12th Sep 2007 07:02
Artilium PLC12 September 2007 Embargoed for 7.00am, 12 September 2007 Artilium plc Preliminary Results for the Financial Year ended 30 June 2007 Management's key milestones for the year achieved with clear strategy for growth Artilium plc ("Artilium" or the "Company") announces preliminary results for thefinancial year ended 30 June 2007. Artilium develops software that unifies communications. The Company produceshighly sophisticated solutions that seamlessly integrate mobile, fixed, and IPnetworks for telecoms operators, system integrators, managed service providersand mobile virtual network enablers. Artilium enables mobile virtual networkoperators to create new mobile brands and differentiated offerings rapidly,securely and with real-time management. Artilium unifies communications,provides access to communications via any telephone or online device, andapplies intelligent processes to automate and manage rich communications. Highlights • Year of significant transformation of the business • Revenues increased by over 50%, meeting a key financial objective set by management at the time of the Annual General Meeting in January 2007 • Loss of £4.8m in line with expectations after a £1.9m loss relating to a discontinued operation divested during the year • Management team strengthened, adding extensive industry expertise, including new CEO in Robert Marcus appointed in April 2007 and three new Non-Executive Directors, including Philip Kendall announced separately today • Strategy updated under Robert Marcus focusing on Unified Communications • Strong operational performance • Positive outlook with clear strategy for growth Commenting on the results Robert Marcus, Chief Executive Officer of Artiliumsaid: "It's been a good year for Artilium. We made real progress in strengtheningcategory market leadership in the Benelux through the delivery of ourconvergence software solutions to telecoms operators and system integrators.Every day, tens of millions of people use our software through our 40installations in 11 countries. Our vision is to be a world leader in the fieldof Unified Communications. We successfully transformed the fundamentals of thebusiness, designed a clear strategy to support sustainable growth and expansion,and attracted a high quality leadership team with the experience and talentcapable of achieving it." The Company's AGM will be held on 28 November 2007 and shareholders shouldexpect to receive copies of the Annual Report in due course. For further information please contact: Financial Dynamics T. 0044 20 7831 3113Harriet Keen/Matt Dixon Deloitte Corporate Finance (Nomad) T. 0044 20 7936 3000Jonathan Hinton/David Smith About Artilium Artilium delivers innovative software solutions which layer seamlessly overdisparate fixed, mobile and IP networks to enable the rapid deployment ofconverged services and applications. Founded in 1995 and recognised for its engineering talent and unique combinationof IT and telecom expertise, Artilium has completed more than 40 installationsserving tens of millions of end-users in 11 countries. Customers include Mobile Network Operators (MNOs), Mobile Virtual NetworkEnablers (MVNEs), Mobile Virtual Network Operators (MVNOs), Fixed andAlternative Operators, Hosting Providers, Systems Integrators and ManagedService Providers. Artilium is now expanding its leadership in telecom andunified communications platforms on a global scale. Artilium is headquartered in London, UK with offices in Bruges, Belgium andSeattle, USA. Artilium plc is a publicly listed company on AIM: the AlternativeInvestment Market of the London Stock Exchange (LSE/AIM: ARTA). For more information, please visit: www.artilium.com CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT Overview Following the acquisition of Artilium N.V. in January 2007, the re-admission toAIM and the subsequent change of name to Artilium plc, the Company is pleased toreport the achievement of key milestones set out by management for the financialyear ended 30 June 2007. Firstly, the Company has effectively managed significant transformation of thebusiness by divesting loss-making operations; expanding the board withrecognized industry experts, and building a senior leadership team withexecutives from Microsoft, T-Mobile and other market leading communicationcompanies; and defining a strategic roadmap which expands Artilium's proventechnology and core expertise in cross-network (mobile, fixed telecom, internet)software for expansion into new territories and market segments. Secondly, Artilium is delighted to announce that it has achieved sales volumesof £4.5 million for the year ended 30 June 2007 (2006: £612,000 representingonly four months of revenue from subsidiary acquired in March 2006) whichrepresents a more than 50% increase on a year-on-year basis, the key benchmarkdefined by management following the annual general meeting (AGM) on 5 January2007. Finally, as expected, the Company reports a loss of £4.8 million for the year,of which £1.9 million is related to a discontinued operation, divested duringthe year. The remaining loss from continuing operations of £2.9 millionincludes a number of one-off costs in relation to the re-organisation of theCompany, and the cost of completing the acquisition of Artilium N.V. and thesubsequent re-listing of the Company. Artilium is confident that it is well-positioned to capitalize on opportunitiesin the Unified Communications market, a rapidly evolving segment championed byMicrosoft, Cisco and other major technology leaders. Artilium products integrate the internet, fixed-line and mobile phone systems,unifying voice and data services and delivering access to telephony from withineveryday business applications. This unification allows people to manage all oftheir communications from differing service providers, in the format theydesire, routed over the lowest cost networks available. This opens up thepossibility for increased worker productivity and reduced business costs. Key developments during the year The results for the twelve months ended 30 June 2007 reflect a period ofsignificant operational transformation within the Company. On 11 September 2006, the Board of Directors authorised the sale of certain ofthe Company's intellectual property and physical assets pertaining to apotential consumer offering in the retail unified communications market. On 12 December 2006, a circular was issued to shareholders outlining the termsof the completion of the acquisition of Artilium N.V. The Company's ordinaryshares were restored to trading on 13 December 2006. Since the acquisition of Artilium N.V. and the subsequent placing and capitalreorganisation completed in January of this year, we have laid the foundationsfor a successful business in the communications sector. To secure a base in the US and gain key technical expertise, on 21 March 2007,the Company completed the acquisition of a 31% stake in Chinook HostingCorporation, paying approximately £300,000 in cash. Chinook was founded in 2006by technology professionals with experience in developing, deploying and hostingMicrosoft technologies. This acquisition provides us with ready access to theUS hosting market and represents a major step ahead for our new voice solutionsbusiness. On 2 April 2007, Robert Marcus was appointed as Chief Executive. An experiencedleader of emerging technology businesses, his career includes over nine years atMicrosoft where he served most recently as a director on the company's mergersand acquisitions team. He is an expert in unified communications and ledMicrosoft's unified communications strategy. Against this backdrop, we are pleased to report that results for the twelvemonths ended 30 June 2007 are in line with our expectations. Performance Over the past 12 months, we have delivered a strong performance from ourcommunications convergence software business. We saw growth among new andexisting customers and deployed multiple installations within majortelecommunications and cable operator accounts. Financial Results In line with our expectations, revenue increased to £4.5 million for the yearended 30 June 2007 (2006: £612,000 representing only four months of revenue fromthe subsidiary acquired in March 2006). Furthermore, as anticipated, the Companyreported a loss from continuing operations for the year ended 30 June 2007 of£2.9 million. However, this loss includes a number of one-time charges inrelation to the re-organisation of the company, and the cost of completing theacquisition of Artilium N.V. and the subsequent re-listing of the Companytotalling around £500,000. The loss also includes an accounting charge relatedto awards under new share based payment schemes of £707,000, depreciation andamortisation of £281,000 and a minority interest expense of £110,000. TheCompany also reported a loss from discontinued operations of £1.9 million inrelation to its discontinued retail unified communications business which wasdisposed of in September 2006. Artilium N.V., the Group's Belgian subsidiary, reported a profit before tax of£281,000 on a stand-alone basis. Strategy In the year ahead, the company will continue to build upon its regional successin the Benelux, expanding aggressively into new geographic and technologymarkets. Geographic growth will include a launch in the United States, and thetargeting of dynamic convergence markets in Western and Central Europe. The Company is on track to launch new Unified Communications technologies inOctober 2007, which target knowledge workers in small and medium sizedbusinesses. The technology is Microsoft-based and will release at a time ofMicrosoft's increasing emphasis on Unified Communications. The Company will focus its go-to-market strategy on strategic partnerships andchannel relationships with leaders in the IT, systems integration, hostedservice provider, and Web industries. Microsoft engagement will be a centralfocus; Artilium has achieved select Gold Certified Partner status at Microsoft,bringing it into a much closer strategic business and technology engagement withMicrosoft. To achieve its vision and growth goals the Company will continue to invest inpeople: Board appointments (S) As announced this morning, Philip Kendall has joined the Artiliumboard as a Non-Executive Director. Currently a Senior Adviser at HawkpointPartners Ltd, Philip brings with him a wealth of experience in the globalcapital markets arena, having spent some 30 years in the City and on WallStreet. (S) Richard Hooper CBE, Chairman of Informa plc until May of this yearhas joined the board as a Non-Executive Director. He was founding DeputyChairman of the UK communications regulator, OFCOM, Chairman of the RadioAuthority, and CEO of the value added services division of British Telecom. (S) Michael Hulme, a convergence expert, joined the board as aNon-Executive Director. He is Honorary Professor of the Institute for AdvancedStudies at Lancaster University, Director of the Centre for the Study of MediaTechnology and Culture, and Director of the Social Futures Observatorythink-tank. (S) Having successfully steered the company through its transition andintroduced Robert Marcus as Chief Executive, Paul Gratton will step down asArtilium's Executive Chairman, remaining on the board as a Non-ExecutiveDirector. It is intended that Paul will step down as Executive Chairman at theCompany's AGM to be held on 28 November 2007 and, subject to the passing ofnecessary shareholder resolutions, be succeeded by Richard Hooper in the newlycreated role of Non-Executive Chairman. Executive Management appointments (S) Gytis Barzdukas joined as Vice President, Marketing. He wasresponsible for Office, SharePoint, Messenger and Hotmail marketing during adistinguished 13-year career at Microsoft. (S) Stewart Emerson, joined as Vice President, Worldwide Sales. He wasformer Head of Web and tele-sales at T-Mobile International, and previously headof Nortel EMEA Business Development. (S) Charlotte Massard, joined as Vice President, Business Development.She was VP Global Services at IDT, and previously head of EMEA Business andChannel Development at Verestar Outlook Artilium is well positioned to emerge as a leader in the Unified Communicationsmarket. In the year ahead we will build on the strong foundations laid over thecourse of the past twelve months, extending Artilium's existing productofferings into new geographic markets, and launching new products. We willinvest heavily in channel and partner development, including the strategicpartnership with Microsoft. We have the team and the technology necessary todrive a transformational shift in business growth and expansion. We are pleased with the past year and are confident of continued growth in thecurrent financial year as well as the long term prospects of the Group. Artilium plc Consolidated income statement Year ended 30 June 2007 2007 2006 Note £'000 £'000Continuing operations Restated Revenue 4,549 612Cost of sales (1,295) (56) Gross profit 3,254 556 Other operating income 7 -Administrative expenses (6,222) (2,428)Other operating expenses - (6)Share of results of associate (30) - Operating loss (2,991) (1,878) Investment revenues 124 135Other losses - (698)Finance costs (5) (349) Loss before tax (2,872) (2,790) Tax 3 (24) (152) Loss for the year from continuing operations (2,896) (2,942) Discontinued operationsLoss for the year from discontinued operations 4 (1,885) (981) Loss for the year (4,781) (3,923) Attributable to:Equity holders of parent (4,671) (3,158)Minority interest (110) (765) (4,781) (3,923) Loss per share in pence from continuing operations 5 (6.12) (9.85) Loss per share in pence from discontinued operations 5 (4.14) (4.44) Total loss per share in pence 5 (10.26) (14.29) The Company's shareholders approved a 1 for 5 share consolidation at the AGM on5 January 2007. Five old 1p shares were replaced by one new 5p share. As aresult the comparative loss per share figures above have been restated using thenumber of issued new shares. Loss per share in pence for 2006 using the numberof issued old shares was 1.98p from continuing operations and 0.88p fromdiscontinued operations. Artilium plc Consolidated statement of recognised income and expense Year ended 30 June 2007 2007 2006 £'000 £'000 Exchange differences on translation of foreign operations 14 2 Net income recognised directly in equity 14 2 Loss for the year (4,781) (3,923) Total recognised income and expense for the year (4,767) (3,921) Attributable to:Equity holders of parent (4,657) (3,156)Minority interest (110) (765) (4,767) (3,921) Artilium plc Consolidated balance sheet Year ended 30 June 2007 2007 2006 £'000 £'000 Non-current assetsGoodwill 6,211 2,697Intangible assets 774 837Plant and equipment 634 170Deferred tax asset 51 119Interests in associate 401 - 8,071 3,823 Current assetsInventories 58 118Trade and other receivables 2,208 1,925Cash and cash equivalents 3,162 1,911 5,428 3,954 Total assets 13,499 7,777 Current liabilitiesTrade and other payables 1,884 2,849Obligations under finance leases 25 4Provisions 458 425 2,367 3,278 Non-current liabilitiesObligations under finance leases 52 -Deferred tax liabilities 226 180 Total liabilities 2,645 3,458 Artilium plc Consolidated balance sheet Year ended 30 June 2007 2007 2006 Note £'000 £'000EquityShare capital 6 2,625 1,769Share premium account 19,770 9,033Capital redemption reserve 4,493 4,493Option to acquire minority interest - (1,611)Share warrant reserve 216 336Share option reserve 707 -Share of equity of associate 97 -Translation reserve 16 2Own shares 7 (2,550) -Retained earnings (14,520) (9,849) Equity attributable to equity holders of the parent 10,854 4,173 Minority interest - 146 Total equity 10,854 4,319 Total liabilities and equity 13,499 7,777 Artilium plc Consolidated cashflow statement Year ended 30 June 2007 2007 2006 Note £'000 £'000 Net cash used in operating activities 9 (5,051) (1,732) Investing activitiesInterest received 124 135Sale of investments - 21Purchases of property, plant and equipment (712) (34)Proceeds from disposal of property, plant and equipment 30Purchases of investments (334) (691)Acquisition of subsidiary (1,414) (4,370) Net cash used in investing activities (2,306) (4,939) Financing activitiesRepayments of obligations under finance leases 73 (5)Proceeds on issue of shares 11,071 8,046Loan to employee benefit trust (2,550) - Net cash from financing activities 8,594 8,041 Net increase in cash and cash equivalents 1,237 1,370 Cash and cash equivalents at beginning of year 1,911 552 Effect of foreign exchange rate changes 14 (11) Cash and cash equivalents at end of year 3,162 1,911 The financial statements were approved by the Board of Directors and authorisedfor issue on 11 September 2007. They were signed on its behalf by: Tony Lynch Director Artilium plc Notes to the company financial statements Year ended 30 June 2007 1 Preparation of results Whilst the financial information included in this preliminary announcement hasbeen computed in accordance with International Financial Reporting Standards(IFRSs), this announcement does not itself contain sufficient information tocomply with IFRSs. The financial information contained in this announcement does not constitutestatutory accounts as defined by Section 240 of the Companies Act 1985.Statutory accounts for the year ended 30 June 2007 were approved by the boardand delivered to Companies House on 11 September 2007. These statutory accountsincluded an unqualified audit opinion. The directors approved this preliminary announcement on 11th September 2007. This announcement is prepared on the basis of the accounting policies as statedin the statutory accounts. The financial statements have been prepared on the historical cost basis. The consolidated financial statements incorporate the financial statements ofthe Company and the entity controlled by the Company (its subsidiary) made up to30 June each year. Control is achieved where the Company has the power to governthe financial and operating policies of an investee entity so as to obtainbenefits from its activities. The result of the subsidiary acquired during the year is included in theconsolidated income statement from the effective date of acquisition. Where necessary, adjustments are made to the financial statements of thesubsidiary to bring the accounting policies used into line with those used bythe Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. The prior comparatives in the Financial Statements have been restated to reflectthe impact of discontinued operations in relation to a business unit divestedduring the year. Business combinations The acquisition of subsidiaries is accounted for using the purchase method. Thecost of the acquisition is measured at the aggregate of the fair values, at thedate of exchange, of assets given, liabilities incurred or assumed, and equityinstruments issued by the Group in exchange for control of the acquiree, plusany costs directly attributable to the business combination. The acquiree'sidentifiable assets, liabilities and contingent liabilities that meet theconditions for recognition under IFRS 3 Business Combinations are recognised attheir fair value at the acquisition date, except for non-current assets (ordisposal groups) that are classified as held for resale in accordance with IFRS5 Non Current Assets Held for Sale and Discontinued Operations, which arerecognised and measured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measuredat cost, being the excess of the cost of the business combination over theGroup's interest in the net fair value of the identifiable assets, liabilitiesand contingent liabilities recognised. If, after reassessment, the Group'sinterest in the net fair value of the acquiree's identifiable assets,liabilities and contingent liabilities exceeds the cost of the businesscombination, the excess is recognised immediately in profit or loss. The interest of minority shareholders in the acquiree is initially measured atthe minority's proportion of the net fair value of the assets, liabilities andcontingent liabilities recognised. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for goods and services provided inthe normal course of business, net of discounts, VAT and other sales-relatedtaxes. Revenue is recognised for the sale of proprietary software, professionalservices, and the re-sale of third party hardware and software and after salemaintenance contracts. Where the outcome of a contract can be estimated reliably, revenue and costsrelated to the sale of proprietary software and professional services arerecognised by reference to the stage of completion on the contract activity atthe balance sheet date. This is normally measured by the proportion thatcontract costs incurred for work performed to date bear to the estimated totalcontract costs, except where this would not be representative of the stage ofcompletion. The revenue recognition policy was changed during the period, as due to theimproved systems and procedures implemented, the company is now able torecognise revenue over the course of a contracted project. The directors believethat this policy better reflects the revenue earning process and aligns thecompany with industry practice. The change in accounting policy has an immaterial impact on the prior yearcomparatives and therefore no restatement for the change in revenue recognitionpolicy has been made. When it is probable that total contract costs will exceed total contractrevenue, the expected loss is recognised as an expense immediately. Sale of third party hardware and software is recognized when the goods aredelivered and title has passed. Maintenance revenue is recognized rateably over the support term concluded inthe platform contract. Interest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable, which is the ratethat exactly discounts estimated future cash receipts through the expected lifeof the financial asset to that asset's net carrying amount. 2 Loss for the year Loss for the year has been arrived at after charging / (crediting): 2007 2006 £'000 £'000 Net foreign exchange gains 10 (11)Operating lease rentals - land and buildings 233 47Depreciation of property, plant and equipment 102 31Amortisation of intangibles 179 60Impairment of investment - 698Profit on sale of investments - (14)Cost of inventories recognised as expense - 56Staff costs 2,665 786Employee benefits 27 14Auditors' remuneration for audit services 58 30 3 Tax 2007 2006 £'000 £'000Analysis of taxation expense for the year:Current tax:UK tax - -Overseas tax (35) (172) Total current tax (35) (172)Deferred tax :Origination and reversal of temporary differences 11 20 Total deferred tax 11 20 Total taxation expense in the income statement (24) (152) The total taxation expense in the income statement relates to continuingoperations. The taxation expense due to discontinued operations is £nil. The charge for the year can be reconciled to the loss per the income statementas follows: 2007 2007 2006 £'000 £'000 £'000 Continuing Discontinued Operations Operations Loss before tax from continuing operations (2,872) (1,885) (3,771) Tax at the UK corporation tax rate of 30% (2006: 30%) (861) (566) (1,131)Effects of:Expenses not deductible for tax purposes 326 - 784Provision in respect of tax exposures - - 374Tax losses brought forward utilised in the year (64) - (11)Tax losses carried forward unutilised in the year 694 566 136Non-tax effective consolidation adjustment (80) - -Impact of loss after tax of associate 9 - - Tax expense and effective tax rate for the year 24 - 152 4 Discontinued operations On September 11, 2006, the Company disposed of its retail unified communicationoperation to Flasktent Limited. Trading activity and cashflows relating to thisdiscontinued operation have been separately disclosed on the face of theConsolidated Income Statement and notes to the consolidated cashflow statementand the results of these discontinued operations were as follows: 2007 2006 £'000 £'000 Revenue - -Expenses (863) (981) Loss before tax (863) (981) Loss on disposal of discontinued operations (1,022) - Net loss attributable to discontinued operations (1,885) (981) There was no tax charge associated with the net loss attributable todiscontinued operations. 5 Losses per share The warrants and share options on issue do not have a dilutive effect as themarket price of ordinary shares exceeded the exercise price of the warrantsduring the financial year. As a result, diluted loss per share is the same asbasic earnings per share. 2007 2006 £'000 £'000LossesLosses from continuing operations for the purposes of basic losses per share being net losses attributable to equity holders of the parent (2,786) (2,177) Losses from discontinued operations for the purposes of basic losses per share being net losses attributable to equity holders of the parent (1,885) (981) No. No.Number of sharesWeighted average number of ordinary shares for the purposes of basic losses per share 45,525,727 22,110,549* * The Company's shareholders approved a 1 for 5 share consolidation at the AGMof 5 January 2007. Five old 1p shares were replaced by one new 5p share. As aresult these new shares are equivalent to 110,552,747 old shares 6. Share capital The Company's shareholders approved a 1 for 5 share consolidation at the AGM of5 January 2007. Five old 1p shares were replaced by one new 5p share. 2007 2006 £'000 £'000Fully paid ordinary shares:Authorised:1,050,676,946 (2006: 1,050,676,946) old ordinary shares of 1p each now replaced by new 5p shares as outlined below 10,507 10,507 210,135,390 (2006: 210,135,390) new ordinary shares of 5p each 10,507 10,507 Issued and fully paid:262,499,000 (2006: 176,900,000) old ordinary shares of 1p each now replaced by new 5p shares as outlined below 2,625 1,769 52,499,800 (2006: 35,380,000) ordinary shares of 5p each 2,625 1,769 Deferred ordinary shares:Authorised:900,447 (2006: 900,447) deferred ordinary shares of £4.99 each 4,493 4,493 2007 2006 No. '000 No. '000 £'000 Old 1p New 5p shares sharesFully paid ordinary shares:Balance at beginning of financial year 176,900 35,380 1,769Shares issued by placement 15,000 3,000 150Shares issued for acquisition consideration 2,000 400 20Series 1 warrant conversion 53,349 10,670 533Series 2 warrant conversion 15,250 3,050 153 Issued and fully paid: 262,499 52,500 2,625 Fully paid ordinary shares carry one vote per share and carry the rights todividends. 7. Own Shares Own shares £'000 Balance at 1 July 2006 -Series 2 warrants purchased during the period (300)Warrants exercised during the period (2,250) Balance at 30 June 2007 (2,550) The own shares reserve represents the cost of shares in Artilium plc purchasedand held by the Artilium plc Employee Benefit Trust to satisfy options and shareawards under the Group's Employee Share Schemes . 3 million Series 2 warrantswere purchased by the Trust at a price of 10p per warrant in December 2006.These warrants were then exercised at a price of 75p and converted into ordinary5p shares by the Trust. 8 Share based payments The Company set up a share option scheme and long term incentive plan (LTIP)under which grants have been made to directors and certain employees. The Remuneration Committee met on 19th January 2007 and confirmed that prior tothe Company posting its re-admission document to shareholders it had been agreedthat options would be granted to the Executive Directors and certain otheremployees with an option price based on the share price of the Company for the 5 trading days following re-admission (73.5p). This figure had been agreed onthe basis that it would be the market's value of the Company at a time when themarket was in full possession of all the information relating to the enlargedgroup going forward. The options vest in equal tranches in January 2008, 2009and 2010. If the options remain unexercised after a period of 5 years from thedate of grant, the options expire. Details of the share options outstanding during the year are as follows: 2007 2006 Weighted Weighted Number of average Number of average Share exercise Share exercise options price options price Outstanding at beginning of year - - - -Granted during the year 1,963,946 73.5p - - Outstanding at the end of year 1,963,946 73.5p - - There were no share options exercised during the period. The Performance Period for the LTIP awards is the period starting on 8th January2007 and ending on 1st April 2010, or on such earlier date as the shares vestaccording to the rules of the scheme, and the base price for the Company's TotalShareholder Return (TSR) calculation shall be £1.00, which is the price at whichnew shares were issued in the relisting. The performance conditions operatesuch that no shares will vest should the TSR performance of the Company be belowthat of the AIM index. One third of the shares will vest if the performance ofthe Company is equal to that of the AIM index, increasing to two thirds if theCompany's performance is equal to that of the AIM index plus 10% and one timesif it is equal to AIM index plus 35%. The Committee understands from itsadvisors that these levels of performance are broadly equivalent to that whichwould have placed the company at median, upper quartile and upper decile in theAIM over a 3-year period. There are currently a maximum of 1,163,000 share awards outstanding under theLTIP. The aggregate of the estimated fair values of the options and LTIP sharesgranted during the year was £3.5 million and the amount recognised as an expenseduring the year ended 30 June 2007 was £707,000. This valuation was carried outin accordance with independent advice from Price Waterhouse Coopers and aBinomial (Lattice) model deployed to arrive at the fair value of these shareawards. The inputs into the Binomial model were as follows: Share Options LTIP Share price £1.32 £2.865Exercise price 73.5p n/aExpected volatility 35% 35%Expected life 3 years 3 yearsRisk free rate 5.17% 5.37%Expected dividends - - In the absence of a credible amount of past share price data for the company,expected volatility was calculated using the historical volatility of similarlisted companies. The expected life used in the model has been adjusted, basedon management's best estimate, for the effects of non-transferability, exerciserestrictions, and behavioural considerations. 9 Notes to the cash flow statement Consolidated 2007 2006 £'000 £'000 Loss from continuing operations (2,947) (3,923)Loss from discontinued operations (1,885) - Adjustments for:Investment revenues (124) (135)Impairment of investment - 698Tax - 152Depreciation of property, plant and equipment 102 31Amortisation of intangible assets 179 60Share based payment expense 707 336Gain on disposal of property, plant and equipment 30 (14)Increase/(decrease) in provisions (68) 425 (4,006) (2,370)Operating cash flows before movements in working capitalIncrease in inventories 60 (34)Decrease/(increase) in receivables - continuing operations (989) (1,139)Decrease/(increase) in receivables - discontinued operations 825 -Increase/(decrease) in payables - continuing operations (254) 2,163Increase/(decrease) in payables - discontinued operations (687) - Cash generated by operations (5,051) (1,380) Income taxes paid - (352) Net cash from operating activities (5,051) 1,732 Cash and cash equivalents (which are presented as a single class of assets onthe face of the balance sheet) comprise cash at bank and other short-term highlyliquid investments with a maturity of three months or less. 10. Share warrants On 27 November 2006, an Extraordinary General Meeting of both classes ofwarrants was convened and resolutions were passed to make the exercise of theSeries 1 warrants mandatory within a period of 30 days commencing the day afterthe resolutions were passed. The terms of the Series 2 warrants remainedunchanged. As a result, 52.5 million of the remaining Series 1 warrants wereexercised while the remainder expired. In addition, 15 million Series 2 warrants were exercised during the year. Details of the warrants outstanding during the year are as follows. 2007 2006 Weighted Weighted average average exercise exercise Number of price Number of price warrants (in pence) warrants (in pence) Exercisable at the start of the year 121,483,333 - - -Granted during the year - - 122,333,333 13.03Exercised during the year 67,249,000 12.00 850,000 12.00Expired during the year 26,984,333 12.00 - - Outstanding at the end of the year 27,250,000 13.04 121,483,333 13.04 1 for 5 Share Consolidation conversion 5,450,000Exercised after share consolidation 50,000 Exercisable at the end of the year* 5,400,000 75.00 The weighted average share price at the date of exercise for warrants exercisedduring the period was 12 pence. All the Series 2 warrants outstanding at theend of the period remain exercisable until 31 December 2007 at 75p per OrdinaryShare. 11. Events after the balance sheet date Since the year end, 1.2 million Series 2 warrants have been exercised by warrantholders. As a result, the company has 53,699,900 5p ordinary shares in issue atthe date of these financial statements and cash consideration of £900,000 hasbeen received for these new shares. There have been no other material events after the balance sheet date. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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