Final Results
Messaging International Plc
16 May 2006
Messaging International Plc / Market: AIM / Epic: MES / Sector: Technology
16 May 2006
Messaging International Plc ('Messaging International' or the 'Company')
Final Results
Chairman's Statement
Messaging International Plc, the AIM listed provider of innovative messaging
services announces the audited consolidated results for the year ended 31
December 2005 which include the accounts of TeleMessage Ltd from its date of
acquisition on 20 July 2005.
Financials
In line with the board's expectations, the group turnover was £219,793 with a
pre-tax loss of £392,919. At 31 December 2005, the group's cash balances were
in excess of £950,000.
Since Messaging International Plc's successful flotation onto the AIM market in
August 2005, raising £1.2m net of costs, your company has made significant
progress and have signed a number of key contracts with global telecom
operators. We continue to enhance our products with the view to becoming one of
the leading international messaging software solutions providers.
Our products
Messaging International Plc's integrated communications solutions offer
messaging services and products, enabling service providers and enterprises to
send, receive, and manage voice, text and multimedia messages from a wide range
of communication media - the Internet, PC, client WAP-enabled device or any
fixed-line or mobile phone. Multimedia messages can be sent, replied or
forwarded to individuals or groups and to various communication devices,
including landline phone, mobile phone, fax, e-mail, SMS, Instant Messenger
(e.g. ICQ), and pager.
Global operations
Some of our worldwide customers include:
Canada: Roger Wireless, the largest mobile operator in Canada with whom we have
a continuing revenue-sharing relationship, covering SMS to Landline including an
additional Text-to-Song feature.
USA: The United States messaging market has historically lagged behind its
European and Asian equivalents. However, the market is at last showing a
dramatic increase in messaging traffic, as well as a greater demand for
messaging solutions from operators. As a direct result of our efforts in the
United States, our Text-to-Landline solution, a service whereby text messages
are converted to automated voice messages for delivery to landline phones, was
recently launched across the network by Sprint-Nextel, one of the top tier
mobile providers in the country. The product is also in pilot trials with two
other large American operators, and we hope to announce additional agreements
soon.
Asia Pacific: We are also delighted to have announced our first contract in the
Asia-Pacific market, another region which is forecast to grow considerably in
the future. In February 2006, we signed a deal to develop and provide a fully
customised messaging solution to a leading provider of wire-line
telecommunication services in China. This service is scheduled to launch in the
very near future.
Others: In Israel, we have signed a deal with Pelephone, one of the country's
leading mobile operators, to launch a tailored service based on our 'Mail
Plug-in' application, enabling users to send text messages direct from their
PCs. It is the first such service in Israel, and it is also being tested by
three other mobile operators in the country. In the West Indies, Cable &
Wireless Jamaica has adopted our innovative Text-a-Tune product, enabling
customers to insert music clips into their Text-to-Landline messages.
New initiatives
We are continuing to improve our offerings, develop new products and maximise
our market potential. As a result, in February 2006 we launched a number of new
products at the 3GSM World Congress in Barcelona which attracted considerable
interest. These include:
MMS capability: Our new Multimedia Message System (MMS) capability enables
subscribers to send multimedia content (pictures, music, video or text) from the
PC to a mobile phone. Fully integrated into the leading PC applications, the
product incorporates a MMS composer and player which allows the subscriber to
edit, preview and convert any PC content to mobile format.
Web browser integration: With our new PC Toolbar Plug-in, our services will be
integrated into the Internet Explorer and Mozilla Firefox web browsers. The
toolbar provides subscribers with the ability to effortlessly send multimedia
content to mobile phones from their computer with just a few mouse clicks.
Outlook Express integration: Our software plug-in can now be used with Microsoft
Outlook Express in addition to the existing Microsoft Outlook and Lotus Notes
versions. As Outlook Express is integrated into the Windows operating system
included with every PC, compatibility opens the way to significant growth of
both consumer and small-business users.
IMS compatibility: We have addressed the issue of the telephony operators'
migration towards IP networks allowing integrated data, voice and video services
over the internet backbone. Our products can now work in IP Multimedia
Subsystem (IMS) enabled networks and incorporate presence preferences, allowing
subscribers to choose on which device they want to receive messages.
Prospects
During 2005, we focused on widening our customer base and our product platform
to capitalise on the fast growing global messaging market.
We are proud of the progress we have made to date and are confident that our
product range will continue to attract further international customers. We also
continue to investigate a number of acquisition opportunities complementary to
our core business.
Finally, I would like to thank all those involved in the company for their hard
work during the year and the flotation process. I look forward to working
together with our very dedicated team in the coming year, continuing to build
the company into the leading player in the messaging arena, and to generate
value for our shareholders.
We are due to hold our first annual general meeting on 29 June 2006 and refer
you to the AGM notice on page 25 of this document.
Horacio Furman
Chairman
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2005
Continuing operations Notes 2005
£
Revenue 2 219,793
Cost of revenue (168,594)
Gross profit 51,199
Operating expenses
Research and development (182,655)
Selling and marketing (149,003)
General and administrative (131,912)
Total operating expenses (463,570)
Operating loss 3 (412,371)
Interest receivable and similar income 6 19,452
Loss before taxation (392,919)
Taxation 7 -
Loss after taxation 8 (392,919)
Earnings per share from continuing operations
Basic and diluted loss per ordinary share 9 (0.7)p
None of the group's activities were discontinued in the period.
The notes on pages 14 to 24 form part of these financial statements.
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR THE YEAR ENDED 31 DECEMBER 2005
2005
£
Exchange differences on translation of foreign operations (8,887)
Net deficit recognised directly in equity (8,887)
Loss for the period (392,919)
Total recognised income and expense (401,806)
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2005
Notes Group Company
2005 2005
£ £
Non current assets
Goodwill 10 3,236,617 -
Other intangible assets 11 1,631 -
Tangible assets 12 52,371 -
Investment in subsidiary undertakings 13 - 3,269,000
Other investments 14 84,338 -
3,374,957 3,269,000
Current assets
Trade and other receivables 15 181,501 500,045
Cash and cash equivalents 954,888 840,836
1,136,389 1,340,881
Total assets 4,511,346 4,609,881
Current liabilities
Trade and other payables 16 (220,549) (19,321)
915,840 1,321,560
Net current assets
Non current liabilities
Provisions 17 (116,228) -
Total liabilities (336,777) (19,321)
Net assets 4,174,569 4,590,560
Share capital 18 576,900 576,900
Share premium account 19 3,999,475 3,999,475
Foreign currency translation reserve 20 (8,887) -
Revenue reserves 20 (392,919) 14,185
Equity 21 4,174,569 4,590,560
The financial statements were approved by the board of directors and authorised
for issue on 12 May 2006.
Irvin Fishman
Financial director
The notes on pages 14 to 24 form part of these financial statements.
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2005
Note 2005
£
Net cash outflow from operating activities 24 (344,006)
Investing activities
Interest and similar income 19,452
Purchase of tangible assets (13,261)
Investments (9,193)
Net overdrafts acquired with subsidiary (5,479)
Net cash used in investing activities (8,481)
Financing activities
Issue of equity share capital 1,574,998
Shares issue costs (292,625)
Net cash from financing activities 1,282,373
Net increase in cash and cash equivalents 929,886
Cash and cash equivalents at the beginning of the year 25,002
Cash and cash equivalents at the end of the year 954,888
The notes on pages 14 to 24 form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2005
1. Significant accounting policies
The financial statements have been prepared in accordance with International
Financial Reporting Standards '(IFRS)' for the first time and have been prepared
on a historical cost basis. No disclosures regarding the transition to IFRS
have been presented as the company did not commence trading until this financial
period.
The significant accounting policies applied by the company and its subsidiaries
in the financial statements on a consistent basis are as follows:
a. Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the company and entities controlled by the company (its subsidiaries) made up to
31 December each year. Control is achieved where the company has the power to
govern the financial and operating policies of any subsidiary undertaking so as
to obtain benefits from its activities.
On acquisition, the assets and liabilities and contingent liabilities of a
subsidiary are measured at their fair values at the date of acquisition. Any
excess of the cost of acquisition over the fair values of the identifiable net
assets acquired is recognised as goodwill. Any deficiency of the cost of
acquisition below the fair values of the identifiable net assets acquired (i.e.
discount on acquisition) is credited to profit and loss in the period of
acquisition.
The results of subsidiaries acquired or disposed of during the year are included
in the consolidated income statement from the effective date of acquisition or
up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used by
the group.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
b. Goodwill
Goodwill arising on the acquisition of subsidiaries representing the excess of
the cost of acquisition over the fair value of the assets and liabilities of its
subsidiaries at the date of acquisition are included in the intangible assets.
Goodwill is recognised as an asset and reviewed for impairment at least
annually. Any impairment is recognised immediately in arriving at the profit or
loss.
c. Other non-current assets:
(i) Patents
Patents are stated at cost and capitalised and are amortised on a straight line
basis over eight years which is the estimated economic life of the patents.
(ii) 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 values of property plant and equipment are 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.
d. Revenue recognition
Revenue represents amounts receivable from licensing of messaging services to
service providers and from hosting and maintenance fees net of discounts, value
added tax and other sales taxes.
The group recognise revenue when delivery of the product has occurred, a fee is
determinable, no further obligations exist and collectibility is probable.
Deferred revenue includes amounts received from customers for which revenue has
not yet been recognised.
e. Research and development
Research and development costs are treated as an expense and are written off in
the group's consolidated income statement in the year incurred.
f. Employee costs:
(i) Share options
The group has complied with the requirements of IFRS2 'Share-based Payments.'
The group have therefore recognised that in granting share options to directors
and employees an expense reflecting the difference between the fair value of
outstanding options and their exercise price should be treated as an expense in
the group's consolidated income statement. Fair value has been calculated by
reference to the market value of the shares at the balance sheet date.
(ii) Severance pay
Pursuant to Israeli 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
liability for severance pay is calculated based on the most recent salary of
employees multiplied by the number of years of employment at the balance sheet
date. The group's liability for the employees is mitigated by monthly deposits
by way of investments in suitable insurance policies. The value of the
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 funds may be withdrawn on the fulfilment of the severance pay obligation.
g. Deferred taxation
The company and its subsidiary undertakings account for deferred tax using the
liability method and as such recognise all timing differences between the
group's profits chargeable to tax and its results as shown in the financial
statements. These timing differences arise from the inclusion of gains and
losses for tax purposes in different periods from those in which they are
recognised in the financial statements. Deferred tax assets are only recognised
to the extent it is probable that the future taxable profits will be available
against which deductible temporary differences can be utilised. Deferred tax is
measured on a non-discounted basis at rates of tax expected to apply in the
periods in which the timing differences are expected to reverse.
h. 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.
i. Comparative figures
As the company did not trade in the period prior to 31 December 2004,
comparative figures have been excluded from these financial statements. At 31
December 2004, the company's equity of £25,002 was represented by cash at bank.
2. Revenue
a. Group activities
The group activities are in a single business segment, being the development of
end-user media messaging management systems.
b. Revenues by geographical market and customer location
The group's operations are located primarily in Israel and the business is
managed on the basis of one reportable segment.
Analysis of revenues by geographical market and customer location are as
follows:
2005
£
Israel 85,172
United States of America 78,611
Rest of the world 56,010
219,793
3. Operating loss
2005
The following costs have been included in arriving at the operating loss: £
Staff costs (see note 4 below) 305,342
Auditors' remuneration (company - £10,000) 21,363
Research and development expenditure 182,655
Depreciation of property, plant and equipment 8,281
Amortisation of patents 307
4. Staff numbers and costs
2005
Payroll costs include: £
Staff payroll and related costs 267,504
Directors' remuneration 37,838
305,342
Details of directors' remuneration are set out in note 5 below.
The average number of employees (including directors) employed by the group:
Management and administration 5
Development, sales and marketing 25
30
5. Directors' remuneration
The analysis of directors' remuneration is:
Total
£
Executive directors 33,672
Non-executive directors 4,166
37,838
Horacio Furman has waived his right to director's fees of £5,000 per annum.
Details of share options granted to directors under the unapproved share option
scheme are as shown in the directors' report.
6. Investment and similar income
2005
£
Interest on bank deposits 14,037
Net gains on foreign currency transactions 5,415
19,452
7. Taxation
2005
£
Current tax charge -
Factors affecting the tax charge:
Loss on ordinary activities before taxation (392,919)
Loss on ordinary activities before taxation multiplied by (117,875)
the standard rate of tax applicable in the UK.
Effects of:
Depreciation and amortisation 2,576
Non-recognition of losses 115,299
Current tax charge -
In accordance with IAS 12 the company and the group have not recognised deferred
tax assets as they do not anticipate that profits generated in the short term
will exceed accumulated losses generated by the subsidiaries prior to
acquisition.
In addition, TeleMessage Ltd in Israel was granted approved enterprise status
for its investment programme. The main benefit arising from such status is the
reduction in tax rates on income. The company's income from the 'Approved
Enterprises' scheme is tax exempt for four years commencing with the year it
first earns taxable income and then would be subject to a reduced tax rate of
between 10% and 25% for a period of up to six years. Since the company has
incurred losses to date it has not utilised any of the aforementioned tax
benefits.
8. Loss attributable to ordinary shareholders
The company has taken advantage of the exemption under Section 230(1)(b) of the
Companies Act 1985 from presenting its own income statement however the profit
dealt with in the financial statements of the company was £14,185.
9. Loss per ordinary share
The calculation of the loss per ordinary share is based on the loss after
taxation of £392,919 and 56,171,781 ordinary shares being the weighted average
number of shares in issue in the period.
In view of the loss, share options and warrants are anti-dilutive and therefore
the diluted loss per share has not been presented.
10. Goodwill
2005
£
Cost at 1 January 2005 -
Acquisition of subsidiary (see note 13 below) 3,236,617
Cost at 31 December 2005 3,236,617
Impairment at 1 January 2005 and 31 December 2005
-
Carrying value at 31 December 2005 3,236,617
If the acquisition of TeleMessage Ltd and its subsidiary had been completed on
the first day of the financial year, group revenues for the year would have been
£467,254 and the group loss attributable to ordinary shareholders of the parent
would have been £768,507.
11. Other intangible assets
2005
£
Cost at 1 January 2005 -
Acquisition of subsidiary 1,938
Cost at 31 December 2005 1,938
Amortisation at 1 January 2005 -
Amortisation in the year (307)
Carrying value at 31 December 2005 1,631
The above additions represent the fair value of patents on acquisition of the
company's subsidiary undertakings.
12. Tangible assets
Group
£
Cost at 1 January 2005 -
Property, plant and equipment acquired on acquisition of subsidiary 47,391
Additions 13,261
Cost at 31 December 2005 60,652
Depreciation at 1 January 2005 -
Depreciation in the year (8,281)
Carrying value at 31 December 2005 52,371
All the above assets are included in the accounts of subsidiary undertakings.
13. Investment in subsidiary undertakings
On 20 July, the company acquired the entire share capital of TeleMessage Ltd, a
company incorporated in Israel and its wholly owned subsidiary, TeleMessage Inc.
a company incorporated in the USA.
Details of the price and consideration are as set out below:
£
65,380,000 ordinary shares of 0.5p issued at 5p per share together with 25,000,000 warrants 3,269,000
The fair value of the net assets on acquisition was:
Patents 1,938
Investments 75,145
Equipment 47,391
Receivables 228,809
Payables-short term (218,510)
134,773
Provisions (note 17) (102,390)
Net assets 32,383
Goodwill 3,236,617
3,269,000
14. Other Investments
Other investments of £84,338 represents the value of funds at 31 December 2005
invested in insurance policies, in order to provide for employee severance
obligations pursuant to Israeli severance pay law and staff contracts of
employment, which are relevant to the company's principal subsidiary undertaking
in Israel.
15. Trade and other receivables
Group Company
2005 2005
£ £
Trade receivables 113,059 -
Due from subsidiary undertaking - 458,875
Due from government authorities 35,167 25,482
Other receivables and prepaid expenses 33,275 15,688
181,501 500,045
16. Trade and other payables
Group 2005 Company
£ 2005
£
Trade payables 80,556 -
Employee and payroll accruals 77,930 -
Other accruals 52,974 19,321
Deferred revenue 9,089 -
220,549 19,321
17. Provisions
Group Company
2005 2005
£ £
Severance pay obligations of subsidiary undertakings 116,228 -
On acquisition of the company's subsidiary undertaking, severance pay
obligations totalled £102,390.
18. Share capital
Authorised: Group & company
£
Number of ordinary shares of £1 each at 1 January 2005 1,000,000 1,000,000
Creation of 3,000,000 ordinary shares of £1 each 3,000,000 3,000,000
4,000,000 4,000,000
Conversion of each ordinary share of £1 each into 800,000,00 4,000,000
ordinary shares of 0.5p each
Number of ordinary shares of 0.5p at 31 December 2005 800,000,000 4,000,000
Issued and fully paid ordinary shares:
Fully paid Partly paid Group &
company
£
At 1 January 2005 2 99,998 25,002
24 May 2005 - funds from partly paid shares 99,998 (99,998) 74,998
becoming fully paid
100,000 - 100,000
Conversion of ordinary shares of £1 each to 20,000,000 - 100,000
ordinary shares of 0.5p each
20 July 2005 - issue of ordinary shares of 65,380,000 - 326,900
0.5p each to acquire TeleMessage Ltd
2 August 2005 - placing of ordinary shares 30,000,000 - 150,000
of 0.5p each
Number of ordinary shares of 0.5p each 115,380,000 - 576,900
at 31 December 2005
Share options
The unapproved share option scheme was adopted by the board on 27 July 2005.
At 31 December 2005 there were in existence 1,864,943 options to acquire
ordinary shares in the company of which 411,898 options were exercisable at 31
December 2005.
Directors:
Number of Date Exercise Exercisable
options price
granted between
Guy Levit 20,266 27.7.2005 5p 20.7.2006 - 7.6.2010
Guy Levit 1,555 27,7.2005 2.17p 27.7.2005 - 15.11.2011
David Rubner 500,000 27.7.2005 5p 20.7.2006 - 20.7.2015
Other employees 1,343,122 27.7.2005 5p 27.7.2005 - 31.12.2014
1,864,943
On 1 March 2006 further share options were granted, details of which are given
in the directors' report.
Warrants
On 24 May 2005, the company authorised 100,000,000 warrants entitling holders to
subscribe for ordinary shares at 5p per ordinary share.
At 31 December 2005, there were 50,000,000 of these warrants in issue.
Number of warrants issued to:
Directors 22,278,061
Holders of more than 3% of warrants in issue:
Reverse Takeover Investments Plc 10,000,000
Seymour Pierce Limited 5,000,000
Others 12,721,939
50,000,000
19. Share premium account
Group &
Company
£
Issue of 65,380,000 ordinary shares of 0.5p at 5p per ordinary share in order to acquire 2,942,100
subsidiary undertakings
Placing of 30,000,000 ordinary shares of 0.5p at 5p per ordinary share 1,350,000
Cost of share issues (292,625)
3,999,475
20. Reserves
Group Group 2005 Company 2005
2005 £ £
£
Translation Revenue Revenue reserve
reserve reserve
Reserves at 1 January 2005 - - -
(Loss)/profit from continuing operations - (392,919) 14,185
Foreign currency translation differences (8,887) - -
Reserves at 31 December 2005 (8,887) (392,919) 14,185
21. Statement of movements in equity
Group 2005 Company
£ 2005
£
Funds generated from partly paid up shares now fully paid 74,998 74,998
Funds from the issue of 95,380,000 ordinary shares of 0.5p 4,769,000 4,769,000
for 5p per share
Share issue costs (292,625) (292,625)
(Loss)/profit from continuing operations (392,919) 14,185
Foreign currency translation differences (8,887) -
Additions to equity 4,149,567 4,565,558
Equity at 1 January 2005 25,002 25,002
Equity at 31 December 2005 4,174,569 4,590,560
22. Capital commitments
The group had no significant capital commitments at 31 December 2005.
23. Financial commitments
Lease agreements:
The company's subsidiary in Israel has entered into operating leases for office
facilities and motor vehicles for periods of up to three years, all terminating
by 2008.
At 31 December 2005 the future minimum commitments outstanding under
non-cancellable operating leases are:
Group
£
2006 57,834
2007 33,961
2008 19,304
111,099
24. Reconciliation of operating loss to net cash outflow from operating
activities
Group
£ £
(412,371)
Adjustments for:
Depreciation of tangible assets 8,281
Amortisation of intangible assets 307
Foreign currency translation differences (8,887)
(299)
Operating cash flows before movement in working capital (412,670)
Reduction in receivables 47,308
Increase in payables 7,518
Increase in provisions 13,838
68,664
Net cash outflow from operating activities (344,006)
* * ENDS * *
Contacts:
Guy Levit Messaging International Plc Tel: + 972 3 922 5252
Isabel Crossley St Brides Media & Finance Ltd Tel: +44 (0) 20 7242 447
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