28th Sep 2007 07:04
DDD Group PLC28 September 2007 28 September 2007 DDD GROUP PLC UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007 DDD Group plc ("DDD" or "the Company"), the 3D software and content company,announces its unaudited interim results for the six months ended 30 June 2007. Highlights Financial • Turnover of £91,000 (2006: £146,000) • Loss before tax of £743,000 (2006 restated: £1,002,000) • Loss before tax, net of IFRS2 (share based payments) implementation of £728,000 (2006 restated: £886,000) • Net cash outflow from operating activities of £600,000 (2006 restated: £717,000) • Net cash as at 30 June 2007 of £722,000 (2006: £625,000) Operational • Manufacture of Samsung SCH-B710 3D Mobile phone commenced in Korea resulting in advance royalty payment to DDD for DDD Mobile software that is included on each mobile telephone handset • Developed 3D game conversion solution allowing existing PC video games to be played in 3D on the emerging range of consumer-priced 3D displays • Development of the TriDef 3D Experience content solution for consumer 3D television and desktop PC displays Subsequent to the period end - highlights • South Korea Telecom (SKT) launched Samsung 3D mobile telephone in Korea • Samsung America selected the TriDef 3D Experience as the gaming and video content solution for their 3-D ready DLP(R) HDTVs that are now available in North American retail stores. Paul Kristensen, Chairman of DDD Group plc commented: "It was pleasing to finally confirm that the Mobile Communications division ofSamsung Electronics is the licensee with whom DDD has been working to deliverthe next generation of 3D mobile telephones. Samsung's 3D mobile phone waslaunched at the beginning of July by SKT, a leading Korean mobile telephoneoperator, resulting in the first royalties for DDD from a mass-market hand-heldconsumer product. In the first half of the year, the company focused its development efforts onthe 3D Television market, taking advantage of various breakthroughs, includingthe demonstration by Texas Instruments of their 3-D enabled DLP(R) HDTV rearprojection television. In anticipation of 3D achieving substantial impact in theconsumer TV market, DDD extended the range of 3D entertainment experiences thatare enabled by our technology to include full High Definition 3D video as wellas interactive gaming for the personal computer. This has resulted in Samsung selecting DDD's TriDef 3D Experience as the 3Dgaming and video accessory solution for their range of 3-D ready DLP HDTVs. Thiswas announced in early September and we expect that the TriDef 3D Experiencewill be available from select leading US consumer electronics retailers fromlate September as well as online from DDD's website store. Samsung's range of 3-D ready DLP HDTVs mark the arrival of the first affordable,high-quality 3D televisions that offer both 2D and 3D capabilities at the priceof a 2D TV set. DLP HDTVs now account for 63% of the market share in rearprojection televisions with Samsung being the number one selling brand worldwide*. Marking a key milestone in the company's history, DDD is now actively engaged indelivering solutions for a range of entertainment experiences for the consumer3D Television market. In addition to the Samsung 3-D ready DLP HDTVs that areavailable in North America, the company is actively involved in developmentprojects intended to bring DDD's solutions to additional types of flat panel 3DTV displays for use in international markets. Our objective is to embed DDD'scomprehensive 3D image processing solution in chipsets, built into the displayitself for these next generation 3D TVs. This should generate substantialopportunities for further development contracts, licensing and royalty revenues. Recognising that these new 3D TVs should deliver an increased consumer demandfor 3D content, DDD has also delivered a high performance 3D conversion toolkitthat blends the depth recovery capabilities of our proprietary real time 3Dconversion with the postproduction capabilities of our offline 3D conversionsoftware tools. This has substantially improved the productivity of 2D to 3Dconversion for both standard and high definition media while dramaticallyreducing the cost of conversion. The tools were delivered to our firstconversion licensee in September and have also been used to deliver a 3D "Halloween Special" that will be broadcast on a leading US cable TV channel inOctober. In summary, during the first half of this year, the necessary solutions weredeveloped that have allowed DDD to address not only the 3D mobile phone marketbut also the emerging significant mass consumer market for 3D HDTV displays. Anincreasing number of studios are committed to making high quality 3D moviesavailable and this is fuelling interest with consumer electronics manufacturersto deliver the 3D experience at home. DDD is now well positioned to capitaliseon these opportunities and in doing so, to create meaningful licensing androyalty revenues. *(source: DisplaySearch Quarterly Global TV Shipment and Forecast Report, August2007) Operational update • Executive Summary With the growing commitment from major Hollywood studios including Walt DisneyPictures, DreamWorks, Sony Columbia and film makers including James Cameron andRobert Zemeckis, an increased amount of focus is now being placed on how thishigh quality 3D content can be brought to the home. Consumer electronics companies including Samsung and Mitsubishi have clearlydemonstrated their commitment to bringing 3D to their customers throughdelivering 3D ready rear projection HDTVs in the US market and 3D capable mobiletelephones in Korea this year. With support from major studios and consumer electronics companies, 3D hasgained a high profile during 2007 and DDD is well positioned to capitalise onthe emerging opportunities in these markets as was demonstrated in earlySeptember when the TriDef 3D Experience was selected by Samsung as the video andgaming content solution for their new 3D ready HDTVs. DDD's high quality real time 2D to 3D conversion solution is viewed as a keyrequirement since it assures consumers that 3D content will be available to viewon their 3D ready HDTVs. DDD's real time 3D conversion is complemented by theability to play back conventional 3D movie formats, yielding a comprehensivesolution for consumer electronics companies and studios alike. The Company is already engaged in development projects for next generation 3DTVs that are intended to deliver these 3D features within the TV itself. As wasthe case with the mobile market, these projects are expected to yielddevelopment, licensing and royalty revenues to the company. The Company has also improved the performance of the 2D to 3D conversion processby combining the real time 3D image analysis with the existing postproduction 3Dconversion tools. The TriDef Media Creator 3D conversion tools are being used toconvert broadcast quality content at cost effective prices and are now beinglicensed to third parties. This approach broadens the revenue available to theCompany from 3D conversion to include service fees, software licenses androyalties from the ongoing use of the conversion tools by third party licensees. With the level of interest associated with the emerging 3D Television market,the company is placing increased business development and technical resources onsecuring additional customers in this segment since the 3DTV market is likely todevelop at a quicker pace than the 3D mobile phone market. • Business Review DDD is presently pursuing the adoption of its patented software, hardware andcontent conversion/creation solutions on four main platforms as follows: Consumer Television, refers to large flat screen HDTV displays being developedand marketed by major consumer electronics companies where DDD's real-time 2D to3D content conversion solution is expected to provide an important bridgetowards mass-market consumer adoption of 3D capable televisions. Consumer Handheld Devices, refers to the emerging market for 3D mobiletelephones, personal digital assistants ("PDAs") and personal media players ("PMPs") where the DDD MobileTM suite of software can be used to convert, present,download and share popular mobile content such as wallpapers, animations andvideo in glasses-free 3D. Desktop PC Displays, refers primarily to business users, government agencies anduniversities who use 3D displays, and DDD's related software, to enhance visualdata in the medical, pharmaceutical, education, oil & gas and manufacturingsectors. 3D Conversion, refers to the process of using DDD's content conversion solutionto convert existing 2D productions to 3D and supplement existing 3D contentproduction techniques. • Consumer Television In September, DDD announced the availability of the TriDef 3D Experience forSamsung's range of 3D ready DLP HDTVs that are available in US retail stores.DDD's 3D HDTV video solution was also demonstrated by Texas Instruments at theIFA show in Berlin in early September. The TriDef 3D Experience is available inselect retail stores as well as through DDD's online website store. Priced at $199.99, the TriDef 3D Experience provides a comprehensive 3D gamingand video entertainment experience and includes the following capabilities: • Playback of 3D DVD movies and real time 2D to 3D conversion of 2D DVDmovies. This feature allows existing Hollywood and IMAX(R) 3D DVDs to be playedon the 3D HDTVs. • Playback of 3D PC standard and high definition movie files, includingreal time 2D to 3D conversion. This allows Hollywood studios to make highquality 3D movie trailers and excerpts available for download and viewing on the3D HDTVs. • Automatic 2D to 3D conversion of popular PC games including The Sims2, Madden NFL 08 and Quake 4. The TriDef 3D Experience will initially be made available via Samsung in selectUS retailers to ensure that the demonstration and sales process for the 3Dexperience can be refined before the product is made available in a largernumber of stores. Since the Samsung 3D ready HDTV requires the customer toconnect a PC to their TV set, the expectation is that this first generation TVset will be targeted towards early adopters. Customers wanting to play games in 3D pay $4.95 for each supported game titlethey wish to convert to 3D. This provides an incremental revenue from TriDef 3DExperience customers for every new game they activate in 3D. The Company has continued the 3D TV development efforts with ArisawaManufacturing in Japan. During the first half of 2007 a custom circuit board wasdeveloped based on the TriDef Vision+. The first milestone was achieved inSeptember when the board was integrated with a 46" HD LCD TV manufactured by oneof Arisawa's partners. The goal of this development project is to deliver arange of 3D enabled LCD TVs aimed at emerging markets for 3D broadcasttelevision in Asia. One of the key trends that is enabling the delivery of 3D television is themigration to high speed plasma and LCD screens. These new displays operate attwice the speed of a conventional TV, yielding smoother pictures for both DVDmovies and games. Following this trend, the Company has also identifiedadditional development and licensing opportunities in the 3D Television marketwhereby DDD's real time 2D to 3D conversion capabilities are likely to beembedded onto the image processing chips used within these next generation 3Dflat panel HDTVs. In the near term, the Company expects to secure additional agreements in theemerging 3D television market that yield one-time development revenues andenable ongoing licensing and royalty revenues over the lifetime of the licenseagreement. Over time, it is expected that the embedded approach will replace thevideo capabilities of the current TriDef 3D Experience software products,simplifying the end-user experience through removing the need for a PC to beconnected to the 3D HDTV. In conjunction with these development activities, the Company is also activelyengaged in discussions with the Hollywood studios to ensure that DDD's embedded3D HDTV architecture can be used to enable the delivery of the latest 3D movieson standard and high definition DVD disc. • Consumer Handheld Devices In July, Samsung introduced the SCH-B710 3D mobile telephone in Korea. Thehandset was introduced by South Korea Telecom, a leading Korean mobile operator.This was an important milestone for two reasons: • The Samsung mobile telephone is the first consumer product that usesDDD's proprietary 3D content solutions under license. • The launch of a 3D mobile phone by the world's third largest handsetsupplier reassures mobile operators that major partners are supporting the 3Dmobile experience. The DDD Mobile license to Samsung for the SCH-B710 performs real time 3Dconversion of incoming satellite and terrestrial mobile TV signals. DDD receivesa royalty for each handset manufactured that includes DDD's software library. Oncommencement of manufacture in June a £50,000 advance royalty payment becamepayable. Following the introduction of the 3D handset in July, DDD is now seeking tosecure a content supply arrangement to allow the company to participate in therevenues from the download of premium 3D content by the handset owners. Since the features of the Samsung 3D mobile telephone are specific to the mobilecommunications infrastructure in South Korea, the SCH-B710 will only beavailable in South Korea. Following DDD's presentations to several mobile phone operators, it became clearthat their decision to include 3D mobile phones and services in their planshinged on the delivery of a 3D handset by a recognised manufacturer. Followingthe introduction of Samsung's 3D handset in July, a number of internationaloperators are now considering how best to bring this feature to theirsubscribers. Due to the lead times involved in developing a 3D handset, it isunlikely that additional launches will take place outside Korea until 2008. As has been the case, the company will continue to seek additional development,licensing and royalty opportunities in this segment from handset makers and willendeavour to secure ongoing revenue streams through participating in thedelivery of premium 3D content to 3D subscribers. • Desktop PC Displays DDD continues to resell desktop 3D displays and additional TriDef softwareapplications to international business users. In the first half, DDD sold thelast of the Sharp AL3D notebook PCs and shifted focus to desktop PC displays. InJune, Hyundai IT introduced a 24" high resolution PC 3D display based onArisawa's optical solution that uses similar 3D glasses to those used in digitalcinema. The new 24" Hyundai IT/Arisawa display has been very well received since ityields high quality images that are ideally suited to scientific use and is verycompetitively priced at $1,999. Due to the price and performance, we have alsoseen interest from the artists who are creating the latest 3D Hollywood moviesand orders have been received from both Pixar and DreamWorks for these new 3Ddisplays. Prior to the year-end, the company plans to include support for this new PCdisplay in the TriDef 3D Experience, extending the market to includeentertainment applications such as PC gaming. • 3D Conversion As part of the ongoing development of the Company's 3D conversion solution, TheTriDef Media Creator was delivered in June, combining the high performance depthcalculations of DDD's real time 2D to 3D conversion, with the 3D editing toolsof the postproduction solution. This has been developed in response to the emerging market for 3D televisionthat has less demanding criteria than the 3D digital cinema market and willdemand higher volumes of 3D content at competitive prices. In July, DDD secured its first 3D TV conversion project for a Halloween Specialthat will be broadcast during October on a leading US cable TV channel. Thebroadcast will be made in red/blue 3D since it will be viewed on normaltelevision sets. In September, the Company also licensed the TriDef Media Creator toolkit to aJapan-based 3D content production company, marking the first third partylicensee for the Company's 3D conversion tools. In this arrangement, DDD willreceive a royalty based on the amount of paid conversion work undertaken by thelicensee. The Company intends to continue to perform 2D to 3D conversion as a paid serviceand to closely monitor the opportunities in both 3D television and 3D DigitalCinema to ensure that DDD is best positioned to maximise commercialopportunities in these segments. NOTES TO EDITORS DDD, also known as Dynamic Digital Depth, is transforming the viewing experiencewith applications for 3D displays. Its patented technologies enable 3D viewingwith and without glasses; simple integration of computer graphics applicationswith 3D displays; supply of 3D content through 2D to 3D conversion; and 3Dtransmission over existing networks. DDD is quoted on AIM, a market operated bythe London Stock Exchange (AIM: DDD). Background • A new category of flat screen LCD, plasma and Digital Light Projection(DLP) rear projection displays are being developed and marketed by majorconsumer electronics companies that provide stereoscopic 3D images both with andwithout the need for the viewer to wear glasses. Stereoscopic 3D images appearto have natural in and off-screen depth. 3D displays have already been includedin mobile phones in Japan and Korea, in desktop PC displays and notebookcomputers in North America and Japan and in DLP rear projection televisions inNorth America. • DDD's solutions provide an important bridge between conventionaltwo-dimensional (2D) software applications and content and the new 3D displays.Normal 2D pictures, video and computer graphics images are manipulated by DDD'spatented software enabling them to be displayed on 3D displays without requiringthe content to be created specially for a 3D display. DDD's solutions alsoenable automatic conversion of virtually any media from 2D to 3D without anypre-processing of the 2D image. • DDD licenses these software applications, marketed under the TriDef(R)and DDD MobileTM brand names, to consumer electronics manufacturers forinclusion with the 3D display products supplied to their end users. DDD alsolicenses its software directly to end users who already own 3D displays andthrough an international sales channel. DDD's customers include SharpCorporation, Samsung Electronics and Arisawa Manufacturing Company. Television • In September 2007, Samsung America announced that DDD's TriDef 3DExperience software solution had been selected as the basis for 3D gaming andmovie entertainment for Samsung's range of glasses-based 3-D ready DLP rearprojection HDTVs that are available from US retailers. • In September 2004, DDD entered into a hardware development agreementwith Arisawa for the TriDef Vision+ 3D set top box. DDD's set top box, combinedwith Arisawa's polarising materials applied to a large LCD television, allowsfor the real-time conversion of virtually any media from 2D to 3D for viewing onthe switchable 2D/3D television. DDD and Arisawa intend to license thissolution to global television manufacturers. Mobile Phone • In July, 2007 Samsung released the SCH-B710 'glasses-free' 3D mobiletelephone in South Korea. DDD entered into a development and license agreementwith Samsung Electronics allowing Samsung to include DDD's 3D mobile telephonesoftware solution in Samsung's SCH-B710 3D mobile telephone. The licenseagreement yields a royalty to DDD for each handset manufactured. Samsung renewedits exclusive rights for DDD's real time 2D to 3D conversion capabilities foruse on 3D mobile phones in Korea in October 2006. • In July 2005, DDD entered into a two-year, non-exclusive, DDD Mobilesoftware licensing agreement and a development agreement with Samsung for asecond-generation, glasses-free 3D mobile phone. • DDD expects to license its DDD Mobile software library to additionalmobile phone manufacturers who wish to include 3D LCD displays in a variety ofwireless devices, including next generation smartphones and PDAs. The licensingarrangements are expected to yield per unit royalties. These projects may alsoinclude one-time development fees for assisting the manufacturer with theintegration of DDD's software into the 3D wireless device. Mobile Content • In July 2005, DDD entered into a memorandum of understanding withJamster! for the 2D to 3D conversion of images and animations from Jamster!'smobile content library using DDD's offline content conversion process forsubsequent download by 3D mobile phone owners. • DDD intends to enter into revenue sharing agreements with mobile phonenetwork operators (carriers) and content providers for the conversion anddelivery of existing libraries of premium wallpaper, animations and movies towireless subscribers who download 3D content that has been converted from 2D to3D by DDD. Desktop PC • In September 2003, DDD entered into a three-year, non-exclusivesoftware licensing agreement with Sharp which allows them to include five ofDDD's 3D software applications with their Actius range of switchable 2D/3Dnotebook PCs sold in Japan and North America. FURTHER INFORMATION Further information on DDD Group plc, its markets and products is available atwww.DDD.com and through the online store at www.DDD.com/store/dddstore.html ENQUIRIES DDD Group plc Chris Yewdall, President and Chief Executive OfficerTel: +1 310 566 3340E-mail: [email protected] Brewin Dolphin Ken Fleming, Director - Corporate FinanceTel +44 (0) 141 314 8114 Bell Pottinger Corporate & Financial Nick LambertTel: +44 (0) 20 7861 3232 DDD GROUP PLC CONDENSED CONSOLIDATED INCOME STATEMENT Restated Restated 6 months to 6 months to 12 months to 30 June 30 June 31 Dec 2007 2006 2006 £'000 £'000 £'000 unaudited unaudited unaudited NotesRevenue 91 146 305Cost of sales (37) - - Gross profit 54 146 305 Administration expenses (813) (1,041) (1,882)Other income 9 - -Share based payment (15) (116) (169) Operating loss (765) (1,011) (1,746) Finance income 22 9 18Finance expense - - - Loss before tax (743) (1,002) (1,728)Taxation (6) (8) (24) Loss for the period (749) (1,010) (1,752) Loss per shareBasic and diluted (pence per share) 3 (1.01) (1.83) (3.06) All transactions arose from continuing operations. DDD GROUP PLC CONDENSED CONSOLIDATED BALANCE SHEET Restated Restated 30 June 30 June 31 Dec 2007 2006 2006 £'000 £'000 £'000 unaudited unaudited unaudited NotesAssetsNon-current assetsProperty, plant and equipment 54 69 54Intangible assets 374 330 353Deposit 1 - - Total non-current assets 429 399 407 Current assetsTrade and other receivables 105 93 127Inventory 9 - -Cash and cash equivalents 722 625 1,467 Total current assets 836 718 1,594 Total assets 1,265 1,117 2,001 Equity and liabilitiesCapital and reservesIssued capital 7,442 5,683 7,442Share premium 4,612 4,722 4,612Merger reserve 13,279 13,279 13,279Other reserve 37 209 85Share based payment reserve 204 136 189Translation reserve (61) 64 (76)Retained earnings (24,500) (23,181) (23,799) Total equity 1,013 912 1,732 Non-current liabilitiesDeferred tax liabilities 112 98 106 Total non-current liabilities 112 98 106 Current liabilitiesTrade and other payables 140 107 163 Total current liabilities 140 107 163 Total liabilities 252 205 269 Total equity and liabilities 1,265 1,117 2,001 DDD GROUP PLC CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share Share Merger Option Other Foreign Retained Total capital premium reserve reserve reserve exchange earnings equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 January 2006 4,657 4,690 13,279 20 209 - (22,171) 684 Issue of shares 1,026 32 1,058Equity settled share options 116 116Total recognised income andexpense 64 (1,010) (946)At 30 June 2006 5,683 4,722 13,279 136 209 64 (23,181) 912 Issue of shares 1,759 83 1,842Associated costs (193) (193)Transfer between reserves (124) 124 -Equity settled share options 53 53Total recognised income andexpense (140) (742) (882)At 31 December 2006 7,442 4,612 13,279 189 85 (76) (23,799) 1,732 Transfer between reserves (48) 48 -Equity settled share options 15 15Total recognised income andexpense 15 (749) (734)At 30 June 2007 7,442 4,612 13,279 204 37 (61) (24,500) 1,013 DDD GROUP PLC CONDENSED CONSOLIDATED CASH FLOW STATEMENT Condensed consolidated cash flow statement Restated Restated 6 months to 6 months to 12 months to 30 June 30 June 31 Dec 2007 2006 2006 £'000 £'000 £'000 unaudited unaudited unaudited NotesCash flows from operating activities Loss for the period (749) (1,010) (1,752) Finance costs in the income statement (22) (9) (18)Tax in the income statement 14 8 24Depreciation of non-current assets 15 17 36Amortisation 109 57 110Gain on sale of property, plant & equipment - (1) (1)Share based payments 15 116 169Increase in inventory (9) - -Decrease in trade and other receivables 22 108 75(Decrease) / increase in trade and other payables (17) (12) 53 Net cash used in operations (622) (726) (1,304) Interest received 22 9 18Income tax paid - - (8) Net cash used in operating activities (600) (717) (1,294) Cash flows from investing activitiesPayments for property plant and equipment (15) (4) (9)Payments for intangible assets (130) (76) (152)Sale of property plant & equipment - 1 1 Net cash used in investing activities (145) (79) (160) Cash flows from financing activitiesProceeds from issue of equity shares - 1,270 2,900Issue costs - (84) (193) Net cash generated by financing activities - 1,186 2,707 Net (decrease) / increase in cash and cash equivalents (745) 390 1,253Exchange losses - (51) (72) Total (decrease) / increase in cash and cash (745) 339 1,181equivalentsCash and cash equivalents at the start of the period 1,467 286 286 Cash and cash equivalents at the end of the period 722 625 1,467 DDD GROUP PLC NOTES TO THE INTERIM FINANCIAL INFORMATION 1. Accounting policies Basis of preparation The unaudited consolidated interim financial information is for the six-monthperiod ended 30 June 2007. It has been prepared in accordance with theaccounting policies set out below which are based on the recognition andmeasurement principles of IFRS in issue as adopted by the European Union (EU)and are effective at 31 December 2007 or are expected to be adopted andeffective at 31 December 2007, our first annual reporting date at which we arerequired to use IFRS accounting standards adopted by the EU. The interimfinancial information does not include all of the information required for fullannual financial statements. From 1 January 2006 the Group has adopted International Financial ReportingStandards (IFRS) in the preparation of its consolidated financial statements.Comparative financial information previously published under UK GenerallyAccepted Accounting Principles has been restated on an IFRS basis for theopening balance sheet as at 1 January 2006, interim accounts as at 30 June 2006and for the year-end 31 December 2006. The change in the Group's reportedperformance and financial position on adopting IFRS is fully disclosed in theseinterim consolidated financial statements. The consolidated financial statements have been prepared under the historicalcost convention except for share-based payments that are valued at the date ofgrant. The interim financial information has not been audited nor has it been reviewedunder Bulletin 99/4 of the Auditing Practices Board. The financial informationset out in this interim report does not constitute statutory accounts as definedin Section 240 of the Companies Act 1985. The Group's statutory financialstatements for the year ended 31 December 2006 prepared under UK GAAP have beenfiled with the Registrar of Companies. The auditors report on those financialstatements was unqualified and did not contain a statement under Section 237(2)of the Companies Act 1985. First time adoption The opening IFRS balance sheet as at the date of transition on 1 January 2006has been prepared in accordance with the measurement and recognition rules ofIFRS 1 'First time adoption'. The most significant optional exemptions adoptedare set out below:- a) Cumulative translation differences which exist at the time of thetransition can be transferred into the retained earnings and the foreignexchange reserve therefore shows only differences arising after transition (IFRS1 'First time adoption of IFRS'). b) Business combinations that occurred before the opening IFRS balancesheet date are exempt from the application of the standard (IFRS 3 'BusinessCombinations'). Accounting policies The principal accounting policies adopted by the Group in conformity with theIFRSs in force at 30 June 2007 and expected to be in force at 31 December 2007are set out below. Consolidation Subsidiaries are all entities over which the Group has the power to govern thefinancial and operating policies generally accompanying a shareholding of overone half of the voting rights. The existence and effect of potential votingrights that are currently exercisable or convertible are considered whenassessing whether the Group controls another entity. Subsidiaries are fully DDD GROUP PLC NOTES TO THE INTERIM FINANCIAL INFORMATION 1. Accounting Policies (continued) Consolidation (continued) consolidated from the date on which control is transferred to the Group. Theyare deconsolidated on the date control ceases. The Group uses the purchase method of accounting for the acquisition of asubsidiary. The cost of an acquisition is measured by the fair value of theassets given, equity instruments issued and liabilities incurred or assumed atthe date of exchange, plus costs directly attributable to the acquisition.Identifiable assets acquired and liabilities and contingent liabilities assumedin a business combination are measured initially at their fair values at theacquisition date irrespective of the extent of any minority interest. The excessof the cost of acquisition over the fair value of the Group's share of theidentifiable net assets acquired is recorded as goodwill. If the cost of theacquisition is less than the fair value of the net assets of the subsidiaryacquired the difference is recognised directly in the income statement. Inter-company transactions, balances and unrealised gains and losses ontransactions between Group companies are eliminated. Foreign currency translation a) Functional and presentational currency 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 company's functional currency andthe Group's presentational currency is Sterling. b) Transactions and balances Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at reporting period end exchange rates of monetary assets andliabilities denominated in foreign currencies are recognised in the incomestatement. c) Group companies The results and financial position of all Group entities that have a functionalcurrency different from the presentational currency are translated into thepresentational currency as follows: - Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet. - Income and expenses for each income statement are translated at average exchange rates and; - All resulting exchange differences are recognised as a separate component of equity. Income and expense recognition Revenue is the fair value of the total amount receivable by the Group forsupplies of products, when risks and rewards of ownership have been transferred,and for services which are provided on an agreed time basis. VAT or similarlocal taxes and trade discounts are excluded. Interest income and expenditure are reported on an accruals basis. Dividendsreceived, other than those from investments in associates, are recognised at thetime of their distribution. DDD GROUP PLC NOTES TO THE INTERIM FINANCIAL INFORMATION 1. Accounting Policies (continued) Income and expense recognition (continued) Operating expenses are recognised in the income statement upon utilisation ofthe service or at the date of their origin. Intangibles The Group has registered a number of patents that are initially recognised atcost and carried at cost less accumulated amortisation and impairment losses.Amortisation is over a five-year period on a straight line basis. Internally generated intangible assets An internally generated intangible asset arising from development (or thedevelopment phase) of an internal project is recognised if, and only if, all ofthe following have been demonstrated: • the technical feasibility of completing the intangible asset so that it will be available for use or sale • the intention to complete the intangible asset and use or sell it • the ability to use or sell the intangible asset • how the intangible asset will generate probable future economic benefits • the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset • the ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognised for internally generated intangible assets isthe sum of the expenditure incurred from the date when the intangible assetfirst meets the recognition criteria listed above. Expenses capitalised consistof employee costs incurred on developing software and a portion of appropriateoverhead. Where no internally generated intangible asset can be recognised,development expenditure is charged to the income statement in the period inwhich it is incurred. Subsequent to initial recognition, internally generated intangible assets arereported at cost less accumulated amortisation and accumulated impairmentlosses. Research expenditure is recognised as an expense in the period in which it isincurred. Property, plant and equipment Property, plant and equipment are recorded at cost net of accumulateddepreciation and any provision for impairment. Depreciation is provided usingthe straight-line method to write off the cost of the asset less any residualvalue over its useful economic life as follows: Short leasehold improvements The shorter of the useful life of the asset or the term of the leaseFixtures and fittings 3 to 7 years Financial assets Financial assets consist of cash and financial instruments. Financialinstruments are sub divided into receivables and prepaid expenses. DDD GROUP PLC NOTES TO THE INTERIM FINANCIAL INFORMATION 1. Accounting Policies (continued) Financial assets (continued) Derecognition of financial instruments occurs when the rights to receive cashflows from the investments expire or are transferred and substantially all ofthe risks and rewards of ownership have been transferred. An assessment forimpairment is undertaken at least at each balance sheet date whether or notthere is objective evidence that a financial asset or a Group of financialassets is impaired. Non-compounding interest and other cash flows resulting from holding financialassets are recognised in the profit and loss when received, regardless of howthe related carrying amount of financial assets is measured. Financial liabilities The Group's financial liabilities include trade and other payables. Financial liabilities are recognised when the Group becomes a party to thecontractual agreements of the instrument. All interest related charges arerecognised as an expense in the income statement. Trade payables are recognised initially at their nominal value and subsequentlymeasured at amortised costs less settlement payments. Dividend distributions to shareholders are included when the dividends areapproved at the shareholders meeting. Income taxes Current income tax assets and liabilities comprise those obligations to fiscalauthorities in the countries in which the Group carries out its operations. Theyare calculated according to the tax rates and tax laws applicable to the fiscalperiod and the country to which they relate. All changes to current taxliabilities are recognised as a component of tax expense in the incomestatement. Deferred income taxes are calculated using the liability method on temporarydifferences. This involves the comparison of the carrying amount of assets andliabilities in the consolidated financial statements with their respective taxbases. Deferred tax liabilities are always provided for in full. Deferred tax assetsare recognised to the extent that it is probable that future taxable profitswill be available against which the temporary differences can be utilised.Deferred tax assets and liabilities are calculated at tax rates that areexpected to apply to their respective period of realisation, provided they areenacted or substantively enacted at the balance sheet date. Cash and cash equivalents Cash and cash equivalents include cash at bank and in hand as well as short termbank deposits. Provisions, contingent liabilities and contingent assets Other provisions are recognised when the present obligations arising from legalor constructive commitment resulting from past events, will probably lead to anoutflow of economic resources from the Group which can be estimated reliably. DDD GROUP PLC NOTES TO THE INTERIM FINANCIAL INFORMATION 1. Accounting Policies (continued) Provisions, contingent liabilities and contingent assets (continued) Provisions are measured at the present value of the estimated expenditurerequired to settle the present obligation, based on the most reliable evidenceavailable at the balance sheet date. All provisions are reviewed at each balance sheet date and adjusted to reflectthe current best estimates. Share based employee compensation The Group operates equity settled share based compensation plans forremuneration of its employees. All employee services received in exchange forthe grant of any share-based compensation are measured at their fair values.These are indirectly determined by reference to the share option awarded. Theirvalue is appraised at the grant date and excludes the impact of any non-marketvesting conditions (e.g. profitability or sales growth targets). The Group's share option schemes provide for an exercise price equal to theaverage middle market price of the Group's shares over the five dealing daysprior to the date of grant. The vesting period ranges from the date of grant upto five years. If options remain unexercised after a period of five years fromthe date of grant, the options expire. Furthermore, if an option holder leavesthe Group before their options vest, the unexercised and unvested options areforfeited six months after the date of their departure. The Group has a historical share option scheme wherein all of the relatedoptions vested on or before 27 September 2004. The Group also has a newlyformed share option scheme under which options have been granted on variousdates between 12 November 2003 and 6 July 2006. Only the latter share optionscheme is relevant in applying IFRS 2. All share-based compensation is ultimately recognised as an expense in profitand loss with a corresponding credit to additional paid in capital, net ofdeferred tax where applicable. If vesting periods or other vesting conditionsapply, the expense is allocated over the vesting period, based on the bestavailable estimate of the number of shares options expected to vest. Non-marketvesting conditions are included in assumptions about the number of options thatare expected to become exercisable. Estimates are subsequently revised, if thereis any indication that the number of share options expected to vest differs fromprevious estimates. No adjustment to expense recognised in prior periods is madeif fewer share options ultimately are exercised than originally estimated. Upon exercise of share options, the proceeds received, net of any directlyattributable transaction costs, up to the nominal value of the shares issued arereallocated to share capital with any excess being recorded as additional sharepremium. Use of accounting estimates and judgements Many of the amounts included in the financial statements involve the use ofjudgement and/or estimation. These judgements and estimates are based onmanagement's best knowledge of the relevant facts and circumstances, havingregard to prior experience, but actual results may differ from the amountsincluded in the financial statements. Information about such judgements andestimation is contained in the accounting policies and/or the notes to thefinancial statements and the key areas are summarised below: DDD GROUP PLC NOTES TO THE INTERIM FINANCIAL INFORMATION 1. Accounting Policies (continued) Use of accounting estimates and judgements (continued) Judgements in applying accounting policies a) Capitalisation of development costs requires analysis of the likelyprofitability of the project. Sources of estimation uncertainty a) Estimates of future profitability are required for the decision whetheror not to create a deferred tax asset. b) Estimates are required as to determining future cash flows and anappropriate discount rate in performing a value in use calculation andimpairment charges. 2. Segmental reporting The Group has a single class of business; that of developing software for supplyto a specialised market within the electronics industry. As a result thedirectors do not consider that it is possible to analyse the Group's activitiesfurther on the basis of either a business stream or geographical basis. 3. Earnings per share 6 months to 6 months to 12 months to 30 June 30 June 31 Dec 2007 2006 2006 restated restated unaudited unaudited unaudited £'000 £'000 £'000Loss for the year attributable to equity shareholders (749) (1,010) (1,752) Shares Shares SharesIssued ordinary shares at start of the period 74,416,547 46,566,547 46,566,547Ordinary shares issued in the period - 11,550,000 27,850,000Issued ordinary shares at end of the period 74,416,547 58,116,547 74,416,547 Weighted average number of shares in issue for the period 74,416,547 55,094,880 57,315,680 Potential share issues arising from the Group's share option schemes are notdilutive due to the losses incurred during each financial period. DDD GROUP PLC NOTES TO THE INTERIM FINANCIAL INFORMATION 4. Transition to IFRS From 1 January 2006 the Group has adopted International Financial ReportingStandards (IFRS) in the preparation of its financial statements. The main items contributing to the change in financial information compared withthat reported under UK GAAP as at the transition date are shown below: IFRS 1 - First time adoption of International Financial Reporting Standards The reporting standard allows certain exemptions including the exemption fromthe retrospective application of IAS 21 'The effects of changes in foreignexchange rates'. The cumulative translation balance is moved into the retainedearnings at the date of transition and any subsequent translation differencesrecognised under IAS 21 are held as a separate component of equity. IAS 38 - Intangible assets Under UK GAAP the decision as to whether development expenditure was capitalisedwas left to the directors. IAS 38 requires the capitalisation of qualifying expenditure on the developmentphase of projects as an intangible asset. Costs capitalised are accumulateduntil the project is complete and then amortised over the period during whichbenefits are gained. Detailed reconciliations between UK GAAP and IFRS of both equity and profit areshown at the end of this note. DDD GROUP PLC NOTES TO THE INTERIM FINANCIAL INFORMATION 4. Transition to IFRS (continued) Reconciliation of equity as at 1 January 2006 Condensed consolidated balance sheet UK GAAP IFRS 1 IAS 38 IFRS £'000 £'000 £'000 £'000AssetsNon-current assetsProperty, plant and equipment 85 85Intangible assets 10 301 311Deposit - Total non-current assets 95 301 396 Current assetsTrade and other receivables 202 202Inventory - -Cash and cash equivalents 286 286 Total current assets 488 488 Total assets 583 301 884 Equity and liabilitiesCapital and reservesIssued capital 4,657 4,657Share premium 4,690 4,690Merger reserve 13,279 13,279Other reserve 209 209Share based payment reserve 20 20Translation reserve (418) 418 -Retained earnings (21,964) (418) 211 (22,171) Total equity 473 211 684 Non-current liabilitiesDeferred tax liabilities - 90 90 Total non-current liabilities - 90 90 Current liabilitiesTrade and other payables 110 110 Total current liabilities 110 110 Total liabilities 110 90 200 Total equity and liabilities 583 301 884 DDD GROUP PLC NOTES TO THE INTERIM FINANCIAL INFORMATION 4. Transition to IFRS (continued) Reconciliation of equity as at 30 June 2006 Condensed consolidated balance sheet UK GAAP IFRS 1 IAS 38 IFRS £'000 £'000 £'000 £'000AssetsNon-current assetsProperty, plant and equipment 69 69Intangible assets 3 327 330Deposit - - Total non-current assets 72 327 399 Current assetsTrade and other receivables 93 93Inventory - -Cash and cash equivalents 625 625 Total current assets 718 718 Total assets 790 327 1,117 Equity and liabilitiesCapital and reservesIssued capital 5,683 5,683Share premium 4,722 4,722Merger reserve 13,279 13,279Other reserve 209 209Share based payment reserve 136 136Translation reserve (354) 418 64Retained earnings (22,992) (418) 229 (23,181) Total equity 683 - 229 912 Non-current liabilitiesDeferred tax liabilities - 98 98 Total non-current liabilities - 98 98 Current liabilitiesTrade and other payables 107 107 Total current liabilities 107 107 Total liabilities 107 98 205 Total equity and liabilities 790 327 1,117 DDD GROUP PLC NOTES TO THE INTERIM FINANCIAL INFORMATION 4. Transition to IFRS (continued) Reconciliation of equity as at 31 December 2006 Condensed consolidated balance sheet UK GAAP IFRS 1 IAS 38 IFRS £'000 £'000 £'000 £'000AssetsNon-current assetsProperty, plant and equipment 54 54Intangible assets - 353 353Deposit - - Total non-current assets 54 353 407 Current assetsTrade and other receivables 127 127Inventory - -Cash and cash equivalents 1,467 1,467 Total current assets 1,594 1,594 Total assets 1,648 353 2,001 Equity and liabilitiesCapital and reservesIssued capital 7,442 7,442Share premium 4,612 4,612Merger reserve 13,279 13,279Other reserve 85 85Share based payment reserve 189 189Translation reserve (494) 418 (76)Retained earnings (23,628) (418) 247 (23,799) Total equity 1,485 - 247 1,732 Non-current liabilitiesDeferred tax liabilities - 106 106 Total non-current liabilities - 106 106 Current liabilitiesTrade and other payables 163 163 Total current liabilities 163 163 Total liabilities 163 106 269 Total equity and liabilities 1,648 353 2,001 DDD GROUP PLC NOTES TO THE INTERIM FINANCIAL INFORMATION 4. Transition to IFRS (continued) Reconciliation of profit for the period ended 30 June 2006 UK GAAP IFRS 1 IAS 38 IFRS £'000 £'000 £'000 £'000 Revenue 146 146Cost of sales - - Gross profit 146 146 Administration expenses (1,067) 26 (1,041)Share based payment (116) (116)Finance income 9 9Finance expense - - Loss before tax (1,028) 26 (1,002)Taxation - (8) (8) Loss for the period (1,028) 18 (1,010) Reconciliation of profit for the period ended 31 December 2006 UK GAAP IFRS 1 IAS 38 IFRS £'000 £'000 £'000 £'000 Revenue 305 305Cost of sales - - Gross profit 305 305 Administration expenses (1,934) 52 (1,882)Share based payment (169) (169)Finance income 18 18Finance expense - - Loss before tax (1,780) 52 (1,728)Taxation (8) (16) (24) Loss for the period (1,788) 36 (1,752) Cashflow As a result of the transition to IFRS the following changes have resulted in thecashflow statement. The definition of cash under UK GAAP is narrower than under IAS 17 'Cash flowstatements'. Under IFRS highly liquid investments, readily convertible to aknown amount of cash and with an insignificant risk of a change in value areregarded as cash equivalents. Such a readily convertible investment is the moneymarket deposit and this is included in the heading 'Cash and cash equivalents'. DDD GROUP PLC NOTES TO THE INTERIM FINANCIAL INFORMATION 4. Transition to IFRS (continued) Cashflow (continued) Under UK GAAP payments to acquire property, plant and equipment were classifiedas part of 'Capital expenditure and financial investment' whilst under IFRS suchpayments have been reclassified as part of 'Investing activities'. There are no other material differences between the cashflow statement presentedunder IFRS and that presented under UK GAAP. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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