Final Results & Notice of AGM

RNS Number : 4070J

Messaging International Plc

30 June 2011

Messaging International Plc / Market: AIM / Epic: MES / Sector: Technology

30 June 2011

Messaging International Plc ('the Company')

Final Results

Notice of AGM

Messaging International Plc, the AIM traded provider of innovative messaging services, announces its results for the year ended 31 December 2010 and gives notice of its AGM to be held at the offices of Montpelier Chartered Accountants, 58-60 Berners Street, London W1T 3JS on 8 August 2011 at 2p.m. The report and accounts for the year ended 31 December 2010 will be sent to shareholders on 30 June 2011 and will be available on the Company's website at www.telemessage.com.

Overview

· Continued revenue growth - increased by 27.6% to £2,901,985 (2009: £2,274,080)

· First time profit for the year - £357,245 (2009: loss £33,096) with positive cash flow generated

· Strengthening offering and investing in new products to offer creative and user friendly messaging products and services to existing and new clients

· New Messaging Gateway gaining traction and being adopted by an increasing number of operators and enterprises

· Blue-chip client list - seven new telecom operator customers added during the year

· Healthy new business pipeline

Chairman's Statement

The year to 31 December 2010 saw the Company strengthen its global market position as a leading provider of converged messaging services and expanded its geographic footprint. In conjunction with steady sales of core products, new products helped the Company increase its gross revenue by 27.6% from £2,274,080 in 2009 to £2,901,985.

The Company designs and sells products to improve the way users and operators can easily share information across various communication mediums. As new communication services develop and mobile phones become increasingly multi-functional, our services need to keep pace with the need for change. We have worked hard over the past 12 months to strengthen our offering and invest in new products which offer creative and practical messaging solutions to existing as well as new clients.

We have increased sales of our Messaging Gateway product which offers various interfaces for content providers, enterprises and Facebook developers. By enabling the enterprise/user to send out messages (mainly SMS/MMS but also voice, fax and email) to customers and employees, it is gaining momentum as more clients understand its convenience and cost-saving benefits. These advancements, in conjunction with our blue-chip client list, place the Company in a strong position for future growth.

Operational Review

Our subsidiary, TeleMessage, provides converged messaging products and services for carriers and enterprises that deliver text, voice, video and multimedia messages to and from any communication device. Users can send, receive, and manage SMS, MMS, voice, fax and e-mail messages from the Internet, e-mail clients, fixed or mobile phones and application programming interfaces ('APIs'). We either host messaging services for a per-message fee or sell software licenses, which are usually linked to the number of messages that can be sent through the system or the number of active users. This ensures stable revenues for the group.

Our clients include companies such as Sprint in the US, Rogers Wireless, Bell Mobility and Telus in Canada, USI in Russia and T-Mobile in Macedonia. As a result of our partnership agreements, we have added seven new US customers to this list during the year and anticipate that it will be further strengthened during the remainder of 2011.

We have a talented R&D team, based in Israel, which works hard to develop existing products and create new ones to ensure that the Company retains its place as a leading provider in this sector. During 2010 and subsequently, we have launched new products which comply with Open Network Enabler API standards to ensure that our converged messaging services can be integrated across multiple operators. These include a range of new Facebook applications and API devices, which allow developers to integrate SMS, MMS, voice, conferencing, fax and video messaging within their own applications.

Financial Results

I am delighted to announce that the results for the year ended 31 December 2010 show a much improved result with a profit of £357,245 (2009: loss £33,096).

The group's cash position at 31 December 2010 was £357,319 (2009: £202,691).

The board is not recommending the payment of a dividend but continue to review the position.

Outlook

Even though the telecom sector is experiencing a challenging period, I believe that there is growth potential both geographically and technologically. With this in mind, operators continue to search for new revenue generators in order to meet the changing needs of the increasingly technically-aware consumer. TeleMessage fits this profile with its innovative messaging services that make life easier for the end-user and ultimately adds value to the provider.

I look to the future with confidence that the Company, through its subsidiaries, will be able to deliver value to its shareholders as a result of its flow of new products, healthy new business pipeline and excellent relationships with major telecom operators.

I would like to thank our team for their hard work and dedication over the past year and our shareholders for their continued support and I look forward to reporting another successful period of trading at our interims.

H Furman

Chairman

29 June 2011

For further information visit www.telemessage.com or contact:

Guy Levit	Messaging International Plc	Tel: + 972 3 9225252
Mark Percy	Seymour Pierce Limited	Tel: +44 (0) 20 7107 8000
Catherine Leftley	Seymour Pierce Limited	Tel: +44 (0) 20 7107 8000
Katie Ratner	Seymour Pierce Limited	Tel: +44 (0) 20 7107 8000
Elisabeth Cowell	St Brides Media & Finance Ltd	Tel: +44 (0) 20 7236 1177

Consolidated statement of comprehensive income for the year ended 31 December 2010

	2010	2009
	£	£

Continuing operations:

Revenues	2,901,985	2,274,080

Cost of revenues	(1,142,621)	(980,879)
Gross profit	1,759,364	1,293,201

Operating expenses
Research and development	(482,741)	(366,762)
Selling and marketing	(494,328)	(508,716)
General and administrative	(410,760)	(390,415)

Total operating expenses	(1,387,829)	(1,265,893)

Operating profit	371,535	27,308

Finance costs	(14,290)	(60,404)

Profit/(loss) before taxation	357,245	(33,096)

Taxation	-	-

Comprehensive profit/(loss) for the year attributable to equity holders of the parent company	357,245	(33,096)

Other comprehensive profit/(loss)
Foreign exchange difference on translation of foreign operations	(48,686)	(29,029)

Foreign exchange difference arising from restating the carrying value of goodwill associated with foreign operations	106,348	(343,945)
	57,662	(372,974)

Total comprehensive profit/(loss) attributable to equity holders of the parent company	414,907	(406,070)
Earnings/(loss) per share (basic and diluted)

Earnings and diluted earnings /(loss) from operations	0.15p	(0.01)p

Statements of changes in equity for the year ended 31 December 2010

The Group

	Share capital	Share premium	Foreign exchange reserve	Revenue reserves	Total

As at 1 January 2009	1,176,900	4,266,227	709,704	(1,881,126)	4,271,405

Loss for the year				(33,096)	(33,096)
Foreign currency translation changes for goodwill			(343,945)		(343,945)
Other foreign currency translation changes			(29,029)		(29,029)
Share based payments for employee share options				32,548	32,548
Issue of shares in lieu of professional fees	2,500	32,500			35,000

At 31 December 2009	1,179,400	4,298,727	336,730	(1,881,674)	3,933,183

Profit for the year				357,245	357,245
Foreign currency translation changes for goodwill			106,348		106,348
Other foreign currency translation changes			(52,517)		(52,517)
Share based payments for employee share options				3,831	3,831

At 31 December 2010	1,179,400	4,298,727	390,561	(1,520,598)	4,348,090

The following describes the nature and purpose of each reserve within owners' equity.

Share capital: The amount subscribed for shares at nominal value.

Share premium: The amount subscribed for share capital in excess of nominal value.

Foreign exchange reserve: The effect of changes in exchange rates arising from translating the financial statements of subsidiary undertakings into the Company's reporting currency.

Revenue reserves: Cumulative realised profits less losses and distributions attributable to equity holders of the group.

Consolidated statement of financial position at 31 December 2010

	2010	2009
	£	£
Non-current assets
Intangible assets	3,668,665	3,562,317
Property, plant and equipment	57,148	56,067
Other investments	206,362	157,562

Total non-current assets	3,932,175	3,775,946

Current assets
Trade and other receivables	845,225	626,106
Cash and cash equivalents	357,319	202,691

Total current assets	1,202,544	828,797

Total assets	5,134,719	4,604,743

Current liabilities
Trade and other payables	(464,449)	(292,418)
Borrowings	(44,737)	(169,679)

Total current liabilities	(509,186)	(462,097)

Non-current liabilities
Borrowings	-	(8,466)
Other payables	(39,582)	(20,764)
Provisions	(237,861)	(180,233)

Total non-current liabilities	(277,443)	(209,463)

Total liabilities	(786,629)	(671,560)

Net assets	4,348,090	3,933,183

Equity attributable to owners of the parent company

Share capital	1,179,400	1,179,400
Share premium	4,298,727	4,298,727
Foreign currency translation reserve	390,561	336,730
Revenue reserves	(1,520,598)	(1,881,674)


Total Equity	4,348,090	3,933,183

Consolidated statement of cash flows for the year ended 31 December 2010

	2010	2009
	£	£

Cash flow from operating activities

Operating profit	371,535	27,308

Adjustments for:
Share based payments	21,331	33,798
Depreciation and amortisation	30,756	25,677
Foreign currency differences	(8,169)	(39,440)
	43,918	20,035
Operating cash inflow before working capital movements	415,453	47,343

Increase in receivables	(236,619)	(15,449)
Increase/(decrease) in payables	190,849	(69,673)
Increase in provisions	57,628	28,960
	11,858	(56,162)
Cash inflow/(outflow) from operating activities	427,311	(8,819)


Investing activities
Interest paid	(22,130)	(19,122)
Investments	(48,800)	(34,148)
Purchase of tangible assets	(30,163)	(33,645)
Net cash used in investing activities	(101,093)	(86,915)

Financing activities
Bank loan	-	220,126
Bank loan repayments	(171,590)	(222,354)
Net cash used from financing activities	(171,590)	(2,228)

Net change in cash and cash equivalents	154,628	(97,962)

Cash and cash equivalents and bank overdraft at the beginning of the year	202,691	300,653

Cash and cash equivalents and bank overdraft at the end of the year	357,319	202,691

	2010	2009
	£	£

Cash flow from operating activities

Operating loss	(38,568)	(30,577)
Share based payments	17,500	1,250

Operating cash flow before working capital movements	(21,068)	(29,327)

Increase in receivables	(9,416)	(47,353)
Increase in payables	2,699	1,399

Cash flow from operating activities	(27,785)	(75,281)

Finance income	29,195	29,371

Net cash inflow/(outflow) in operating activities	1,410	(45,910)

Net cash from financing activities	-	-
Net change in cash and cash equivalents	1,410	(45,910)

Cash and cash equivalents and bank overdraft at the beginning of the year	14,042	59,952

Cash and cash equivalents and bank overdraft at the end of the year	15,452	14,042

Notes to the group and parent company financial statements

1. General information

Messaging International Plc is a company incorporated in the UK and its activities are as described in the chairman's statement and directors' report.

The financial information is a preliminary announcement for the years ended 31 December 2010 and 2009 and does not comprise statutory accounts for the purposes of Section 434 of the Companies Act 2006.

The statutory accounts have been audited by Jeffreys Henry LLP, incorporate an unqualified auditors report and do not contain an emphasis of matter paragraph or any statement under Section 498 of the Companies Act 2006.

The preliminary announcement of the results for the year ended 31 December 2010 was approved by the boards of directors on 29 June 2011.

Whilst the information in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS's, this announcement does not itself contain sufficient information to comply with IFRS's.

The statutory accounts will be sent to those shareholders who have elected to receive a paper copy shortly. Further copies will be available to the public from the Company's registered office 58-60 Berners Street, London W1T 3JS.

Statutory accounts will be available on the Company's website www.messaginginternational.com.

2. Basis of Accounting

The consolidated financial statements of the Company for the year ended 31 December 2010 have been prepared on a historical cost basis and are in accordance with International Financial Reporting Standards ('IFRS'') as adopted by the EU. These have been applied consistently except where otherwise stated.

The Group has adopted the following new and amended IFRSs as of 1 January 2010:

IFRS 3 (revised), 'Business combinations' and consequential amendments to IAS 27, 'Consolidated and separate financial statements', IAS 28, 'Investments in associates' and IAS 31, 'Interests in joint ventures', effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009.

The revised tandard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classiﬁed as debt subsequently re-measured through the statement of comprehensive income. There is a choice on an acquisition-by-acquisition basis to measure the minority interest in the acquiree either at fair value or at the minority interest's proportionate share of the acquiree's net assets. All acquisition-related costs should be expensed.

IAS 27 (revised), 'Consolidated and separate financial statements', (effective from 1 July 2009). The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re measured to fair value, and a gain or loss is recognised in profit or loss. The Company will apply IAS 27 (revised) prospectively to transactions with non-controlling interests from 1 January 2010.

IAS 38 (amendment), 'Intangible assets'. The amendment is part of the IASB's annual improvements project published in April 2009 and the Company will apply IAS 38 (amendment) from the date IFRS 3 (revised) is adopted. The amendment clariﬁes guidance in measuring the fair value of an intangible asset acquired in a business combination and it permits the grouping of intangible assets as a single asset if each asset has a similar useful economic life. The amendment will not result in a material impact on the Company's financial statements.

IFRS2, Share-based Payment: Group Cash-settled Share-based Payment Transactions effective 1 January 2010. The IASB issued an amendment to IFRS2 that clarified the scope and the accounting for group cash-settled share-based payment transactions. The Company adopted this amendment as of 1 January 2010. It did not have an impact on the financial position or performance of the Company.

IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items effective 1 July 2009. The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flows variability of a financial instrument as a hedged item. This also covers the designation of inflation as a hedged risk or portion in particular situations. The Company has concluded that the amendment will have no impact on the financial position or performance of the Company, as the Company has not entered into such hedges.

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 January 2010 and have not been early adopted:

IAS 24 (Amendment), 'Related party transactions'. The amended standard is effective for annual periods beginning on or after 1 January 2011. It clarified definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government-related entities. The Company does not expect any impact on its financial position or performance.

IAS 32 (amendment), 'Financial instruments: presentation - classification of rights issue', is effective from annual periods beginning on or after 1 February 2010 and amended the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro-rata to all of the existing owners of the same class of an entity's non-derivative equity instruments, or to acquire a fixed number of the entity's own equity instruments for a fixed amount in any currency. This amendment will have no impact on the Company after initial application.

IFRIC 14 (Amendment), 'Prepayments of a minimum funding requirement'. The amendment to IFRIC 14 is effective for annual periods beginning on or after 1 January 2011 with retrospective application. The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. The amendment is deemed to have no impact on the financial statements of the Company.

IFRS 9, 'Financial instruments: classification and measurement', as issued reflects the first phase of the IASB work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January 2013. In subsequent phases, the IASB will address classification and measurement of financial liabilities, hedge accounting and derecognition. The completion of this project is expected in early 2011. The adoption of the first phase of IFRS 9 might have an effect on the classification and measurement of the Company's assets. At this juncture it is difficult for the Company to comprehend the impact on its financial position and performance.

IFRIC 19, 'Extinguishing financial liabilities with equity instruments', is effective for annual periods beginning on or after 1 July 2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognised in profit or loss. The adoption of this interpretation will have no effect on the financial statements of the Company.

The directors anticipate that the adoption of these standards and interpretations in future periods will have no material effect on the financial statements of the group.

3. Presentational currency

These financial statements are presented in pounds sterling because the parent is an AIM traded company on the London Stock Exchange.

4. Significant accounting policies

(a) Going concern

These financial statements have been prepared on the assumption that the group is a going concern.

When assessing the foreseeable future, the directors have looked at a period of twelve months from the date of approval of this report. The forecast cash-flow requirements of the business are contingent upon the ability of the group to retain revenues from existing contracts and generate future revenues from future business.

As the directors have reasonable expectations that the group has adequate resources to continue trading for the foreseeable future they continue to adopt the going concern basis in preparing the financial statements.

Were the group unable to continue as a going concern, adjustments would have to be made to the statement of financial position of the group to reduce the value of assets to their recoverable amounts, to provide for future liabilities that might arise and to reclassify non-current assets and long-term liabilities as current assets and liabilities.

(b) Revenue recognition

The group generates revenue primarily from licensing its messaging services to service providers, corporations and other distributors as well as from hosting and maintenance fees and from the use of messaging services by end users.

The group recognise revenue when delivery of the product has occurred, a fee can be reliably measured and the ability to collect such revenues is probable.

Deferred revenue includes amounts received from customers for which revenue has not yet been recognised.

Research costs are expensed to operations as incurred. Development costs are also expensed to operations as incurred if such costs do not meet the criteria for capitalization as set forth in IAS 38, "Intangible assets".

In the years ended 31 December, 2010 and to date no development costs have been capitalized.

(d) Goodwill and impairment

The carrying amounts of assets are reviewed at each reporting date to determine whether there is any indication of impairment.

If any such indication exists then the asset's recoverable amount is estimated. For goodwill that has an indefinite useful life, recoverable amount is estimated at each reporting date or more frequently when indications of impairment are identified.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount unless the asset is carried at a revalued amount, in which case the impairment loss is recognised directly against any revaluation surplus for the asset to the extent that the impairment loss does not exceed the amount in the revaluation surplus for that same asset. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. Impairment losses are recognised in the income statement in the period in which it arises. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Impairment loss on goodwill is not reversed in a subsequent period. An impairment loss for an asset other than goodwill is reversed if, and only if, there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. The carrying amount of an asset other than goodwill is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss for an asset other than goodwill is recognised in the income statement unless the asset is carried at revalued amount, in which case, such reversal is treated as a revaluation increase.

(e) Investment in subsidiary undertakings

The investment in subsidiary undertakings is stated in the balance sheet at cost less any provision for impairment. Impairment is recognised immediately in the income statement and is not subsequently reversed.

(f) Property, plant and equipment

Property, plant, and equipment are stated at cost net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following annual rates:

	%
Computers	33
Electronic equipment	15-25
Furniture and office equipment	7-15
Leasehold improvements	10

The carrying value of property plant and equipment is reviewed for impairment when events or changes indicate the carrying value may not be recoverable. If any such indication exists and carrying values exceed recoverable amounts such assets are written down to their recoverable amounts.

(g) Operating leases

Rentals applicable to operating leases, where substantially all of the benefits and risks of ownership remain with the lessor, are charged against income as and when incurred.

(h) Share options:

Employee share options

The group has applied the requirements of IFRS 2 "Share-based Payments.

The group issues equity-settled and cash-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the group's estimate of shares that will eventually vest.

Fair value is measured by use of a Black-Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

A liability equal to the portion of the goods or services received is recognised at the current fair value determined at each balance sheet date for cash-settled share-based payments.

Other share options and equity instruments:

Where equity instruments are granted to persons other than employees the income statement is charged with the fair value of services received.

This policy has been applied to share warrants issued to Mizrahi Tefahot Ltd as part of their loan agreement with the Company's subsidiary undertaking in Israel and to the Company's nominated advisers in relation to reduced fees for a two year period .Details in relation to these agreements are given in notes to the financial statements.

(i) Severance pay

Pursuant to Israel's severance pay law, employees of more than one year are entitled to one month's salary for each year employed or a portion thereof. The cost of providing severance pay is determined using an independent actuary. Actuarial gains and losses are recognised immediately in the income statement in the period in which they occur.

The value of deposited funds is based on the cash surrender value of the insurance policies. The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon fulfilment of the severance pay obligation, pursuant to Israel's severance pay law or labour agreements.

(j) Government grants

Government grants are recognized when there is reasonable assurance that the grants will be received and the Company will comply with the attached conditions. Government investment grants related to assets, such as property, plant and equipment, are presented as a deduction from the carrying amount of the assets.

Government grants received from the Office of the Chief Scientist ("OCS") in Israel as support for a research and development project which grants include an obligation to pay to the State royalties that are conditional on future sales arising from the project, are recognized upon receipt as a liability if future economic benefits are expected from the project that will result in royalty-bearing sales. If no such economic benefits are expected, the grants are recognized as a reduction of the related research and development expenses. In that event, the royalty obligation is treated as contingent liability in accordance with IAS 37.

At the end of each reporting period, the Company evaluates, based on its best estimate of future sales, whether there is reasonable assurance that the liability recognized, in whole or in part, will not be repaid (since the Company will not be required to pay royalties). If there is such reasonable assurance, the appropriate amount of the liability is derecognized and recorded in profit or loss as a reduction of research and development expenses. If the estimate of future sales indicates that there is no such reasonable assurance, the appropriate amount of the liability that reflects expected future royalty payments is recognized with a corresponding adjustment to research and development expenses.

Grants received from the OCS prior to January 1, 2009, which are recognized as a liability, are accounted for as forgivable loans in accordance with IAS 20, based on the original terms of the loans.

Grants received from the OCS on or after January 1, 2009, which are recognized as a liability, are accounted for as forgivable loans, in accordance with IAS 20 (Revised), pursuant to the provisions of IAS 39, "Financial Instruments: Recognition and Measurement". Accordingly, when the liability for the loan is first recognized, it is measured at fair value using a discount rate that reflects a market rate of interest. The difference between the amount of the grants received and the fair value of the liability is accounted for upon recognition of the liability as a government grant and recognized as a reduction of research and development expenses.

Royalty payments are treated as a reduction of the liability.

(k) Taxation

Income tax expense represents the sum of the current tax payable and the deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the same income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

(l) Foreign currency

Transactions in foreign currency are recorded at the rate of exchange prevailing at the date of the transaction. All differences are taken to the income statement. Assets and liabilities denominated in foreign currency are translated into sterling at the rate of exchange prevailing at the balance sheet date.

On consolidation, income and expenditure of subsidiary undertakings are translated into sterling at average rates of exchange in the period. Assets and liabilities are translated into sterling at the rate of exchange ruling at the balance sheet date. Exchange differences arising from the use of average rates for translating the results of foreign subsidiaries or from the translation of net assets on the acquisition of foreign subsidiary undertakings are taken to the group's translation reserves.

(m) Investments

Investments represent funds invested in insurance policies in order to meet severance pay obligations pursuant to Israeli severance pay law and staff contracts of employment relevant to the Company's principal subsidiary undertaking in Israel.

(n) Trade receivables

Trade receivables are recognised at fair value. A provision for impairment of trade receivables is established where there is objective evidence that the Company or group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or liquidation and default or delinquency of payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the original rate of interest. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement within administrative expenses. When a trade receivable is uncollectable it is written off against the allowance account for trade receivables.

(o) Cash and cash equivalents

Cash and cash equivalents include cash in hand and deposits held on call with banks. Bank overdrafts are shown as borrowings within current liabilities.

(p) Provisions

A provision is recognised when the group has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation and the effect is material.

(q) Financial liabilities and equities

Financial liabilities and equities instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.

Ordinary shares are classified as equity. Incremental costs directly attributable to new shares are shown in equity as a deduction from the proceeds.

Share premium represents funds raised from shareholders in excess of their nominal value net of issue costs.

Revenue reserves represent the cumulative net gains and losses of the group along with increases in equity for services received in equity settled share-based transactions.

Borrowings represent bank borrowings and are measured at amortised cost.

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

(r) Borrowing costs

Borrowing costs are expensed to the comprehensive income statement in the period incurred.

(s) Managing capital

The group's objectives when managing capital are to safeguard the group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

5 Basic and diluted loss per share

Basic earnings/(loss) per share has been calculated on the group's profit attributable to equity holders of the parent company of £357,245 (2009: loss £33,096) and on the weighted average number of shares in issue during the year, which was 235,880,000 (2009: 235,463,334).

Diluted earnings per share has been calculated on the group's profit of £357,245 which in addition to 235 million ordinary shares in issue, takes into account £100,000 worth of warrants and 23 million options to subscribe for ordinary shares. As the group made a loss in the year ended 31 December 2009, the diluted loss per share is anti-dilutive and therefore this information is not presented for that year.

6 Cash and cash equivalents and bank overdraft