Interim and Second Quarter 2011 Results

Synchronica plc

Interim and Second Quarter 2011 Results

Royal Tunbridge Wells, United Kingdom: Synchronica plc ("Synchronica" or "the Company") (AIM:SYNC; TSX VENTURE:SYN) the international provider of next-generation mobile messaging solutions, announces its interim and second quarter financial results for 2011. All amounts are in US dollars.

H1 2011 Financial Highlights

·; 16 per cent increase in revenue to $5.8 million from $5.0 million in H1 2010

·; 77 per cent decrease in operating loss to ($379,000) from ($1.7 million) in H1 2010

·; Recurring revenue growth of 207 per cent

Q2 2011 Financial Highlights:

·; Revenue of $3.9 million, compared to $4.5 million in Q2 2010

·; 20 per cent of revenue was recurring, compared to 7 per cent in Q2 2010

Operational Highlights -H1 and Q2 2011

·; Acquired Instant Messaging business of Neustar NGM Services, increasing customer base and addressable market

·; Continued growth in Latin American presence from two expansion orders, territory-wide implementation of Mobile Gateway 6 and launch of Instant Messaging service in América Móvil subsidiary in Puerto Rico

·; Launch of Synchronica-powered Mobile Messaging Service "airtel connect" in 16 African countries

·; Launch of Synchronica-powered handset, for Wynncomm division of the Bright Telecom Group, targeted at India's youth market.

·; Announced acquisition of Nokia's Operator-Branded Messaging Business (OBM), adding 10 tier-1 mobile operator contracts in North America, a strong patent and intellectual property portfolio, a recurring revenue base and long-term contract with Nokia for development and support of the Nokia Messaging Service for Nokia's Series 40 and Symbian handsets

·; With the Nokia OBM acquisition, Synchronica now has a customer base of 93 mobile carriers and an addressable market of 1.8 billion users

"In the first half of this year we made significant progress both operationally and financially," said David Mason, Chairman. "With the Neustar acquisition we gained key customers in Europe and a strong base of recurring revenue - the Nokia OBM acquisition is expected to advance us even further with its leading North American Carrier customers and a revenue base that should be over 80 percent recurring. We have made great strides to becoming a global leader in mobile messaging with a software-as-a-service revenue stream."

Looking forward, we expect further advances during the second half of 2011 as we begin to realise revenue from the Nokia OBM. Management is confident that the Company will deliver in line with market expectations for the full year."

Q2 2011 SEDAR Filings and Investor Conference Call

Synchronica has, in compliance with TSX Venture Exchange regulations, as well as its own best practice responsibilities, filed its financial statements for the quarter ended June 30, 2011 and the accompanying Management Discussion and Analysis (MD&A), with the System for Electronic Document Analysis and Retrieval (SEDAR) in Canada.

A conference call will be hosted on Tuesday, 30 August, 2011 at 11:00 a.m. Eastern Daylight Time (16:00 UK BST) to discuss Synchronica's interim and second quarter financial and operational results. To access the conference call, dial +1-647-427-7450, or North American toll free at +1-888-231-8191. The conference call will be archived for replay until Tuesday, September 6, 2011 at midnight. To access the archived conference call, please dial +1-416-849-0833 or +1-855-859-2056 and enter the reservation code 95073034.

A live audio webcast of the conference call will be available at www.newswire.ca. An archived replay of the webcast will be available for 365 days.

A presentation of the interim and second quarter results for 2011 will also be available at https://synchronica.webex.com/synchronica/j.php?ED=185376297&UID=482599822&PW=NMzhjYzA4NDRl&RT=MiMyMQ%3D%3D, (no audio content) and can be accessed using the case-sensitive password Abc123.

About Synchronica

Synchronica plc is a leading developer of standards-based next-generation mobile messaging solutions for mobile operators and device manufacturers. The Company's flagship product, Synchronica Mobile Gateway, provides Pre-RCS push email, synchronization, instant messaging (IM), and social networking services to any mobile phone currently in use. Synchronica's patented transcoding technology uses advanced streaming to download email attachments and dramatically reduces the consumption of wholesale network bandwidth by as much as 90 percent.

Synchronica's white-labelled products are licensed by more than 90 mobile operators and eight device manufacturers from emerging and developed markets, delivering mass-market messaging services across the entire customer base, providing competitive advantage, diversifying revenues and reducing churn.

Synchronica is headquartered in the United Kingdom, and has a regional presence in Canada, as well as the USA, Hong Kong, Spain, and Dubai. Synchronica also operates dedicated development centres in Germany and the Philippines. A public company, Synchronica is traded on the AIM list of the London Stock Exchange (SYNC) and the Venture Exchange of the Toronto Stock Exchange (SYN).

For further information, please visit www.synchronica.com 

Cautionary Statements

The foregoing information may contain forward-looking statements relating to the future performance of Synchronica plc. Forward-looking statements, specifically those concerning future performance or results, are subject to certain risks and uncertainties, and actual results may differ materially from Synchronica's plans and expectations. These plans, expectations, risks and uncertainties are detailed herein and from time to time in the public filings and announcements made by Synchronica, including those made with AIM, a market of the London Stock Exchange, with the TSX Venture Exchange or with securities regulators. Synchronica does not assume any obligation to update or revise its forward-looking statements, whether as a result of new information, future events or otherwise

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein

For more information, please contact:

Operating Review

for the six month period ended 30 June 2011

Overview

Synchronica recorded a number of successes, both operationally and commercially, during the second quarter of 2011. Of greatest significance was the 30th June announcement that Synchronica would be acquiring the Operator Branded Messaging (OBM) business from Nokia. This is a successful business which is highly complementary to Synchronica's focus on mobile messaging. Crucially, the OBM service records more than 6 million active users, and generates more than 80% recurring revenues based on monthly payments per active user.

The transaction also provided the largest contract which Synchronica has ever won. With Nokia becoming Synchronica's largest customer, the Group will assume responsibility for development, maintenance and support of the Nokia Messaging software, which ships with millions of Nokia devices and serves as the gateway functionality for both Series 40 and Symbian devices. The deal is expected to deliver revenues of approximately US$ 18.2 million over the next 18 months.

The Nokia OBM acquisition has, at a stroke, transformed Synchronica's scale, profitability and geographic scope.

Synchronica also received two significant group-wide expansion orders from two separate tier-1 Latin American-focused operators, including the first contract for Synchronica's flagship Mobile Gateway 6 carrier-grade infrastructure software. A number of other customers launched their services in their respective markets.

Financial Results

Synchronica's business is in transition from one which has been heavily dependent upon the one off or perpetual licensing of software to one where the software is provided as a service and revenue is generated on a recurring basis. Overall revenue has increased by 16% to US$ 5.8 million, when compared with the US$ 5.0 million for the same period last year, but more importantly revenue from recurring sources has increased by 207% over the period. However, the process of transition to recurring revenue is not yet completed and, as in past years, it is expected that Synchronica's revenue for 2011 will be heavily weighted towards H2.

The number of customers the business is servicing has increased markedly between 2010 and 2011. In order to service these customers it has been necessary to increase administrative cost. The three acquisitions made in the past eighteen months have also, at least temporarily, increased our overheads. A careful cost control/reduction program is on-going. The increase in overheads is more than offset by the bargain purchase of Neustar's NGM Services business; we purchased assets for considerably less than their independently confirmed value.

We continue to suffer from having to offer long payment terms to our customers and slow payment of our invoices thereafter. We have focused considerable effort on our credit control and the position is improving.

The loss for H1 2011, US$1.1 million, is less than half that of H1 2010, US$ 2.4 million. With increasing revenue and cost control we expect this trend of reducing losses to continue.

Acquisition of Nokia's OBM Business

On 30 June, Synchronica announced that it had entered into a conditional agreement to acquire Nokia's OBM business, which provides white-label mobile email and Instant Messaging (IM) services across a wide range of devices to operators in North America.

As part of due diligence for the transaction, Synchronica had access to information from Nokia which confirmed the OBM business to be profitable. The consideration for the deal was US$ 25 million. US$ 4 million was paid in cash on completion of the acquisition, and the balance will be payable quarterly in arrears in the period to end-2015. Additionally, Nokia has been issued warrants to purchase for 16p each 18.3 million Synchronica ordinary shares at any time in the next three years. The deferred payments to Nokia are linked solely to the revenues generated by the assets acquired from Nokia, and therefore the payments to Nokia are aligned with the success of the services.

The transaction was completed post-reporting period, on 31 July. Synchronica has acquired the Nokia assets at a favourable valuation of less than one times contracted and expected annual revenue.

The acquisition has provided Synchronica with a successful and complementary mobile messaging business and a strong foothold in the strategically important North American operator market, by including an assignment of mobile operator contracts as well as source code of the related Nokia Messaging client and server software. As part of the deal, Synchronica and Nokia entered into a long-term relationship in which Synchronica will provide the messaging software which Nokia will continue to preload onto their Series 40 mobile phones. The contract, with expected revenues of approximately US$ 18.2 million over the next 18 months, will see Synchronica assume responsibility for development, maintenance and support of the Nokia Messaging software, which ships with millions of Nokia devices and the gateway functionality for both Series 40 and Symbian devices.

The acquired messaging platform complements Synchronica's flagship, carrier-grade Mobile Gateway messaging infrastructure software. Synchronica plans to continue to develop the acquired messaging platform and to merge both products to create a superior solution with significantly enhanced functionality.

Business Won during the Quarter

In addition to the arrangement for Synchronica to provide development, maintenance and support of the Nokia Messaging software, Synchronica also recorded two significant contract wins during the second quarter of the year.

In early May, it was announced that the Company had signed an expansion of an existing group-wide contract it had in place with a multinational tier-one mobile operator group.

The expanded contract will see Synchronica extend the functionality of the customer's existing mobile Instant Messaging (IM) services to provide mass-market push email and synchronization. The enlarged service is now in the process of being deployed across all of the group's subsidiaries in Latin America, and when launched, will allow subscribers to access an email address provided by the operator's own-branded webmail service from any mobile phone. In addition, users will be able to connect to mainstream consumer email communities such as Windows Live Hotmail and Yahoo!, as well as synchronize enterprise email systems such as Microsoft Exchange or Lotus Domino.

Ahead of earlier projections where Synchronica expected to announce contract wins for Mobile Gateway 6 towards the end of the year, considering a typical sales cycle of 6-9 months, Synchronica announced in early June that it had signed an expansion order with a second tier-one mobile operator group targeting Latin America. The group-wide contract covers the deployment of Synchronica Mobile Gateway 6 across all its Latin American subsidiaries.

With Mobile Gateway 6, the mobile operator will introduce Pre-RCS Unified Messaging, with a carrier-branded presence-enabled address book, an ultra-lightweight J2ME client, support for xHTML browsers, and advanced document transcoding capabilities. The service will make push email, synchronization, Instant Messaging and Social Networking available to the operator's entire base, without subscribers needing to upgrade or replace their existing mobile handsets.

In aggregate, Synchronica's contracts with operators in the region cover more than nine out of every 10 mobile users in the important Mexican and Argentinean markets, and five out of every 10 mobile users in Brazil, and both expansion orders demonstrate Synchronica's success in building additional revenue streams from customers gained in the 2010 acquisition of Colibria's Instant Messaging business.

Customer Product Launches

During the second quarter, seven América Móvil territories (Puerto Rico, Chilé, El Salvador, Uruguay, Guatemala, Honduras and Nicaragua) launched AMX Messenger, a carrier-branded mobile Instant Messaging service based on and powered by Synchronica's hosted IMPS platform. AMX Messenger has been deployed across the entire América Móvil Group, providing Synchronica with a growing recurring revenue stream to one of the largest and most important mobile markets worldwide. The last remaining América Móvil territories launched their AMX Messenger services post-reporting-period, in Quarter 3, 2011.

In June 2011, the Indian mobile device manufacturer Wyncomm, launched a family of affordable feature phones which are optimised for Synchronica Mobile Gateway. The OGO O-77 Konnect and O-78 Touch handsets support advanced messaging features, including push email, Instant Messaging, and Social Networking Services, and are sold at a recommended retail price of less than US $100 - a fraction of the cost of traditional, more expensive Smartphones. According to information received from Wyncomm, almost US $1.5 million has been budgeted for a multi-platform marketing and promotional campaign led by the 'A-list' Bollywood actor, Saif Ali Khan, a popular icon in India's youth market.

Also in June 2011, Bharti Airtel, a top-5 global telecommunications company with operations in Asia and Africa deployed 'airtel connect' across its 16 African territories. Airtel uses Mobile Gateway to power its mass-market mobile messaging service which combines push email and synchronization, Instant Messaging and Social Networking. The product is currently 'soft-launched' allowing Airtel to gather data on the service and to fine tune its marketing plans ahead of a full launch in Quarter 3.

Outlook

The Synchronica business grew during H1 2011 and continued to mature, shifting revenue from one off licences to the provision of software as a service. With this transition, we expect our revenue profile to further shift towards recurring revenue and, as a result, further stabilizing our financial outlook and cash-flow. This transition will be further accelerated with the addition of revenue from the customer base acquired with Nokia's OBM business, as the majority of the revenue generated from the North American operator contracts is based on recurring license and support fees.

We began the second half with a major transaction, the acquisition of Nokia's OBM business, which has and will continue to transform Synchronica. We have set out the plans to integrate the acquired OBM technology with Synchronica Mobile Gateway, creating a single platform which combines the best of both products, while adding additional unique features. Both products are showing substantial synergies from a product perspective: Mobile Gateway's client-less, industry standard technology with its unparalleled device reach to mid-range and low-end devices is complemented by the high-end client-based technology of OBM and its broad support for a large number of Social Networks. With the integration into a single product, we expect to create a superior messaging platform with up-selling potential to the existing customer base in both developed and emerging markets, while reducing future product development and support costs.

In the first half, we have significantly broadened our market share to include customers in Western Europe and North America, mainly through acquisitions. At the same time, we have continued our expansion in Latin America, Africa and India with organic growth. We expect to continue to grow our market share in the future, as we convert more of the strong pipeline of prospective customers in both device manufacturer and operator markets.

We look to the future with confidence and expect to be able to meet both the markets' and our shareholders' expectations for the business.

Independent Review Report to Synchronica plc

for the six month period ended 30 June 2011

Introduction

We have been engaged by the group to review the consolidated set of financial statements in the half-yearly financial report for the six months ended 30 June 2011 which comprises of a Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Cash Flows, Consolidated Statement of Changes in Equity and related notes that have been reviewed.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the consolidated set of financial statements.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the group's annual accounts having regard to the accounting standards applicable to such annual accounts.

Our responsibility

Our responsibility is to express to the group a conclusion on the consolidated set of financial statements in the half-yearly financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market 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 our terms of engagement 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.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the consolidated set of financial statements in the half-yearly financial report for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.

Emphasis of matter - going concern

In forming our conclusion on the unaudited financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 1 of the unaudited financial statements concerning the Group's ability to continue as a going concern. The Group is reliant on signing new deals with customers which are expected but not guaranteed in order to continue as a going concern. This condition, along with other matters discussed in note 1 to the unaudited financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern. The unaudited financial statements do not include any adjustments that would result if the Group was unable to continue as a going concern.

BDO LLP

Chartered Accountants and Registered Auditors

Gatwick

United Kingdom

26 August 2011

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Consolidated Statement of Comprehensive Income

for the three and six month periods ended 30 June 2011

Consolidated Statement of Financial Position

as at 30 June 2011

Consolidated Statement of Cash Flow

for the three and six month periods ended 30 June 2011

Consolidated Statement of Changes in Equity

for the six month period ended 30 June 2011

Notes to the Interim Financial Information

for the three and six month periods ended 30 June 2011

1. Basis of preparation

These interim unaudited financial statements have been prepared in accordance with IAS 34, "Interim Financial Reporting", as adopted by the European Union. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2010 Annual Report. The financial information for the period ended 30 June 2011 and 30 June 2010 does not constitute statutory accounts and is unaudited.

The principal accounting policies used in preparing the interim results are those the Group expects to apply in its financial statements for the year ended 31 December 2011 and are unchanged from those disclosed in the Group's Report and Financial Statements for the year ended 31 December 2010, with the following exception.

With effect from 1 January 2011 the rates of amortisation have been amended. This change in accounting policy is to better reflect the useful economic life of certain intangibles. Customer relationships are to be amortised over eight years (previously between two and four year). Intellectual property rights are to be amortised over eight years (previously over four years), Deferred development expenditure is to be amortised over eight years (previously over four years).

The annual financial statements of Synchronica plc are prepared in accordance with IFRS's as adopted by the European Union. The comparative financial information for the year ended 31 December 2010 included within this report does not constitute the full statutory accounts for that period. The auditors' report on those accounts was unqualified, but did contain references to going concern to which the auditors drew attention by way of an emphasis of matter paragraph without qualifying their report.

These Group financial statements have been prepared on the going concern basis which is supported by forecasts and projections covering the period to 31 December 2013.

The forecasts and projections, which include monthly cash flows, suggest that provided the Group trades in line with expectations it has sufficient funds to meet its liabilities as they fall due. There is however a risk that the Group may not meet its revenue expectations and/or that while it may meet these revenue expectations it might meet them more slowly than anticipated; either or both of these could test the Group's cash flow. The forecasts are reliant on collecting cash from existing customers and signing new deals with new customers which are expected but not guaranteed, negotiations are ongoing.

In addition, the Group is operating in a highly specialised and fast moving environment in which in order to generate revenue it is necessary that the products are and remain up to date. This leaves the Group with little opportunity to reduce costs if it is to remain competitive.

The directors acknowledge that there is a material uncertainty related to these events, that may cast significant doubt on the Group's ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. Given this uncertainty the directors, subject to shareholder approval where this is required, continue to consider the funding of the Group and may from time to time raise additional working capital either by entering credit agreements and/or by raising additional equity funding.

The Group has faced the uncertainties noted above throughout its life. To date, when required, management has been successful in raising additional funding from existing and new investors. Based on forecasts and projections, management expect the Group to continue as a going concern.

The Board of Directors approved this Interim Report on 26 August 2011.

2. Taxation

The taxation charges for the six month period to 30 June 2011 are based on the effective taxation rate, which is estimated will apply to earnings for the year ending 31 December 2011.

3. Loss per share

The weighted average number of dilutive securities (options, warrants and deferred shares) have been excluded from the calculation of diluted loss per share because they would reduce loss per share.

4. Reverse Takeover of Nokia Operator Branded Messaging Business

On 31 July 2011, the Group acquired the trade and assets of Nokia's Operator Branded Messaging (OBM) business for US$ 25 million plus warrants over 18,333,333 ordinary shares exercisable at a price of 16p per share The assets acquired include messaging infrastructure and device client software for email, Instant Messaging and Social Networking, as well as related patents and patent applications. US$ 4 million in cash was paid immediately with the remaining US$ 21 million to be paid on a deferred basis at 22% of revenue generated from the OBM business.

Due to the size of this acquisition this was a reverse takeover transaction in accordance with AIM Rules for Companies. To finance the acquisition 59,054,031 ordinary shares and 29,527,015 warrants over ordinary shares exercisable at a price of 16p per share were placed raising US$ 15 million before issue costs. These funds paid the initial consideration for the acquisition, the repayment of borrowings and are for additional working capital for the enlarged Group. 3,318,50 warrants were issued to brokers as part fees in connection with the Placings.

The acquisition will be accounted for in the Group financial statements as a business combination.