirst deals in these markets and we are currently working hard towards furthercontract wins. 2008 sees us with a healthy and growing sales pipeline and welook forward to building on our achievements during 2008 with confidence andoptimism." Enquiries: Synchronica plcCarsten Brinkschulte, CEO +44 (0) 7977 256 406Angus Dent, CFO +44 (0) 1892 552 760 +44 (0) 7977 256 347 Corfin CommunicationsNeil Thapar, William Cullum, Alexis +44 (0) 20 7977 0020Gore FinnCapCharlie Cunningham +44 (0) 20 3207 3213 Chairman's Statement 2007 was an important year for Synchronica. We doubled our revenue from 2006 to2007 and, coupled with careful cost control, substantially reduced our losses.Such a statement, however, hardly does justice to the work that the team herehas done and the success we have achieved. 2007 saw our first - and verysignificant - agreement with a major global supplier of computing networksolutions. This is a clear endorsement of the strengths and quality ofSynchronica's technology and demonstrates our ability to do business withinternational tier one players. We have worked extremely hard since 2006 ontransforming and focussing the company and our efforts are now being rewarded.Our business model was validated in 2007 and we anticipate that 2008 will seefurther progress towards profitability. Ground-breaking Contract Our agreement with Sun Microsystems Inc (Sun) was a defining event for us in2007. After several months of discussion we signed an agreement in August, whichwas broader in scope than we had originally envisaged. During the autumn wedelivered the software in accordance with a detailed and exacting specificationand in December, Sun accepted the first major version of the software generatingUS$1.8m of license revenue. We are proud of what we have achieved with Sun andlook forward to a long and fruitful relationship. We are now working closelywith them and are building on our relationship. We have further revenuecontracted with them which will be recognisable in 2008. Emerging Markets We have often spoken about our substantial potential in emerging and developingmarkets. As a first validation of this strategy, in November 2007 we deliveredSynchronica Mobile Gateway to a subsidiary of a pan-African operator groupgenerating $400k license revenue. This shows the demand for our technology fromemerging markets and demonstrates that customers are willing to pay significantlicense fees. In emerging markets, we believe that the most efficient way toaccess the Internet will be via the mobile phone and Synchronica's MobileGateway is a key enabler delivering email, one of the most popular Internetapplications, to mobile phones. Mobile Gateway is better suited for thesemarkets than the products provided by most of our competitors because it workson mass-market, low-cost devices. In Africa, Mobile Gateway is now live and thefeedback so far is very positive. We anticipate being able to replicate thistransaction in other emerging markets during 2008 and beyond. Channels 2008 got off to a flying start, we signed two reseller agreements, one withBrightstar and one with a major systems integrator, greatly expanding the reachof our sales, within the first few weeks of the year. Both resellers are alreadyfeeding us leads and we expect business from both this year. Funding We strengthened our balance sheet and cash resources in 2007 and early in 2008. In March 2007, we successfully raised £3.3m gross by placing 43.5million shares. In January 2008 we placed 30 million shares raising an additional £1.9m and entered into a swap agreement under which much of the benefit in any uplift in the value of our shares would accrue to the company. In February 2008, we placed a further 28.6million shares raising some £2 million. The funds raised will be used for working capital and in particular to expand Synchronica's sales and marketing capabilities in emerging markets in order to take advantage of the outstanding opportunity presented by fundamental changes in the capabilities of mobile telephony. The latest placing expands the Company's investor base, as two institutions new to Synchronica have invested. Additionally, our management team further demonstrated its commitment to the Synchronica story by deepening its investment in the Company. Carsten Brinkschulte, Synchronica's CEO, subscribed for 285,714 shares as part of the Placing, bringing his personal holding to 762,136 shares, representing 0.52 % of the issued share capital on admission of the Placing Shares. Directors also purchased shares in January and February 2008. As a Board, we believe in the alignment of directors' and shareholders' interests. Changes to the Board I was very pleased to be asked to join the Board in April 2007 and delighted tobe elected Chairman in August 2007. In January 2008 Robert Mahalski wasappointed to the Board as a Non-Executive Director and I and my fellow directorslook forward to working closely with him. The change of Non-Executive Directorson the Board during the year gives us the advantage of fresh leadership andideas. John Gunn, David Wickham and Stephen Sadler all left under the pressure of otherbusiness commitments, and the company expresses its thanks for theircontribution. Financial Review Synchronica's Interim Report and Accounts 2007 was our first based onInternational Financial Reporting Standards ("IFRS"). This Preliminary Report isour first annual report based on IFRS. Previously we reported in accordance withUK GAAP. The impact of this change, which is small, is explained in the notes tothe financial statements. I am pleased to report that with revenue of £2.3m for the year, more than doublethat for 2006, and a much reduced loss before tax of £3.0m, down from a lossbefore tax of £7.0m in 2006, our financial results meet market expectations. Outlook 2007 was an important year for Synchronica and 2008 will be no less important.Our principal products, Mobile Gateway and Mobile Backup can now be used on thevast majority of mobile phones in the world today - currently more than 3.75billion devices. What we have to do in 2008 is to start to capitalise on thevast opportunity. Our recent supply agreements on the one hand and fund raisingson the other mean that we are beginning to get the profile, recognition andcapacity to do this. Your Board believes that investors in Synchronica have anexceptional opportunity in front of them - and your Board has plans in place tomake the most of this over the next 18 months. We believe we can capture asignificant market share in mobile email and move towards our target ofprofitability with the ongoing support of our shareholders. David MasonChairman Chief Executive's Report 2007 in Review During 2007, we further refined our product strategy and focused completely onour award-winning push email and synchronization products Mobile Gateway andMobile Backup. We invested into the development of both products and addedunique features in order to better meet customer demand and improveSynchronica's competitive position. Both products have a ring-fenced developmentteam associated and a well defined product development roadmap which was createdas a result of thorough analysis of the competitive situation and customerrequirements. Throughout 2007, we continued to increase the visibility of the company in ourtarget market with regular briefings of industry analysts, very effective PRcampaigns and participation in relevant trade shows. As a result, we have builta strong pipeline of prospects for our core products and we are in the processof converting them into customers. We have seen our first significant customer wins, demonstrated traction in themarketplace and validated the acceptance of our core products in the targetmarket. I am pleased to report a much improved financial result in 2007 comparedto the previous year. We were able to more than double our revenues in 2007while at the same time reducing our costs and met market expectations. Break-Through Contract In August, we announced an OEM license agreement with Sun Microsystems Inclicensing the SyncML synchronization components of the Synchronica MobileGateway product. It took us longer than expected to close this contract, but thescope of the agreement is larger than originally anticipated. This deal is abreak-through for Synchronica in several ways: - It is a bold validation of the quality of our product and recognition of Synchronica as a leading technology vendor; Sun Microsystems, one of the world's largest IT vendors and inventor of the popular JAVA programming language, decided to license Synchronica's synchronization technology and make it an integral part of several Sun products. - With initial license revenues of US$1.8m, the Sun contract has also contributed substantially to Synchronica's revenues in 2007. - Synchronica's technology will become a Sun-branded product and is to be offered in combination with the Sun Java Communications Suite, an infrastructure software product competing with Microsoft Exchange, with its main market in the service provider sector. The addressable market is substantial; the installed base exceeds 240 million worldwide and continues to grow. Under the terms of the contract Synchronica will receive annual licence revenues for users of the SyncML technology in addition to support fees and further revenues from enhancement requests. Outlook In 2008, Synchronica's focus will be on marketing and further development of ourflagship product Mobile Gateway complimented by its companion product MobileBackup. We believe that both products are well positioned in the competitivemarketplace and the demand for both push email and synchronization is strong. Inthe last two years, Synchronica has developed compelling products with keyunique features. For 2008 and beyond our goal will be to capitalize and turnthis investment into commercial success. Marketing and Sales Strategy We will focus our sales and marketing strategy on service providers (mobileoperators, application service providers, Internet service providers and devicemanufacturers) with a regional focus on emerging markets (Middle East, Africa,Eastern Europe, South-East Asia and Latin America). I believe our products areideally suited for the specific needs of these markets, because unlike mostcompeting products, Mobile Gateway supports mass-market, low-cost handsets; thevast majority of devices in these regions. These markets present a barrier to entry for many of our competitors, who focusmainly on the small segment of relatively expensive Smartphones, the sheer costof which means they are often literally non-existent in emerging markets. At thesame time, demand for mobile email and synchronization appears to be very strongin emerging markets, where the PC and fixed-line penetration is very low whilethe mobile phone is phenomenally successful. According to a recent studypublished by the United Nations, already more than 58% of the world's 3.5billion mobile phone users are from emerging markets. Operators in these regionsnow have a unique opportunity to turn the mobile phone into the primary devicefor accessing the Internet and its most popular application - email. Our direct sales force is now almost exclusively focussed on emerging marketsand we have hired sales and presales representatives in Dubai covering MiddleEast and Africa, Hong Kong covering Asia and Miami addressing Latin America. Atthe end of 2007, we announced our first significant deal in the emerging marketswhen an operator in Africa purchased a 200,000 user license for Mobile Gateway.I see this as an encouraging sign and validation of our strategy to focus onthese regions. We see a substantial commercial opportunity validated with thisdeal as the operator paid US$400,000 for licenses of our product. We see asignificant opportunity to replicate this success throughout the operator'sgroup, which has more than 30 million subscribers in 21 subsidiaries in theMiddle-East and Africa. In Brightstar, which brings broad access to operators in the emerging markets,we are building a strong channel partner. Brightstar is one of the largestdevice distributors world-wide having distributed every 20th handset of the 1.1billion devices sold in 2007. Our sales force is working closely with Brightstarand we are planning several road-shows introducing Synchronica's products tomobile operators turning Brightstar's contacts into prospects for Synchronica. Product Development To fuel our marketing and sales goals, we have defined a clear productdevelopment strategy tailored to meet the requirements of service providersspecifically in emerging markets. We will enhance both Mobile Gateway and MobileBackup with key features which will help Synchronica to win more customers,expand the addressable market and help our existing customers to increase thetake-up rate. We plan to add the following key features to Mobile Gateway: - Mobile Signup: Enabling users to subscribe to the service directly from their handset removing the need to access a PC during setup. This feature will increase the take-up rate particularly in emerging markets where users often do not have access to a PC. - Email to SMS: Extending the reach of Mobile Gateway to even the most basic handsets which do not have a built-in email client. This complimentary functionality will substantially enhance the addressable market in particular in emerging markets where the vast majority of phones are low-cost devices. - Microsoft Exchange 2007: Adding support for the latest version of Microsoft's Mail System helps maintain access to the business user market. Risks I see a huge opportunity for Synchronica which I believe has the potential tobecome the market leading provider of mass-market mobile email. However,Synchronica may not currently have sufficient resource, in sales, marketing andengineering to fully exploit this opportunity. We have an award winning productat the right time and with sufficient resources we can reach our full potentialand emerge as the global market leader. We have established a scalable sales channel with Sun Microsystems, and morerecently with Brightstar and a major systems integrator all of which extend ourreach far beyond our direct sales efforts. However, experience shows thatactivating channels takes time, maintaining them can be quite resource-intensiveand success cannot be guaranteed. On the product side, I believe we have a compelling product with unique featuresenabling us to win against the competition. However, we need to continue toinvest into further product development to maintain this lead and at the sametime deliver customized versions of our products to partners and customers. Ourproducts are often ahead of competing products, but our competitors are oftenbetter funded than Synchronica enabling them to employ more engineeringresources and we might lose our competitive advantage over time, if thissituation is not addressed. The board is fully aware of the above challenges and has plans to address them.I feel confident, that Synchronica will succeed. Carsten BrinkschulteChief Executive Officer Consolidated Income Statement for the year ended 31 December 2007 Note 2007 2006 £'000 £'000 Revenue 2,285 1,068 Administrative costsReorganisation costs 4 (492) (529)Exceptional impairment of goodwill - (661)Other administrative expenses (4,951) (6,969)Total administrative costs (5,443) (8,159) ________ ________Operating Loss (3,158) (7,091) Finance income 87 189Finance costs (12) (49) ________ ________Loss before taxation (3,083) (6,951) Taxation 5 113 296 Loss for the year after tax attributable to the equity holders of the parent company ________ ________during the year (2,970) (6,655) ________ ________ Loss per ordinary 6share from continuingoperations Basic and Diluted ________ ________ loss per share (4.4)p (18.3)p Statement of recognised income and expensefor the year ended 31 December 2007 The Group The Company 2007 2006 2007 2006 £'000 £'000 £'000 £'000 Exchange difference on translation of foreign operations 7 - - -(Charge)/credit for employee share options (40) 86 (40) 86 _______ _______ _______ _______ Net (expense)/income recognised directly in equity (33) 86 (40) 86 Loss for the year (2,970) (6,655) (2,849) (6,857) _______ _______ _______ _______Total recognised expenses in the yearattributable to equity holders of the parent (3,003) (6,569) (2,889) (6,771) _______ _______ _______ _______ Balance sheet at 31 December 2007 The Group The Company 2007 2006 2007 2006 Note £'000 £'000 £'000 £'000AssetsNon Current assetsIntangible assets 579 196 557 193Property plant and equipment 133 94 105 76Investments in subsidiaries - - 77 89 _______ _______ _______ _______ 712 290 739 358 _______ _______ _______ _______Current assetsTrade and other receivables 1,517 501 1,509 460Corporation tax 107 - 121 -Cash and cash equivalents 757 2,086 643 2,052 _______ _______ _______ _______ 2,381 2,587 2,273 2,512 _______ _______ _______ _______ Total assets 3,093 2,877 3,012 2,870 _______ _______ _______ _______LiabilitiesCurrent liabilitiesTrade and other payables 1,006 1,665 1,072 1,677Corporation tax - 16 - -Provisions 187 155 187 155 _______ _______ _______ _______ Total current liabilities 1,193 1,836 1,259 1,832 _______ _______ _______ _______Non current liabilitiesProvisions 349 64 349 64 _______ _______ _______ _______ Total non current liabilities 349 64 349 64 _______ _______ _______ _______ Total Liabilities 1,542 1,900 1,608 1,896 _______ _______ _______ _______ Equity and reservesOrdinary shares 7 840 364 840 364Share premium 7 13,167 10,066 13,167 10,066Retained earnings / (accumulated losses) 7 (12,463) (9,453) (12,603) (9,456)Translation reserve 7 7 - - - _______ _______ _______ _______Equity attributable to 1,551 977 1,404 974shareholders of the parent company _______ _______ _______ _______ TOTAL EQUITY AND LIABILITIES 3,093 2,877 3,012 2,870 _______ _______ _______ _______ Cash flow statement for the year ended 31 December 2007 The Group The Company 2007 2006 2007 2006 £'000 £'000 £'000 £'000 Cash flows from operating activitiesLoss before taxation (3,083) (6,951) (3,228) (7,157)Adjusted for:Depreciation 62 76 51 70Amortisation of intangibles 160 774 151 315Amounts written off investments - - - 913(Profit)/Loss on disposal of property, plant and equipment (5) 1 (4) 3Finance Income (87) (189) (87) (189)Foreign exchange losses/(gains) on operating activities 12 49 12 49Equity settled share based payment (credit)/expense (40) 86 (40) 84 ______ ______ ______ ______ Cash flows from operating activities before changes in working capital andprovisions (2,981) (6,154) (3,145) (5,912) - (decrease)/increase in provisions 317 219 317 219- (increase)/decrease in trade and other receivables (1,016) 406 (1,049) 447- (decrease)/increase in payables (659) 750 (605) 921 _______ _______ _______ _______Cash utilised from operations (1,358) 1,375 (1,337) 1,587Income tax (paid) / received - 300 - 300 _______ _______ _______ _______ Net cash used in operating activities (4,339) (4,479) (4,482) (4,025) ______ ______ ______ ______Cash flows from investing activitiesAcquisition of subsidiary net of cash acquired - (25) - (25)Investment in subsidiary - - - (336)Purchase of intangible assets (243) (70) (215) (119)Purchase of property, plant and equipment (103) (91) (80) (81)Proceeds from sale of property, plant and equipment 4 7 4 -Proceeds on disposal of investment - - 12 -Interest received 87 195 87 195 ______ ______ ______ ______ Net cash used in investing activities (255) 16 (192) (366) ______ ______ ______ ______Cash flows from financing activitiesNet proceeds from issue of ordinary shares 3,277 - 3,277 -Finance lease repayments - (17) - (17) _______ _______ _______ _______ Net cash generated from financing activities 3,277 (17) 3,277 (17) ______ ______ ______ ______ Net decrease in cash and cash equivalents (1,317) (4,480) (1,397) (4,408)Cash and cash equivalents at 1 January 2007 2,086 6,615 2,052 6,509Effects of exchange rate changes on (12) (49) (12) (49)cash and cash equivalents ______ ______ ______ ______ Cash and cash equivalents at 31 December 2007 757 2,086 643 2,052 ______ ______ ______ ______ Notes forming part of the preliminary results for the year ended 31 December2007 1. General information Synchronica plc is incorporated in the United Kingdom under the Companies Act1985. The address of its registered office is Mount Pleasant House, LonsdaleGardens, Royal Tunbridge Wells, Kent, TN1 1NY. These consolidated preliminary results are presented in pounds sterling, whichrepresents the functional currency of the Group. Foreign operations areconsolidated in accordance with the policies set out in note 2 below. 2. Significant accounting policies Basis of preparation The Group and parent company financial statements have been prepared inaccordance with EU endorsed International Financial Reporting Standards (IFRS),International Financial Reporting Interpretations Committee (IFRIC)interpretations and with those parts of the Companies Act 1985 applicable tocompanies reporting under IFRS. All accounting standards and interpretationsissued by the International Accounting Standards Board and the InternationalFinancial Reporting Interpretations Committee effective at the time of preparingthese financial statements have been applied. The Group and parent company financial statements have been prepared under thehistorical cost convention. A summary of the significant Group accountingpolicies adopted in the preparation of the financial statements is set outbelow. These policies have been consistently applied to all the years presented,unless otherwise stated. The preparation of financial statements which comply with IFRS requires the useof estimates and assumptions, and for management to exercise its judgement inthe process of applying the Group's accounting policies. Going concern These financial statements have been prepared on the going concern basis whichis supported by forecasts and projections covering the period to 31st December2009. The company made a loss of £2.97 million for the year to 31st December 2007 andhad cash of £0.76 million at that time. Since 31st December the company hastwice raised additional funds from shareholders of £3.875m (See note 30). Theprojections and forecasts, which include cash flows, suggest that provided thecompany trades in line with expectations that it has sufficient funds to meetits liabilities as they fall due. There is however an obvious risk that thecompany may not meet its revenue expectations and / or that while it may meetthese revenue expectations it might meet them more slowly than anticipated;either or both of these could test the company's cash flow. The forecasts arereliant on signing new deals with new customers which are expected but notguaranteed, negotiations are ongoing. In addition the company operates in a highly specialised and fast movingenvironment in which in order to generate revenue it is necessary that theproducts are and remain up to date, to ensure this it may be necessary toincrease costs. Given the above the directors acknowledge that there is a material uncertaintyrelated to the these events, that may cast significant doubt on the entity'sability to continue as a going concern and, therefore, that it may be unable torealise its assets and discharge its liability in the normal course of business. Management have however taken the relevant steps to ensure that further fundinghas been raised from existing and new investors. Based on forecasts andprojections and additional funding raised since the balance sheet date,management expect the company to continue as a going concern. Standards, amendments and interpretations to published standards not yeteffective Certain new standards, amendments and interpretations to existing standards havebeen published that are mandatory for the group's accounting periods beginningon or after 1 January 2008 or later periods and which the group has decided notto adopt early. These are: • IFRS 8, Operating Segments' (effective for accounting periodsbeginning on or after 1 January 2009). This standard sets out requirements forthe disclosure of information about an entity's operating segments and alsoabout the entity's products and services, the geographical areas in which itoperates, and its major customers. It replaces IAS 14, Segmental Reporting. Thegroup expects to apply this standard in the accounting period beginning on 1January 2009. As this is a disclosure standard it will not have any impact onthe results or net assets of the group. • Amendment to IAS 1, Presentation of financial statements: a revised presentation (effective for accounting periods beginning on or after 1 January 2009). Therevised IAS 1 introduces a single "statement of comprehensive income"incorporating both the profits and losses that have traditionally been reportedin the income statement and other gains and losses that are currently reportedin the Statement of Recognised Income and Expense or the Statement of Changes inEquity. - Amendment to IAS 1, "Presentation of financial statements: Amendmentto capital disclosures" (effective for accounting periods beginning on or after1 January 2009). The group expects to apply these amendments in the accountingperiod beginning on 1 January 2009. As this is a disclosure standard it will nothave any impact on the results or net assets of the group. • Amendment to IFRS 2, "Share-based payments": vesting conditions and cancellations (effective for accounting periods beginning on or after 1 January 2009). This amendment is still to be endorsed by the EU. Management is currently assessing the impact of the Amendment on the accounts. • Revised IFRS 3, "Business Combinations" and complementary amendments to IAS 27,'Consolidated and separate financial statements (both effective for accounting periods beginning on or after 1 July 2009). This revised standard and amendments to IAS 27 is still to be endorsed by the EU. The revised IFRS 3 and amendments to IAS 27 arise from a joint project with the Financial Accounting Standards Board (FASB), the US standards setter, and result in IFRS being largely converged with the related, recently issued, US requirements. There are certain very significant changes to the requirements of IFRS, and options available, if accounting for business combinations. Management is currently assessing the impact of revised IFRS 3 and amendments to IAS 27 on the accounts. • IFRIC 12 'Service concession arrangements', IFRIC 13 'Customer loyalty programmes' and IFRC 14 'IAS 19 - The limit on a defined benefit asset, minimum funding, requirements and their interaction', Amendment to IAS 23 'Borrowing costs' and amendments to IAS 32 'Puttable Financial Instruments and Obligations Arising on Liquidation will not have a material impact on the financial statements of the group. First time adoption of IFRS These are the Group's first financial statements prepared in accordance withIFRS. Accordingly, IFRS 1 'First Time Adoption of International FinancialReporting Standards' has been applied. The Group's transition date to IFRS is 1January 2006, and the Group prepared its opening balance sheet at that date inaccordance with IFRS effective at 31 December 2007 except as specified below. Inpreparing these financial statements, the Group applied mandatory exceptions andcertain of the optional exemptions available in IFRS 1 from the fullretrospective application of IFRS: Optional exemptions to full retrospective restatement elected by the Group (i) Business combinations exemptionThe Group has taken the business combination exemption, which allows that IFRS 3not be applied to business combinations that took place prior to 1 January 2006,the date of transition to IFRS. (ii) Cumulative translation differencesThe Group has elected to set the previous cumulative translation differencesarising from the translation of all foreign operations to zero at the date oftransition to IFRS. Reconciliations and explanations of the effect of the transition from UK GAAP toIFRS on the Group's equity and its profit or loss are provided in note 9. Basis of consolidation The consolidated financial statements incorporate the results, assets,liabilities and cash flows of the company and each of its subsidiaries for thefinancial year ended 31 December 2007. Subsidiaries are entities controlled by the Group. Control is deemed to existwhen the Group has the power, directly or indirectly to govern the financial andoperating policies of an entity so as to obtain benefits from its activities.The results, assets, liabilities and cash flows of subsidiaries are included inthe consolidated financial statements from the date control commences until thedate that control ceases. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe Group. Intra-group balances and transactions are eliminated on consolidation. Foreign currencies Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates (the 'functional currency'). The consolidated financialstatements are presented in sterling, which is the Company's functional andpresentation currency. Transactions entered into by Group entities in a currency other than thecurrency of the primary economic environment in which it operates (the"functional currency") are recorded at the rates ruling when the transactionsoccur. Foreign currency monetary assets and liabilities are translated at ratesruling at the Balance Sheet date. Exchange differences arising on theretranslation of unsettled monetary assets and liabilities are recognisedimmediately in the Income Statement. On consolidation the balance sheet of the overseas subsidiary undertaking istranslated at the rate of exchange ruling at the balance sheet date. Theexchange differences arising on the retranslation of opening net assets,together with the year-end adjustment to closing rates of income statementstranslated at average rates, are taken directly to reserves. The incomestatement of the overseas subsidiary undertaking is translated at averageexchange rates (unless this average is not a reasonable approximation of theeffect of the rates prevailing on the transaction dates, in which case theincome and expenses are translated at the rate on the dates of thetransactions). All other translation differences are taken to the incomestatement. Tax charges and credits attributable to exchange differences on thoseborrowings are also dealt with in reserves. Leases Where substantially all of the risks and rewards incidental to ownership are nottransferred to the group (an "operating lease"), the total rentals payable underthe lease are charged to the consolidated income statement on a straight-linebasis over the lease term. The aggregate benefit of lease incentives isrecognised as a reduction of the rental expense over the lease term on astraight-line basis. Revenue Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for licences granted and servicesprovided in the normal course of business, net of discounts, any refunds due,and VAT. The Group derives revenue from one trade in software licences and providingcustomer support and other services in relation to those licences. Customersupport includes telephone support and maintenance updates. Other servicesinclude the sale of professional services to install and maintain software andto train licensees in the maintenance and use of the software. Revenue allocable to software licences is recognised when all of the followingconditions are met: • The Group has transferred to the buyer the significant risks and rewards of ownership; • The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; • The amount of revenue can be measured reliably; • It is probable that the economic benefit associated with the transaction will flow; and • The costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenue allocable to customer support and maintenance is recognised on astraight line basis over the term of the contract, usually one year. Revenue notrecognised in the income statement under this policy is classified as deferredincome in the balance sheet. Revenue allocable to other services is recognised when the service has beenrendered to the customer and the value can be measured reliably with referenceto the stage of completion of the project. Share-based payments The group operates an employee share option scheme. The fair value of options orshares granted under the scheme is recognised in the income statement as anexpense over the period in which any performance conditions are fulfilled endingon the date on which the relevant employees become fully entitled to the award,based on management's best estimate of the number of awards that will ultimatelyvest. A corresponding amount is credited to equity. No expense is recognised forawards that do not ultimately vest, except for those where the vesting dependson a market condition. Whether or not the market condition is satisfied, theseare treated as vesting as long as all other performance conditions aresatisfied. The fair value of the awards are measured at the date at which they are grantedusing a Black Scholes Merton option-pricing model. Investments Investments in subsidiaries and participating interests are stated at cost lessprovision for impairment where necessary to reduce book value to recoverableamount. Cost is purchase price including acquisition expenses, but excluding anypayment for accrued interest or fixed dividend entitlement. Intangible assets - goodwill Goodwill arising on the acquisition of subsidiary undertakings and businesses,representing any excess of the fair value of the consideration given over thefair value of the identifiable assets and liabilities acquired is capitalisedand provision is made for any impairment. Goodwill and intellectual property rights are allocated to cash generating unitsfor the purpose of impairment testing. The recoverable amount of thecash-generating unit to which the goodwill or intellectual property rightsrelates is tested annually for impairment or when events or changes incircumstances indicate that it might be impaired. In an impairment test, the recoverable amount of the cash-generating unit orasset is estimated to determine the extent of any impairment loss. Therecoverable amount is the higher of the fair value less costs to sell and thevalue in use in the Group. An impairment loss is recognised to the extent thatthe carrying value exceeds the recoverable amount. In determining a cash-generating unit's value in use, estimated future cashflows are discounted to their present value using a pre-tax discount rate thatreflects current market assessments of the time value of money and risksspecific to the cash-generating unit or asset that have not already beenincluded in the estimate of future cash flows. Intangible assets - intellectual property rights Intellectual property rights acquired as part of a business acquisition arecapitalised separately from goodwill if their value can be measured reliably oninitial recognition and they are controlled through custody or legal rights.These rights are initially recorded at fair value which is based on replacementcost and are amortised over four years which is their estimated useful economiclife. Provision is made for any impairment. Intellectual property rights purchased separately from a business arecapitalised at cost and are amortised over four years which is their estimateduseful economic life. Provision is made for any impairment. Amortisation Intangible assets, other than goodwill, are amortised on a straight line basis,to reduce their carrying value to their residual value, over their estimateduseful lives. The following useful lives were applied during the year: Computer software up to 2 yearsIntellectual property up to 4 years Methods of amortisation, residual values and useful lives are reviewed, and ifnecessary adjusted, at each balance sheet date Research and development An intangible asset arising from development (or from the development phase ofan internal project) shall be recognised if, and only if, an entity candemonstrate that all of the following conditions are met: • it is probable that the asset will create future economic benefits.• the development costs can be measured reliably.• technical feasibility of completing the intangible asset can be demonstrated.• there is the intention to complete the asset and use or sell it.• there is the ability to use or sell the asset, and• adequate technical, financial and other resources to complete the development and to use the asset are available. Subsequent to initial recognition, internally generated intangible assets arereported at cost less accumulated amortisation and accumulated impairment losseson the same basis as intangible assets acquired separately. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciationand impairment losses if applicable. Depreciation on property, plant andequipment is charged on an asset's residual value over its useful economic lifeas follows: Office equipment up to 2 yearsFixtures and fittings up to 4 yearsMotor vehicles up to 4 years Residual values and useful lives are reviewed and adjusted, if appropriate, ateach balance sheet date. Share Capital Financial instruments issued by the Group are treated as equity only to theextent that they do not meet the definition of a financial liability. TheGroup's ordinary shares are classified as equity instruments. The Groupconsiders its capital to comprise its ordinary share capital, share premium andaccumulated retained earnings. There have been no changes in what the Groupconsiders to be capital since the previous period. The Group is not subject to any externally imposed capital requirements. Cash and cash equivalents For the purpose of preparation of the cash flow statement, cash and cashequivalents include cash at bank and in hand and short-term deposits with anoriginal maturity period of three months or less. Bank overdrafts that are anintegral part of a subsidiary's cash management are included in cash and cashequivalents where they have a legal right of set-off and there is an intentionto settle net, against positive cash balances, otherwise bank overdrafts areclassified as borrowings. Trade and other receivables Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interest method, less provisionfor impairment. A provision for impairment of trade receivables is establishedwhen there is objective evidence that the Group will not be able to collect allamounts due according to the original terms of the receivables. Significantfinancial difficulties of the debtor, probability that the debtor will enterbankruptcy or financial reorganisation and default or delinquency in paymentsare considered indicators that the trade receivable is impaired. The amount ofthe provision is the difference between the asset's carrying amount and thepresent value of estimated future cash flows, discounted at the originaleffective interest rate. The carrying amount of the asset is reduced through theuse of an allowance account and the amount of the loss is recognised in theincome statement within administrative expenses. When a trade receivable isuncollectible, it is written-off against the allowance account for tradereceivables. Subsequent recoveries of amounts previously written-off arecredited against administrative costs in the income statement. Taxation The charge for current income tax is based on the results for the year asadjusted for items which are not taxed or disallowed. It is calculated using taxrates that have been enacted or substantively enacted by the balance sheet date. Deferred income tax is accounted for using the liability method in respect oftemporary differences arising from differences between the tax bases of assetsand liabilities and their carrying amounts in the financial statements. Deferred tax liabilities are recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference is due to goodwill arising on a business combination or from an assetor liability, the initial recognition of which does not affect either taxable oraccounting income. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries except where the Group is able to controlthe reversal of the temporary difference and it is probable that the temporarydifference will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to apply in theperiods when the timing differences are expected to reverse, based on tax ratesand law enacted or substantively enacted at the balance sheet date. Deferred taxis charged or credited in the income statement, except when it relates to itemscredited or charged directly to shareholders' equity, in which case the deferredtax is also dealt with in shareholders' equity. Provisions Provisions are recognised when the Group has a present obligation in respect ofa past event, where it is more likely than not that an outflow of resources willbe required to settle the obligation, and where the amount can be reliablyestimated. Financial instruments The Group classifies financial instruments, or their component parts, on initialrecognition as a financial asset, a financial liability or an equity instrumentin accordance with the substance of the contractual arrangement. Financial assets and financial liabilities are recognised on the Group's balancesheet when the Group becomes party to the contractual provisions of theinstrument. The particular recognition and measurement methods adopted for the Group'sfinancial instruments are disclosed below: Derivatives In the normal course of its business, the Group is exposed to currency risk.Forward foreign exchange contracts are derivative instruments and are used bythe Group to manage its currency risks. Derivatives are initially recognised at fair value on the date a derivativecontract is entered into and are also subsequently carried at fair value. Themethod of recognising the resulting gain or loss depends on whether thederivative is designated as an effective hedging instrument and the nature ofthe item being hedged. Fair value determination Whenever available, the fair value of a financial instrument is derived fromquoted prices in an active market. For assets held, fair value is the bid priceand for liabilities held it is the asking price. If there is no active market,fair value is established by using a valuation technique. Valuation techniquesinclude the use of information from recent arm's length market transactionsbetween knowledgeable, willing parties, if available, reference to the currentfair value of similar instruments and discounted cash flow analysis. Thevaluation technique used incorporates all factors that market participants wouldconsider in setting a price and is consistent with accepted economicmethodologies for pricing financial instruments. Equity instruments An equity instrument is any contract that evidences a residual interest in theassets of the Group after deducting all its liabilities. Equity instrumentsissued by the company are recorded at the proceeds received, net of directlyattributable issue costs. Dividends Final dividends are recognised as a liability in the period in which they areapproved by the company's shareholders. Interim dividends are recognised whenthey are paid. 3. Segmental Reporting The returns earned by the group are predominantly affected by the territory inwhich it operates, and accordingly management considers the primary reportingsegment is based on geographic territory of revenue generation. The managementconsiders that the Group only operates in one business segment, that ofdevelopment and provision of mobile device management and synchronisationsolutions. North America Europe Rest of World Total 2007 2006 2007 2006 2007 2006 2007 2006 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Revenue 1,132 354 849 549 304 165 2,285 1,068 Unallocated (5,443) (8,159)corporateexpensesOperating loss (3,158) (7,091)Finance income 87 189Finance costs (12) (49)Taxation 113 296(Loss) in year (2,970) (6,655) The geographical split of net assets of the Group stated net of intercompanybalances, is as follows: North America Europe Rest of World Unallocated Total 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Segment Asset 1,038 57 51 179 141 40 1,863 2,601 3,093 2,877Segment Liabilities - - - - - - (1,542) (1,900)(1,542)(1,900)Net assets 1,038 57 51 179 141 40 321 701 1,551 977 North America Europe Rest of World Unallocated Total 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Capitalexpenditure - - - - - - 103 91 103 91 Depreciation - - - - - - 62 76 62 76 4. Reorganisation costs 2007 2006 £'000 £'000Costs on closure of site - 300Impairment losses deducted from intangible assets - 661Provision for onerous contracts 492 229 _______ _______ 492 1,190 _______ _______ 5. Taxation Income tax (credit) / expense 2007 2006 £'000 £'000 UK research & development tax credit (121) (300)Overseas corporation tax charge/(credit) 8 4 _______ _______ (113) (296) _______ _______ The UK research and development tax credit received represents the refund of taxdue from research carried out in the year ended 31 December 2005 (2006: 31December 2003 and 31 December 2004). The group's loss before tax differs from the theoretical amount that would ariseusing the weighted average tax rate applicable to results of the consolidatedentities as follows: 2007 2006 £'000 £'000 Loss on ordinary activities before taxation (3,083) (6,951) _______ _______ Theoretical tax at UK corporation tax rate 30% (925) (2,086)(2006: 30%)Effects of:- unrelieved tax losses 943 1,827- other timing differences - (5)- amortisation of goodwill - 19- impairment of goodwill - 162- expenditure that is not tax deductible 12 21- capital allowances in excess of depreciation (18) 39- adjustments in respect of prior periods - -- higher tax rates on overseas earnings 8 1- research and development tax credit (121) (300)- share based payments (12) 26 _______ _______Actual current taxation credit (113) (296) _______ _______ A potential deferred tax asset of £4,374,000 (2006: £3,706,000) in relation tounrelieved losses of £15,620,000 (2006: £12,352,000) has not been recognised dueto the uncertainty of recoverability of this amount. 6. Loss per ordinary share Basic loss per ordinary share is calculated by dividing the loss attributable toordinary shareholders by the weighted average number of ordinary sharesoutstanding during the period. 2007 2006 £'000 £'000 Numerator _________ _________Losses used for calculation of basic and diluted EPS 2,970 6,655 _________ _________ Number Number DenominatorWeighted average number of ordinary shares used in 68,197,584 36,383,766basic EPS _________ _________ Basic and diluted loss per share (pence) (4.4)p (18.3)p _________ _________ 4,959,075 (2006: 289,942) shares have been excluded from the calculation ofdiluted loss per share because they would reduce loss per share. 7. Statement of changes in shareholders' equity The Group Ordinary Share Capital (Accumu- Trans-lation Total shares premium to be lated Reserve issued loss) £'000 £'000 £'000 £'000 £'000 At 1 January 2006 364 9,893 173 (2,884) - 7,546 Accumulated loss for the year - - - (6,655) - (6,655)Capital issued - 173 (173) - - -Adjustment for share based payment - - - 86 - 86 _______ _______ _______ _______ _______ _______ At 31 December 2006 364 10,066 - (9,453) - 977 Accumulated loss for the year - - - (2,970) - (2,970)Adjustment for share based payment - - - (40) - (40)Proceeds from placing 437 2,840 - - - 3,277Acquisition of assets 39 261 - - - 300Currency - - - - 7 7translationdifference _______ _______ _______ _______ _______ _______ At 31 December 2007 840 13,167 - (12,463) 7 1,551 _______ _______ _______ _______ _______ _______ The nature and purpose of each category of reserve within owners' equity is asfollows: Share premium Amount subscribed for share capital in excess of nominal valueless costs of issuing new share capital. Capital to be issued Share options granted and now exercised in connection withthe acquisition of Synchronica Software GmbH. Accumulated Loss Cumulative net losses recognised in the consolidated incomestatement. 8. Publication of non-statutory accounts The financial information in this preliminary announcement does not constitutethe company's statutory accounts for the year ended 31 December 2007, preparedin accordance with IFRSs as adopted by the EU, or the year ended 31 December2006, which were prepared under UK GAAP, but it is derived from those accounts. The statutory accounts for 2006 have been delivered to the Registrar ofCompanies and those for 2007 will be delivered following the Company's annualgeneral meeting. The auditors will report on those accounts; their reports isexpected to be unqualified, however it is expected to include an emphasis ofmatter - Going Concern, in relation to the presentation of the financialstatements on a going concern basis, which will indicate the existence ofmaterial uncertainties which may cast doubt about the Group's ability tocontinue as a going concern. The financial statements do not include anyadjustments that would result if the Group was unable to continue as a goingconcern. The financial statements do not contain statements under the CompaniesAct 1985, s237 (2) or (3). 9. Reconciliation of equity and profit under UK GAAP to IFRS Synchronica plc reported under UK GAAP in its previously published financialstatements for the year ended 31 December 2006. The analysis below shows areconciliation of equity and profit as reported under UK GAAP as at 31 December2006 to the revised equity and profit under IFRS as reported in these financialstatements. In addition, there is a reconciliation of equity under UK GAAP toIFRS at the transition date for the Group and company, being 1 January 2006. Date of transition to IFRS As at 1 Effect of As at 11 January 2006 January 2006 translation January 2006 to UK GAAP IFRS IFRS £'000 £'000 £'000 Goodwill 578 - 578Intangible assets 284 13 297Property, plant and equipment 100 (13) 87 _______ _______ _______ Non current assets 962 - 962 _______ _______ _______ Trade and other receivables 907 - 907Cash and cash equivalents 6,615 - 6,615 _______ _______ _______ Current assets 7,522 - 7,522 _______ _______ _______ Total assets 8,484 - 8,484 _______ _______ _______ Trade payables 254 - 254Accruals and deferred income 509 36 545Other current liabilities 139 - 139 _______ _______ _______ Current liabilities 902 36 938Provisions - - - _______ _______ _______ Total liabilities 902 36 938 _______ _______ _______ Equity attributable to the 7,582 (36) 7,546shareholders of the parententity _______ _______ _______ Total equity and liabilities 8,484 - 8,484 _______ _______ _______ 9. Reconciliation of equity and profit under UK GAAP to IFRS (continued) 31 December 2006 As at 31 Effect of As at 31 December 2006 translation December 2006 to UK GAAP IFRS IFRS £'000 £'000 £'000 Goodwill - - -Intangible assets 143 53 196Property plant and equipment 147 (53) 94 _______ _______ _______ Non current assets 290 - 290 _______ _______ _______ Trade and other receivables 501 - 501Cash and cash equivalents 2,086 - 2,086 _______ _______ _______ Current assets 2,587 - 2,587 _______ _______ _______ Total assets 2,877 - 2,877 _______ _______ _______ Trade payables 571 - 571Accruals and deferred income 862 36 898Other current liabilities 212 - 212 _______ _______ _______ Current liabilities 1,645 36 1,681Provisions 219 - 219 _______ _______ _______ Total liabilities 1,864 36 1,900 _______ _______ _______ Equity attributable to the 1,013 (36) 977shareholders of the parententity _______ _______ _______ Total equity and liabilities 2,877 - 2,877 _______ _______ _______ 9. Reconciliation of equity and profit under UK GAAP to IFRS (continued) Reconciliation of profit for the year ended 31 December2006: £'000 Loss reported under UK GAAP (6,619)Employee costs (36) _______Loss reported under IFRS (6,655) _______ Reconciliation of cash flow statement for the year ended 31 December 2006: The only changes to the cash flow statement are presentational The key difference is: 31 December 2006 As at 31 Effect of As at 31 December 2006 translation to December 2006 UK GAAP IFRS IFRS £'000 £'000 £'000 Operating loss (7,128) (36) (7,090) _______ _______ _______Changes in working capitalIncrease/ (decrease) in 1,645 36 1,681current liabilities _______ _______ _______ Explanation of reconciling items between UK GAAP and IFRS The standards and interpretations giving rise to the most significant changes tothe previously reported profit of the Group and equity of the Group and companyare: (a) IAS 19 Employee BenefitsUnder UKGAAP accumulated holiday absences are not recognised where under IAS19employee benefits compensation that can be carried forward into future periodmust be accrued for. (b) IAS 38 Intangible AssetsUnder UK GAAP, all capitalised computer software was included within tangiblefixed assets. IAS 38 "Intangible Assets" requires software that is not anintegral part of an item of computer hardware to be classified within intangibleassets. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Syncona