29th Sep 2006 07:05
DDD Group PLC29 September 2006 29 September 2006 DDD GROUP PLC UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 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 2006. Highlights Financial • Turnover of £146,000 (2005: £283,000) • Loss before tax of £1,028,000 (2005: £582,000) • Loss before tax, net of FRS 20 (share based payments) implementation and research and development expenditure refunds from the Australian government, of £912,000 (2005: £685,000) • Net cash outflow from operating activities of £844,000 (2005: £724,000) • Net cash as at 30 June 2006 of £625,000 Operational • Final hardware development milestone achieved with Arisawa Manufacturing Co., Ltd. ("Arisawa") of Japan for the TriDef(R) Vision+ 3D set top box • Developed prototype 3D mobile phone in conjunction with Ocuity Limited, allowing comprehensive DDD MobileTM software and content solution to be publicly demonstrated to mobile phone manufacturers and mobile phone network operators Corporate • Appointment of Hans R. Snook, the founder and former Chief Executive of Orange and the current Chairman of MonsterMob Group PLC, to the board of DDD as a non-executive director • Placing of 11,500,000 ordinary shares of 10p each at a price of 11p per ordinary share raising approximately £1,182,000, after expenses Subsequent to the period end - highlights • Signed a Heads of Agreement to supply 3D mobile content to a European mobile phone network operator for a trial project • Completed development of the TriDef Media Player software for real-time 2D to 3D conversion of high definition content • Received a refund of research and development expenditures from the Australian government amounting to approximately £140,000 Paul Kristensen, Chairman of DDD Group plc commented: "Revenues were broadly in line with projections for the first half, whilst itwas anticipated that the second half would deliver a stronger result based onthe assumption that the licensing royalties and content related revenues for the3D mobile phone would be underway. This expectation was recently revised sincethe current mobile phone licensee is taking longer to complete the redesign oftheir 3D mobile phone, a circumstance that is beyond the direct control of theCompany. It now appears likely that the launch of the redesigned 3D mobilephone will be delayed until 2007. Recognising the need to mitigate the reliance on a single licensee, the Companycontinues parallel discussions with other mobile phone manufacturers and mobilephone network operators worldwide. A highlight of the first half was thedevelopment of a prototype 3D handset in May that demonstrates the fullcapabilities of our DDD Mobile software and content solution. Mr Hans Snookjoined the board at the beginning of the year and has been invaluable inassisting the Company in extending its business development efforts to themobile phone network operators to create customer demand for the new 3D phones. The 3D TV development project with Arisawa was completed in April 2006 andprospective licensees in Asia are evaluating the joint DDD/Arisawa solution.Based on the transition to high definition television, the new TriDef MediaPlayer software enables the presentation of both standard definition and highdefinition stereo 3D content as well as real-time 3D conversion of highdefinition 2D content. This represents a considerable achievement by ourtechnical team. DDD made excellent progress in the 3D digital cinema market where it is workingwith high-profile technology and content companies and individuals who share theCompany's vision for this commercial opportunity in the near term. The board is pleased that the successful equity placement which raised £1.2m,after expenses, has allowed the Company to execute its commercial objectives.The Company intends to build on its market leading position and focus on theconsumer market where we anticipate growing our development fees, licensingroyalties and content revenues." Operational update • Executive Summary DDD's real-time, high quality 2D to 3D content conversion is now ready forconsumers on multiple platforms including PC, mobile phone and television atboth standard and high definition resolutions. This key development allows theglobal consumer electronics firms to develop consumer devices with 3D displays,as the lack of 3D content is no longer a constraint. Securing further mobile phone licensees and demonstrating the capabilities tomobile phone network operators is the top priority for the Company. Thesedemonstrations commenced in May and are already starting to yield promisingcommercial opportunities with prospective customers in Europe and Asia. DDD's 3D mobile phone solution, DDD Mobile, is already available for phones thatuse operating systems from Qualcomm and Microsoft and a Symbian OSTM compatiblesolution is currently under development. It is expected that this combinationwill allow the company to address the majority of 3D mobile phones that arelikely to be developed in the near term. Despite the availability of competitive real-time 3D conversion solutions,predominantly from suppliers in Asia and North America, DDD's patented imageprocessing techniques continue to yield the highest quality 3D images, allowingthe Company to compete effectively for contracts on all platforms. The Company's strategic relationship with Arisawa is expected to continue toprovide many benefits, particularly in the development and management of keycustomer relationships in Asia. Arisawa is a successful Tokyo Stock Exchangelisted company. Its financial strength, operations knowledge and Asian businessdevelopment capabilities have supplemented the existing skills of DDD'smanagement team and board of directors. • Business Review DDD is presently pursuing the adoption of its patented software, hardware andcontent conversion/creation solutions on four main platforms. The 3D marketcontinues to shift towards consumer applications; therefore, the Companybelieves it is more meaningful to report its activities in terms of thetechnological platforms its solutions address. These are as follows. 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 and video in glasses-free 3D. Consumer Television, refers to large flat screen LCD and plasma displays beingdeveloped and marketed by major consumer electronics companies where DDD'sreal-time 2D to 3D content conversion solution is expected to provide animportant bridge towards mass-market consumer adoption of 3D capabletelevisions. Desktop Displays and Notebook PCs, refers primarily to business users,government agencies and universities who use 3D displays, and DDD's relatedsoftware, to enhance visual data in the medical, pharmaceutical, education, oil& gas and manufacturing sectors. 3D Digital Cinema, refers to the new market for theatrical presentation of filmsin a 3D digital format where DDD's content conversion solution and 2D-compatable3D transmission IP are intended to reduce the time and cost of converting 2Dproductions to 3D for the Hollywood studios and also to provide an efficientmeans of digital distribution to cinema owners. • Consumer Handheld Devices The consumer handheld devices platform was established in the second half of2005 with the software development and licensing agreement that was secured withone of the world's top five mobile phone manufacturers. No revenue wasgenerated from this platform during the six months ended 30 June 2006 since the£500,000 development agreement concluded successfully in December 2005. For thesix months ended 30 June 2005, this platform accounted for 53% of total turnoveras a result of the achievement of the first development milestone yielding£150,000. The mobile phone market is an attractive platform for 3D because: - Sharp successfully launched two glasses-free mobile phones into the Japanese market in 2003/2004 with combined sales of just under 3 million units - The global market is substantial with sales of 1 billion mobile phones forecast for 2006 (Source: Strategy Analytics, Inc.) - Mobile phone manufacturers are eager to differentiate their product offerings - Mobile phone network operators ("carriers") are keen to increase data revenues. The technological performance of mobile phones is rapidly progressing, turning a mobile phone into a mobile entertainment device. This transition drives data revenues as subscribers acquire a wide range of entertainment content for mobile phones The company's existing mobile phone licensee has commenced the redesign of their3D handset with an improved 3D display, as mentioned in the Company's 2005Annual Report. However it now appears likely that the launch of the revisedmobile phone will be delayed until 2007, thereby postponing the royalty andcontent revenues that the company expects to generate from this product. Inline with the terms of the existing license agreement, the company expects thelicensee will shortly renew their exclusive rights to DDD Mobile for use inmobile phones sold in the licensee's domestic market. The company alsoanticipates securing a further minor development project with the licensee inconnection with development work required to support the redesigned mobilephone. The company has made good progress in addressing other mobile phonemanufacturers and carriers with demonstrations of the prototype 3D mobile phonethat was jointly developed with Ocuity Limited in May this year. Consequently,the company is in negotiations with a European division of a global carrier withthe objective of being retained to assist in the development of the carrier'stechnology and content strategy for a 3D mobile phone. The initial feasibilityphase of this project is expected to be undertaken prior to the year-end withthe prospect of additional technology and content-based agreements in 2007,subject to the carrier's approval and execution of a 3D mobile phone projectplan. The company has also recently signed a Heads of Agreement to supply 3D mobilecontent to a further European carrier for a trial project. The mobile contentwill comprise 3D photos animations and video drawn from DDD's own mobile libraryand also from converted content through DDD's partnership with Jamster!International Sarl. The project is planned for the fourth quarter of 2006 andthe company will provide further details, as permitted, following the carrier'sformal announcement of the project. Following the successful development of the DDD Mobile solution for mobilephones that use the Microsoft and Qualcomm platforms, DDD's technical team hasnow commenced development of a version of DDD Mobile that is compatible with theSymbian OSTM platform used in advanced smartphones sold by mobile phonemanufacturers such as Nokia, Motorola, Sony Ericsson and others. Throughpartnerships with leading 3D display manufacturers, the company plans to soon bein a position to demonstrate the third generation of 3D mobile displays thatoffer wider viewing angles and high-resolution 2D and 3D images. • Consumer Television This platform commenced in late 2004 with the £140,000 development agreemententered into with Arisawa for the development of the TriDef Vision+ set top box.During the six months ended 30 June 2006, the final development milestone forthe TriDef Vision+ set top box was achieved and several Vision+ set top boxeswere sold to Arisawa for evaluation by prospective licensees in Asia, yieldingrevenue of £27,000 and accounting for 18% of total turnover (2005: 12% and£34,000). The TriDef Vision+ allows real-time 2D to 3D content conversion to be applied tomost types of television content, including broadcast, satellite and cabletelevision, recorded media, such as DVD and videocassette and output from gameconsoles. In recognition of the move towards high definition consumer displays, thecompany has released a new software product called TriDef Media Player whichprovides real-time 3D conversion of high definition 2D content. The release ofhigh definition image processing capabilities is intended to coincide with thedelivery of prototype high definition 3D displays using Arisawa's 3D opticalmaterials that are expected before the year-end. By delivering a software basedsolution for high definition image processing, the Company is in a position todemonstrate high definition 3D content much sooner than would be possible with ahardware-based solution. • Desktop Displays and Notebook PCs The desktop displays and notebook PCs platform grew by 41% and accounted for 80%of total turnover at £116,000 (2005: 29% and £82,000). DDD entered into a three-year software licensing agreement with SharpCorporation ("Sharp") in September 2003, which was expanded in March 2005 toinclude DDD's TriDef DVD Player, a software product that enables the real-time2D to 3D conversion of DVD content. The expanded licensing agreement coincidedwith the introduction of the Actius AL3D, Sharp's second-generation switchable2D/3D notebook PC. DDD resells the notebook PC and additional TriDef software applications tointernational business users. The AL3D is pre-loaded during manufacture withfive TriDef software products, including the TriDef DVD Player. The majority ofthe revenues from this platform are associated with the sale of display productssince Sharp has now manufactured their full quota of the Actius AL3D notebook PCand DDD has already received the related royalties. • 3D Digital Cinema This platform emerged in the U.S. in November 2005 upon the release of ChickenLittle, a feature length 3D film from Walt Disney Pictures. During the firsthalf of 2006, the Company began investigating various opportunities withprospective partners; however, no revenue was generated from this platformduring the six months ended 30 June 2006. In July this year, the company undertook the first 3D conversion trial of adigital cinema film in conjunction with a post-production partner and a majorHollywood studio. The trial demonstrated that the company's 3D conversionsolution achieves an acceptable, high quality 3D result on the larger digitalcinema screens. Following the conclusion of the test, the company is involved in two separatediscussions relating to the commercialisation of the 3D conversion solution fordigital cinema applications. The first involves the post-production partnerwith whom the initial test was undertaken. The partner is now solicitingfurther test projects with well-known studios and film directors with whom theyhave pre-existing relationships. The goal is to demonstrate how first run andexisting library movies can be converted to 3D for release in the emerging 3Ddigital cinema market. The second project involves a California-based, public corporation that iscurrently involved in the supply of products in the 3D digital cinema market.This corporation has developed non-3D technologies that may yield suitableimprovements in automating the 3D conversion process when integrated with DDD'sexisting offline conversion solution. The goal of this project is to jointlydevelop an improved offline 3D conversion solution, specifically targeted at thedemands of digital cinema, to provide an affordable, efficient conversionsolution for studios and filmmakers. Presently, both companies are identifyingthe technical requirements of the project with the expectation that a formaldevelopment project will be initiated for which DDD will receive developmentfees as specified milestones are achieved. The Company expects to continue to focus its business development efforts onundertaking tests to gain the approval of Hollywood studios and key filmmakersto DDD's 2D to 3D conversion solution. The development effort willsimultaneously be focused on the delivery of a cost effective, efficientconversion solution that meets the demands of the 3D digital cinema market. NOTES TO EDITORS DDD, also known as Dynamic Digital Depth, is transforming the viewing experiencewith software applications for glasses-free 3D displays. Its patentedtechnologies enable 3D viewing without glasses; simple integration of computergraphics applications with 3D displays; supply of 3D content through 2D to 3Dconversion; and 3D content transmission over existing networks. DDD is quotedon the London Stock Exchange's Alternative Investment Market (AIM: DDD). Background • A new category of flat screen LCD and plasma displays are beingdeveloped and marketed by major consumer electronics companies that providestereoscopic 3D images without the need for the viewer to wear glasses.Stereoscopic 3D images appear to have natural in and off-screen depth. 3Ddisplays have already been included in mobile phones in Japan and in desktop PCdisplays and notebook computers in North America and Japan. • 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. 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. Mobile Phone • In 2003 and 2004, DoCoMo introduced two models of Sharp mobile phonesthat included 3D LCD displays developed by Sharp. DoCoMo sold approximately 2.8million glasses-free 3D mobile phones in Japan. • In July 2005, DDD entered into a two-year, non-exclusive, DDD Mobilesoftware licensing agreement and a development agreement with one of the world'stop five mobile phone manufacturers for a second-generation, glasses-free 3Dmobile phone. The licensing arrangements are expected to yield per unitroyalties once the licensee launches their 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. Television • 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. Digital Cinema • DDD is currently investigating IP licensing opportunities in the 3Ddigital cinema market. FURTHER INFORMATION Further information on DDD Group plc, its markets and products is available atwww.DDD.com. ENQUIRIES DDD Group plc Chris Yewdall, President and Chief Executive Officer Tel: +1 310 566 3340 E-mail: [email protected] Mark McGowan, Chief Financial Officer Bell Pottinger Corporate & Financial Nick Lambert Tel: +44 20 7861 3232 DDD GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT Restated Restated Unaudited Unaudited Audited 6 months ended 6 months ended 12 months ended 30 June 2006 30 June 2005 31 December 2005 Notes £'000 £'000 £'000 Turnover 146 283 747 Administrative expenses 3 (1,183) (875) (1,864) Operating loss (1,037) (592) (1,117) Net interest 9 10 29 Loss on ordinary activities before taxation (1,028) (582) (1,088) Tax charge on ordinary activities 4 - (21) (74) Loss for the financial period/year (1,028) (603) (1,162) Basic loss per share 5 (1.9p) (1.3p) (2.5p) All transactions arose from continuing operations. DDD GROUP PLC CONSOLIDATED BALANCE SHEET Unaudited Unaudited Audited as at as at as at 30 June 2006 30 June 2005 31 December 2005 Note £'000 £'000 £'000 Fixed assetsIntangible assets 3 1 10Tangible assets 69 99 85 72 100 95 Current assetsDebtors 93 262 202Investment in money market deposits 241 405 76Cash at bank and in hand 384 316 210 718 983 488 Creditors (107) (103) (110) Net current assets 611 880 378 Net assets 683 980 473 Capital and reserves 6 683 980 473 DDD GROUP PLC CONSOLIDATED CASH FLOW STATEMENT Unaudited Unaudited Audited 6 months ended 6 months ended 12 months 30 June 2006 30 June ended 2005 31 December 2005 Note £'000 £'000 £'000 Net cash outflow from operating activities 7 (844) (724) (1,103) Returns on investmentsInterest received 9 10 29Net cash inflow from returns on investments 9 10 29 TaxationForeign withholding taxes paid - - (74)Net cash outflow from taxation - - (74) Capital expenditurePurchase of tangible fixed assets (4) (65) (68)Sale of tangible fixed assets 1 26 26Net cash outflow from capital expenditure (3) (39) (42) Management of liquid resourcesInvestment in money market deposits (473) (612) (76)Sale of money market deposit 299 207 -Sale of short-term bank deposit - 45 47Net cash outflow from management of liquid resources (174) (360) (29) FinancingIssue of shares 1,270 - -Expenses paid in connection with issue of shares (84) - -Net cash inflow from financing 1,186 - - Increase/(decrease) in cash 174 (1,113) (1,219) DDD GROUP PLC CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Restated Restated Unaudited Unaudited Audited 6 months 6 months 12 months ended ended ended 30 June 2006 30 June 2005 31 December 2005 £'000 £'000 £'000 Loss for the financial period/year (1,028) (603) (1,162) Currency differences on foreign currency net investments (64) 26 60 Total recognised losses for the financial period /year (1,092) (577) (1,102) DDD GROUP PLC NOTES TO THE INTERIM FINANCIAL INFORMATION 1 BASIS OF PREPARATION The interim financial information as at and for the six month periods ended 30June 2006 and 30 June 2005 is unaudited and does not constitute statutoryaccounts for the purposes of section 240 of the Companies Act 1985. The resultsfor the year ended 31 December 2005 are an abridged version of the full accountsfor that year which have been filed with the Registrar of Companies. Theauditors' report on the accounts was unqualified. The Group has applied the requirements of Financial Reporting Standard 20 ("FRS20"), Share Based Payments, in accordance with the transitional provisions, toall equity instruments granted after 7 November 2002 that had not vested as of 1January 2006. This interim financial information has been prepared under the historical costconvention and in accordance with applicable United Kingdom accountingstandards. Other than noted in the preceding paragraph, the principalaccounting policies have remained unchanged during all periods presented andhave been consistently applied in all material respects. 2 BASIS OF CONSOLIDATION The financial statements consolidate those of the company and of its subsidiaryundertakings (the "Group") drawn up to 30 June 2006. 3 ADMINISTRATIVE EXPENSES During the six months ended 30 June 2005 and the year ended 31 December 2005,one of the Group's Australian subsidiaries received refunds of research anddevelopment expenditures from the Australian government amounting toapproximately £107,000 and £184,000, respectively. No such research anddevelopment expenditure refunds were received during the six months ended 30June 2006. Due to the uncertainty of the timing and recoverability of researchand development expenditure refunds from the Australian government, recognitionoccurs when receipt is certain. As mentioned in Note 9, the Group recognised a total expense of £116,255, £3,963and £22,401 relating to equity settled share option scheme transactions duringthe six month periods ended 30 June 2006 and 2005 and the year ended 31 December2005, respectively. 4 TAX CHARGE ON ORDINARY ACTIVITIES Tax charges of £21,000 and £74,000 were incurred during the six months ended 30June 2005 and the year ended 31 December 2005, respectively, in connection withforeign withholding taxes on sales recorded by one of the Group's operatingsubsidiaries, Dynamic Digital Depth Australia Pty. Ltd. The resulting foreigntax credit is available for a maximum of five years to offset foreign taxableincome of a similar nature to that which gave rise to the foreign withholdingtax. No such tax charge was incurred during the six months ended 30 June 2006. There are substantial unrelieved tax losses of approximately £20,000,000, whicharise in the USA, UK, Canada and Australia. The availability to offsetunrelieved tax losses against future taxable trading profits may be subject torestrictions in the respective tax jurisdictions. The potential deferred taxasset of approximately £6,400,000 has not been recognised due to the uncertaintyof the timing and recoverability of the asset. The asset will be recovered inline with future profits. DDD GROUP PLC NOTES TO THE INTERIM FINANCIAL INFORMATION 5 LOSS PER SHARE The calculation of the loss per share is based on the losses attributable toordinary shareholders divided by the weighted average number of shares in issueduring each period. The weighted average number of ordinary shares outstandingduring the six month periods ended June 30, 2006 and June 30, 2005 and the yearended 31 December 2005 were 55,094,880, 46,566,547 and 46,566,547, respectively. Potential share issues arising from the Group's share option schemes are notdilutive due to the losses incurred during each financial period. 6 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Restated Restated Unaudited Unaudited Audited 6 months ended 6 months ended 12 months ended 30 June 30 June 31 December 2006 2005 2005 £'000 £'000 £'000 Loss for the financial period/year (1,028) (603) (1,162)Exchange differences (64) 26 60Share options 116 4 22Issue of shares 1,270 - -Expenses paid in connection with issue of shares (84) - -Net increase/(decrease) in shareholders' funds 210 (573) (1,080) Shareholders' funds at beginning of period/year 473 1,553 1,553 Shareholders' funds at end of period/year 683 980 473 7 NET CASH OUTFLOW FROM OPERATING ACTIVITIES Restated Restated Unaudited Unaudited Audited 6 months ended 6 months ended 12 months ended 30 June 30 June 31 December 2006 2005 2005 £'000 £'000 £'000 Operating loss (1,037) (592) (1,117)Amortisation 7 20 34Depreciation 17 42 61Share options 116 4 22Gain on sale of tangible fixed assets (1) (26) (26)Decrease/(increase) in debtors 108 (169) (108)Decrease in creditors (3) (9) (2)Foreign exchange differences (51) 6 33Net cash outflow from operating activities (844) (724) (1,103) DDD GROUP PLC NOTES TO THE INTERIM FINANCIAL INFORMATION 8 ANALYSIS OF CHANGES IN NET FUNDS At beginning Cash flow Exchange At end of period movement of period £'000 £'000 £'000 £'000Unaudited 6 months ended 30 June 2006 Cash at bank and in hand 210 174 - 384Investment in money market deposits 76 174 (9) 241 286 348 (9) 625 Unaudited 6 months ended 30 June 2005 Cash at bank and in hand 1,429 (1,113) - 316Investment in money market deposits - 405 - 405Short-term deposits 45 (45) - - 1,474 (753) - 721 Audited 12 months ended 31 December 2005 Cash at bank and in hand 1,429 (1,219) - 210Investment in money market deposits - 76 - 76Short-term deposits 45 (47) 2 - 1,474 (1,190) 2 286 9 SHARE BASED PAYMENTS - EQUITY SETTLED SHARE OPTION SCHEMES 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 employee orconsultant leaves the Group before their options vest, the options are forfeitedsix 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 FRS 20. The Group recognised a total expense of £116,255, £3,963 and £22,401 relating toequity settled share option scheme transactions during the six month periodsended 30 June 2006 and 2005 and the year ended 31 December 2005, respectively. 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