Final Results

RNS Number : 3361R

Messaging International Plc

26 June 2015

Messaging International Plc ('the Company')

Final Results & Notice of AGM

Messaging International Plc, the AIM traded company and provider of innovative messaging services, announces its results for the year ended 31 December 2014 and gives notice of its AGM to be held at the offices Arram Berlyn Gardner on 23 July 2015 at 10.00 a.m. The report and accounts for the year ended 31 December 2014 will be sent to shareholders today and will be available on the Company's website at www.telemessage.com.

Overview

Continued progress of new product: "Secure Mobile Messaging for Enterprise"

Gross revenues of £3,607,978 down 4.4% from £3,775,910 in 2013

Adjusted pre- tax loss for the year before goodwill impairment - £334,798 (2013: loss £92,073)

Pre-tax loss for the year £2,884,798 after goodwill impairment (2013: £92,073)

The results for the year have been significantly affected by the impairment of goodwill of £2,550,000 reducing the carrying value of goodwill in these financial statements to £803,957.

For further information visit

or contact: Guy Levit

Messaging International Plc

www.telemessage.com

Tel: + 972 3 9225252

David Foreman

Cantor Fitzgerald Europe

Tel: +44 (0) 20 7894 7000

Catherine Leftley

Cantor Fitzgerald Europe

Tel: +44 (0) 20 7894 7000

Chairman's Statement

Transition period

2014 marks a transition year for our wholly owned subsidiary, TeleMessage, from its legacy Text-to-Landline product, into new offerings including the Secure Mobile Messaging for Enterprise solutions.

Revenues in the Text-to-Landline product have declined. Some customers were lost due to market consolidation and, as announced on 27 March 2015, the Company has reached an agreement on a change of the Text-to-Landline business model with one of its key mobile carrier customers in North America (with which the Company has contracts on a number of other products not affected by this change). The change transitions the Text-to-Landline service from a standard SMS fee to a premium SMS fee resulting in a lower amount of transmitted messages with a corresponding decline in the revenue generated from this customer, albeit with a higher gross margin percentage.

Since the end of 2013, the Company has been focused on developing its new product line - Secure Mobile Messaging for Enterprise. Unlike other messaging applications such as Viber and WhatsApp, TeleMessage's app is targeted at business clients and offers a "managed, secure, reliable and IT ready" application and service. The target market has shifted from mobile carriers to businesses. A number of existing customers have already purchased the new products and others are currently running pilot trials. In addition to such enterprise deals, the Company continues to explore partnership opportunities for these products through its relationship with carriers.

The revenues derived from our Messaging Gateway solutions have remained solid during 2014.

The Company has directed its R&D resources to the new product lines and, accordingly, increased its investment in marketing to support the change in target market including the implementation of automated sales and marketing systems, content creation and branding, all of which should lead to higher exposure to businesses and ultimately generate sales.

Apart from the goodwill impairment adjustment of £2,550,000 referred to above, the continued investment in R&D and the increased investment in marketing have contributed towards the increase in operating losses. In addition, in previous years, the Company obtained funding from the Office of the Chief Scientist which reduced our net expense on R&D. In 2014 the lower grants from this source resulted in a higher R&D expense.

As announced on 1 April 2015, despite funding of $900k having been approved by the BIRD foundation in mid-2014 out of which TeleMessage could have received 70% for "Secure RCS Messaging", the Company informed BIRD that it will not pursue this project. As a result, the net R&D expenses in 2014 were eventually higher than internally projected in the beginning of the year.

Financial Results

For the year ended 31 December 2014, we are reporting a pre-tax loss of £2,884,798 (2013: loss £92,073) based on gross revenues of £3,607,978 (2013: £3,775,910).These results are after adjustment for the goodwill impairment of £2,550,000 (2013- Nil).

The above adjustment reducing the carrying value of goodwill arises from the Board's annual goodwill impairment review in accordance with our accounting policy and IFRS.

Although the Board expects future products to succeed and for revenues to grow in the long term, we have taken what we believe is a prudent approach when carrying out an impairment review of goodwill. This involved taking the cautious approach of only incorporating historic growth when considering future discounted cash flows used in calculations to generate a net present value for goodwill.

During 2014, the Company received a far lower support from the Israeli Office of the Chief Scientist (OCS) in relation to some elements of R&D. In 2014, the resources provided by the OCS net of royalties totalled £17,978. (2013: £147,552)

The group's cash balances at 31 December 2014 totalled £381,109 (2013: £765,026).

Employee Incentives

On 31 March 2014, the Company granted 15,025,000 options over ordinary shares of 0.5p in the Company ("Ordinary Shares") to certain Directors, employees and consultants at an exercise price of 1.22p being the average closing price of the Ordinary Shares during the 30 trading days immediately preceding the grant of such options.

In addition, the Company approved a 6% carve out bonus to senior managers conditional on the value of the consideration of any future sale of the Company being greater than $6,000,000 and such sale being completed within five years.

Outlook

TeleMessage has made substantial efforts to partially compensate for the reduction of revenues from the US mobile carrier as described above by selling more of its legacy product. To partially offset the loss of BIRD funding the Company has adjusted its expenses.

Following the intensive R&D effort, the Company has now initial revenues and additional pilots with clients for its "Secure Mobile Messaging for Enterprise". In addition, thanks to TeleMessage's increased marketing efforts the Company has identified growing interest in its Messaging Gateway solutions from several customers as well as within the developers' community.

I would like to thank our team for their hard work and dedication over the past year in adapting to changing markets and changing technologies as well as to our shareholders for their continued support.

H Furman

Chairman

25 June 2015

Consolidated statement of comprehensive income for the year ended 31 December 2014

	2014	2013
	£	£

Continuing operations:

Revenues	3,607,978	3,775,910

Cost of revenues	(1,218,844)	(1,411,536)
Gross profit	2,389,134	2,364,374

Operating expenses
Research and development	(1,235,070)	(1,188,500)
Selling and marketing	(865,147)	(739,249)
General and administrative	(552,676)	(463,304)
Goodwill impairment	(2,550,000)	-
Total operating expenses	(5,202,893)	(2,391,053)

Operating loss	(2,813,759)	(26,679)

Finance costs (net)	(71,039)	(65,394)

Loss before taxation	(2,884,798)	(92,073)

Taxation	(8,914)	2,914

Comprehensive loss for the year attributable to equity holders of the parent company	(2,893,712)	(89,159)

Other comprehensive loss
Re-measurement of loss from defined benefit plan	(71,715)	(5,576)
Foreign exchange difference on translation of foreign operations	21,632	(3,858)
Foreign exchange difference arising from restating the carrying value of goodwill associated with foreign operations	(78,802)	(85,286)

	(128,885)	(94,720)

Total comprehensive loss attributable to equity holders of the parent company	(3,022,597)	(183,879)

Loss per share

Loss per share from operations	(2.50)p	(0.07)p

Diluted loss per share from operations	(2.50)p	(0.07)p

Statement of changes in equity for the year ended 31 December 2014

The group

Share capital

Capital redemption reserve fund

Foreign exchange reserve

Revenue reserves

Total

As at 1 January 2013

779,361

400,039

207,746

3,340,006

4,727,152

Capital reorganisation

(200,000)

200,000

Share buyback

(400,000)

Loss for the year

(89,159)

Re-measurement of loss from defined benefit plan

(5,576)

Foreign currency translation changes for goodwill

(85,286)

Other foreign currency translation changes

(3,858)

Share based payments for employee share options

At 31 December 2013

579,361

600,039

118,602

2,845,271

4.143,273

Loss for the year

(2,893,712)

Re-measurement of loss from defined benefit plan

(71,715)

Foreign currency translation changes for goodwill

(78,802)

Other foreign currency translation changes

35,208

Share based payments

56,725

At 31 December 2014

579,361

600,039

75,008

(63,431)

1,190,977

The company

Share capital

Capital redemption reserve fund

Foreign exchange reserve

Revenue reserves

Total

As at 1 January 2013

779,361

400,039

4,125,329

5,304,729

Capital reorganisation

(200,000)

200,000

Share buyback

(400,000)

Share based payments

Loss for the year

(8,193)

At 31 December 2013

579,361

600,039

3,717,136

4,896,536

Share based payments

Loss for the year

(2,568,831)

Foreign currency translation gain on capital note

117,839

At 31 December 2014

579,361

600,039

117,839

1,148,305

2,445,544

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.

Capital redemption reserve fund: The amount equivalent to the nominal value of shares redeemed by the company.

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 2014

	2014	2013
	£	£
Non-current assets
Intangible assets	803,957	3,432,759
Property, plant and equipment	86,526	162,655
Other investments	343,699	323,704

Total non-current assets	1,234,182	3,919,118

Current assets
Trade and other receivables	696,068	784,654
Cash and cash equivalents	381,109	765,026

Total current assets	1,077,177	1,549,680

Total assets	2,311,359	5,468,798

Current liabilities
Trade and other payables	(525,664)	(616,701)
Borrowings	(110,013)	(199,019)

Total current liabilities	(635,677)	(815,720)

Non-current liabilities
Other payables	(5,049)	(23,618)
Provisions	(479,656)	(382,190)
Borrowings	-	(103,997)

Total non-current liabilities	(484,705)	(509,805)

Total liabilities	(1,120,382)	(1,325,525)

Net assets	1,190,977	4,143,273

Equity attributable to owners of the parent company

Share capital	579,361	579,361
Capital redemption reserve	600,039	600,039
Foreign currency translation reserve	75,008	118,602
Revenue reserves	(63,431)	2,845,271


Total Equity	1,190,977	4,143,273

Consolidated statement of cash flows for the year ended at 31 December 2014

	2014	2013
	£	£

Cash flow from operating activities

Operating (loss)/profit	(2,813,759)	(26,679)

Adjustments for:
Goodwill impairment	2,550,000	-
Share based payments	56,725	-
Defined benefit plan	(71,715)	(5,576)
Depreciation and amortisation	100,094	64,533
Foreign currency differences	(2,899)	(39,461)
	2,632,205	19,496
Operating cash flow before working capital movements	(181,554)	(7,183)

Decrease in receivables	75,086	301,617
(Decrease)/increase in payables	(105,019)	71,623
Increase in provisions	97,466	52,333
	67,533	425,573
Cash (outflow)/inflow from operating activities	(114,021)	418,390

Investing activities
Interest received	232	235
Investments	(19,995)	(48,012)
Purchase of tangible assets	(14,581)	(52,405)
Repurchase of shares	-	(400,000)
Net cash used in investing activities	(34,344)	(500,182)

Taxation	-	2,914

Financing activities
Interest and related costs	(25,068)	(25,684)
Bank loan repayments	(210,484)	(200,073)
Net cash used from financing activities	(235,552)	(225,757)

Net change in cash and cash equivalents	(383,917)	(304,635)

Cash and cash equivalents and bank overdraft at the beginning of the year	765,026	1,069,661

Cash and cash equivalents and bank overdraft at the end of the year	381,109	765,026

Company statement of cash flows for the year ended at 31 December 2014

	2014	2013
	£	£

Cash flow from operating activities

Operating loss	(2,563,680)	(20,237)
Impairment of investments	2,550,000	-

Operating cash flow before working capital movements	(13,680)	(20,237)

Decrease/(Increase) in receivables	11,990	(3,900)
(Decrease)/increase in payables	(9,948)	7,973
Cash flow from operating activities	(11,638)	(16,164)

Investing activities
Repurchase of shares	-	(400,000)
Net cash used in investing activities	-	(400,000)

Taxation (recovered)/paid	-	(2,969)

Financing activities
Finance income	8,349	15,013
Loan repayment	-	400,000
Net cash from financing activities	8,349	415,013

Net change in cash and cash equivalents	(3,289)	(4,120)

Cash and cash equivalents and bank overdraft at the beginning of the year	4,148	8,268

Cash and cash equivalents and bank overdraft at the end of the year	859	4,148

Notes to the group and financial statements

1. General information

Messaging International Plc is a company incorporated and domiciled in the UK and its activities are as described in the chairman's statement and directors' report. The principle place of business of the company is the same as its registered office.

2. Basis of Accounting

The consolidated financial statements of the company for the year ended 31 December 2014 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 following new and amended IFRSs have been adopted during the year:

Amendments to IAS 36: Recoverable Amount Disclosures for Non-Financial Assets

Amendments to IAS 39: Novation of Derivatives and Continuation of Hedge Accounting

Amendments to IFRS 10, IFRS 12 and IAS 27: Investment Entities

Amendments to IFRS 10, IFRS 11 and IFRS 12: Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities - Transition Guidance

Annual Improvements to IFRS 2009-2011 Cycle (issued by the IASB in May 2012)

IFRIC 21 Levies

The Group has not yet adopted certain new standards, amendments and interpretations to existing standards, which have been published but are only effective for the Group's accounting periods beginning on or after 1 January 2015. The new pronouncements are listed below:

Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations (effective 1 January 2016)*

Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation (effective 1 January 2016)*

Amendments to IAS 16 and IAS 41: Bearer Plants (effective 1 January 2016)*

Amendments to IAS 27: Equity Method in Separate Financial Statements (effective 1 January 2016)*

Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (effective 1 January 2016)*

Amendments to IAS 1: Disclosure Initiative (effective 1 January 2016)*

Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the Consolidation Exception (effective 1 January 2016)*

IFRS 15: Revenue from Contracts with Customers (effective 1 January 2017)*

IFRS 9: Financial Instruments (effective 1 January 2018)

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. 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.

Details of subsidiary undertakings are set out in note 15.

All intra-group transactions and balances have been eliminated in preparing the consolidated financial statements

4. Presentational currency

These financial statements are presented in pounds sterling because the parent is an AIM traded company on the London Stock Exchange. The functional currency of the trading subsidiaries is US dollars.

5. 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 company's trading subsidiaries generate revenues primarily from sales of messaging services to mobile operators and corporations for use by end-customers (such as Text to Landline).

Revenues are recognised when the revenues can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the company and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenues are measured at the fair value of the consideration received less any trade discounts, volume rebates and returns.

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

Research expenditure is recognised in profit or loss when incurred. An intangible asset arising from development or from the development phase of an internal project is recognised if the company can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale; the company's intention to complete the intangible asset and use or sell it; the company's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability of adequate technical, financial and other resources to complete the intangible asset; and the company's ability to measure reliably the expenditure attributable to the intangible asset during its development.

The asset is measured at cost less any accumulated amortisation and any accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use.

In the years ended 31 December 2014 and 2013, no development costs were capitalised.

(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	Over the term of the lease

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 the cost of warrants issued to Mizrahi Tefahot Ltd in June 2012 as part of their loan agreement with the company's subsidiary undertaking in Israel and is written off to as part of the company's cost of finance over the term of the loan.

(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 recognised when there is reasonable assurance that the grants will be received and the company will comply with the attached conditions. Government grants received from the Office of the Chief Scientist ("OCS") are recognized upon receipt as a liability if future financial benefits are expected from the project that will result in royalty-bearing sales.

A liability for the loan is first measured at fair value using a discount rate that reflects a market rate of interest. The difference between the amount of the grant received and the fair value of the liability is accounted for as a Government grant and recognised as a reduction of research and development expenses. After initial recognition, the liability is measured at ammortised cost using the effective interest method. Royalty payments are treated as a reduction of the liability. If no economic benefits are expected from the research activity, the grant receipts are recognised as a reduction of the related research and development expenses. In that event, the royalty obligation is treated as a contingent liability in accordance with IAS 37.

In each reporting date, the company evaluates whether there is reasonable assurance that the royalty liability, in whole or in part, will or will not be settled based on the best estimate of future sales. If the estimate of future sales indicates that there is no such reasonable assurance, the appropriate liability reflecting the anticipated royalty payments is recognised with a corresponding charge to research and development expenditure.

(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) Trade payables

Trade payables are recognised at fair value

(p) Provisions

A provision in accordance with IAS 37 is recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect is material, provisions are measured according to the estimated future cash flows discounted using a pre-tax interest rate that reflects the market assessments of the time value of money and, where appropriate, those risks specific to the liability.

(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.

6. Critical accounting judgements and key sources of estimation uncertainty

The key assumptions made in the financial statements concerning uncertainties at the date of financial position and the critical estimates computed by the group that may cause a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Share based payments

The group has made awards of options over its unissued share capital to certain directors, employees as part of their remuneration package and Mizrahi Tefahot Ltd, bankers to TeleMessage Ltd.

The valuation of share options and warrants involve making a number of critical estimates relating to price volatility, future dividend yields, expected life of the options and forfeiture rates. The assumptions have been described in more detail in notes 23 and 30.

Employee benefits liability

The measurement of the liability in respect of the defined benefit pension plans is determined using actuarial valuations. The actuarial valuation involves making assumptions about, among others, discount rates, expected rates of return on assets, future salary increases and mortality rates. Due to the long term nature of these plans, such estimates are subject to significant uncertainty. Further details are given in Note 21.

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units to which the goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate present value.

As set out in note 15, the carrying amount of goodwill at the balance sheet date has required impairment of £2,550,000. Taking into account exchange rate fluctuations, the carrying value at 31 December 2014 was £803,957 (2013: £3,432,759).

Property, plant and equipment

The costs of property, plant and equipment of the group are depreciated on a straight-line basis over the useful lives of the assets. Management estimates the useful lives of the property, plant and equipment to be within 3 to 5 years. These are common life expectancies applied in the industry. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised. The carrying amounts of the group's property, plant and equipment as at 31 December 2014 are disclosed in Note 16 to the financial statements

7. Revenues

(a) Group activities

The group activities are in a single business segment, being the development of end-user media messaging systems.

(b) Revenues by geographic 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 and for this reason the only relevant information is as set out below:

The analysis of revenues by geographical market and customer location are is follows:

Customer location	2014 £	2013 £

North America	3,171,573	3,359,569
Europe and Middle East	405,494	378,194
Rest of the world	30,911	38,147
	3,607,978	3,775,910

Revenues originating from:-

	2014 £	2013 £
USA	2,142,978	2,305,008
Canada	1,028,596	1,054,561
Other countries	436,404	416,341

Revenues of £1,693,165 (2013: £1,885,040) are derived from a single external customer located in the USA.

No disclosure has been made in relation to non current assets by geographic market as the cost to obtain such information would be uneconomic and of limited value by way of additional information.

8. Operating profit

	2014	2013
The operating profit is stated after charging:	£	£

Staff costs	2,127,782	1,871,705
Research and development	1,271,892	1,353,451
Government grant for research and development	(36,822)	(164,951)
Leasing costs	144,021	156,610
Auditors' remuneration	29,495	28,365
Fees to auditors for other services	4,460	2,550
Goodwill impairment	2,550,000	-
Depreciation and amortisation	94,634	64,533

Included in the audit fee for the group is an amount of £14,950 (2013: £14,950) in respect of the company.

9. Staff Costs

Payroll costs include:	Group
	2014	2013
	£	£
Staff payroll and related costs	1,873,181	1,604,643
Directors' remuneration	208,188	192,618
Defined benefit scheme expense	46,413	74,444
	2,127,782	1,871,705

Payroll costs included above for key personnel including the directors totalled £410,555 (2013: £530,616)

The average numbers of employees, including directors during the year, was as follows:-

	2014	2013
	No.	No.

Administration	2	2
Sales and marketing	8	8
Research and development	20	20
Operations	6	7
Directors	5	5
	41	42

10 Directors' remuneration

	2014	2013
An analysis of directors' remuneration (who are the key management personnel) is set out below	£	£
Executive directors	198,188	182,618
Non-executive directors	10,000	10,000
	208,188	192,618

Directors' remuneration includes pension contributions of £17,004 (2013: £16,366)

	2014	2013
	£	£
G Levit	178,188	162,618
I Fishman	20,000	20,000
G Simmonds	5,000	5,000
D Rubner	5,000	5,000
	208,188	192,618

No share options granted to directors were exercised in the year.

H Furman has waived his right to director's fees of £5,000 per annum.

There is one director enrolled under the defined benefit scheme

11. Financial income and finance costs	2014	2013
	£	£
Finance income:
Interest received	232	235

Finance costs:
Interest payable	25,068	25,684
Loss on foreign currency transactions	46,203	39,945
	71,271	65,629

Total	71,039	65,394

12. Taxation


Current tax charge/(credit	2014	2013
	£	£
	8,194	(2,914)

Factors affecting the tax charge in the year

Loss on ordinary activities before taxation	(2,884,798)	(92,073)

Loss on ordinary activities before taxation at the applicable rate of corporation tax 21.5% (2013: 23.25%)	(620,232)	(21,407)

Effects of:
Depreciation and amortisation	20,346	15,004
Goodwill Impairment	548,250	-
US taxation	(986)	(1,368)
Israeli withholding tax deemed irrecoverable	13,500	-
Unused losses	47,316	4,857

Tax charge	8,194	(2,914)

There was no tax in relation to any components of comprehensive income.

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. As TeleMessage has suffered trading losses to date it has been unable to take advantage of tax incentives otherwise available.

The group's accumulated trading losses to date are approximately £9.4 million. Trading losses of approximately £5.6 million in relation to TeleMessage Ltd in Israel may be carried forward and offset against future trading income indefinitely and without restriction. The remaining £3.8 million originates from TeleMessage Inc. in the US which can be utilised for up to 20 years subject to restrictions.

In accordance with IAS12, the company and the group have not recognised deferred tax assets of £2 million (2013: £2million) whilst the level of future profits that will be generated in the foreseeable future remains uncertain.

13 Basic and diluted loss per share

Basic loss per share has been calculated on the group's loss attributable to equity holders of the parent company of £2,893,712 (2013: loss £89,159) and on the weighted average number of shares in issue, which was 115,872,148 (2013:134,064,000).

In view of the group loss for the year, share warrants and options to subscribe for shares in the company are anti-dilutive and therefore diluted earnings per share is the same as basic loss per share.

14. Loss for the financial year

As permitted by Section 408 of the Companies Act 2006, the profit and loss account for the company is not presented as part of these financial statements.

The loss for the year dealt with in the financial statements of the company was £2,568,831 (2013 - loss: £8,193). The loss for the year is after impairment of the company's investment of £2,550,000 (2013 - Nil).

15. Intangible assets

Goodwill and investment in subsidiary undertakings

Goodwill
	2014	2013
Cost	£	£
At 1 January and 31 December	3,236,617	3,236,617

Impairment
At 1 January	-	-
Charge in the year	(2,550,000)	-
At 1 January and 31 December	686,617	3,236,617

Exchange rate changes
	196,142	281,428
Exchange rate change in the year	(78,802)	(85,286)
At 31 December 2014	117,340	196,142

Carrying value at 31 December	803,957	3,432,759

Goodwill acquired in a business combination is allocated, at acquisition, to cash generating units (CGUs) that are expected to benefit from that business combination. The carrying amount of goodwill relates wholly to the group's single trading activity and business segment.

The recoverable amount of this cash-generating unit is determined based on a value in use calculation, which uses cash flow projections based on financial forecasts approved by the directors and a discount rate of 10.0% (2013 10.0%). The discounted rate which is calculated on a weighted average cost of capital basis assumes a long-term growth rate of 6%. A single annual expected future cash flow is derived from these cash flow projections representing the directors' best estimate of annual cash flow associated with the cash generating unit, from which the value in use has been calculated. The expected future cash flow used in the calculation is based on the directors' cash flow forecast for the year ended 31 December 2014.

The directors' assessment of goodwill suggested that impairment of £2,550,000 should be made to the carrying value of goodwill. The directors believe that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit.

The key assumptions used in the value in use calculations of TeleMessage Ltd, the cash-generating unit, are as follows:-

					2014

Revenue growth rate					6%

Annual expected future growth					£167,684

Discount rate					10%

The discount rates used are pre-tax and reflect specific risks associated with the group's activities and its cost of borrowings.

Company - Investment in subsidiary undertakings	2014	2013
	£	£
Cost of shares:
At 1 January and 31 December	3,269,000	3,269,000
Impairment	(2,550,000)	-
	719,000	3,269,000

The following were subsidiaries at the balance sheet date and have been included in these consolidated financial statements.

Subsidiary undertakings	Description and proportion of share capital owned	Country of incorporation or registration	Nature of business

TeleMessage Limited	Ordinary 100%	Israel	Trading
TeleMessage Inc *	Ordinary 100%	USA	Trading

* held indirectly through TeleMessage Limited

16. Property, plant and equipment

Group	2014	2013
	£	£
Cost
At 1 January	423,237	380,045
Additions	14,581	52,405
Foreign exchange movement	24,418	(9,213)
At 31 December	462,236	423,237

Depreciation
At 1 January	260,582	200,920
Depreciation in the year	100,094	64,533
Foreign exchange	15,034	(4,871)
At 31 December	375,710	260,582
Carrying value
At 31 December 2014 and 2013	86,526	162,655

At 1 January 2014 and 2013	162,655	179,125

All the above assets are included in the accounts of subsidiary undertakings at their net book values comprising computers and related equipment of £70,196 (2013: £145,308) and office furniture and equipment of £16,330 (2013: £17,347).

17. Other investments

	Group		Company
	2014	2013	2014	2013
	£	£	£	£

Investment plans for employee severance	343,699	323,704	-	-
Loan note due from subsidiary undertakings	-	-	1,538,461	-
	343,699	323,704	1,538,461	-

Other investments of £343,699 represents the funds at 31 December 2014 (2013:£323,704) invested in insurance policies, in order to meet the group's severance pay obligations to its employees in Israel pursuant to Israeli severance pay law and staff employment contracts.

In June 2014, The company issued its subsidiary undertaking TeleMessage Limited a five year US dollar denominated capital note for $2,400,000 which was equivalent to £1,420,622 to be repaid at the end of the five year term or in instalments at the option of the borrower. The loan is interest free and can only be assigned with the approval of both parties. There were no repayments in the period.

The carrying value of the capital note at the year end was £1,538,461 giving rise to a foreign exchange translation gain of £117,839 reflected in the company's reserves.

18. Trade and other receivables

	Group		Company
	2014	2013	2014	2013
	£	£	£	£

Trade receivables	625,487	625,483	-	-
Due from subsidiary undertakings after one year	-	-	202,130	1,636,680
Due from government authorities	1,313	31,349	1,313	13,726
Other receivables and prepaid expenses	69,268	127,822	3,281	2,430
	696,068	784,654	206,724	1,652,836

The amount due from subsidiary undertakings totals £1,622,752 comprising an interest-bearing loan of £202,130 and a capital note for £1,420,622 (2013: £1,636,680 including an interest-bearing amount of £216,058).

Full details of the terms relating to the capital note are given in note17 above.

Trade receivables - ageing	Total	Neither overdue or impaired	<30 days	30-60 days	60-90 days	More than 90 days
	£	£	£	£	£	£
2014	625,487	65,845	323,583	134,090	64,351	37,618

2013	625,483	15,109	317,916	155,479	85,804	51,175

The average credit period given for trade receivables at the end of the year is 63 days (2013:60 days).

19. Trade and other payables

	Group		Company
	2014	2013	2014	2013
	£	£	£	£
Trade payables	105,888	214,495	-	-
Taxes and social security	223,979	230,891	-	-
Accruals and other payables	195,798	171,315	19,500	29,448
	525,665	616,701	19,500	29,448

The average credit period taken for trade payables at the end of the year is 66 days (2013: 58 days).

20. Borrowings

	Group 2014 £	Group 2013 £	Company 2014 £	Company 2013 £
Due within one year	110,013	199,019	-	-
Due after one year	-	103,997	-	-
	110,013	303,016	-	-

In June 2012, the company's subsidiary, TeleMessage Ltd, signed an agreement for a loan of US$1,000,000 from Mizrahi Tefahot Bank Ltd.

Under the terms of the agreement, repayments are over 36 equal monthly instalments with an interest rate based on the London Interbank Offered Rate plus 5.5%.

21. Provisions - severance pay liability

Under Israeli severance pay law, part of the compensation payments, pursuant to which the fixed contributions paid by the company into pension funds and/or policies of insurance companies release the group from any additional liability to employees for whom such contributions were made. These contributions and contributions for compensation represent defined contribution plans. The company accounts for that part of the payment of compensation that is not covered by contributions in defined contribution plans, as above, as a defined benefit plan for which an employee benefit liability is recognized and for which the company deposits amounts in central severance pay funds and in qualifying insurance policies.

Group

2014

Group

2013

Expense in respect of defined contribution plan

46,582

45,200

(a) The amounts recognised in the statement of financial position are as follows:

	Group 2014 £	Group 2013 £
Defined benefit obligation	(479,656)	(382,189)
Fair value of plan assets	343,699	323,703

Benefit liability	(135,957)	(58,486)

(b) Expenses recognised in the statement of comprehensive income:

	Group 2014 £	Group 2013 £
Net actuarial loss recognised in the year	71,715	5,576

Total expenses included in the statement of comprehensive income	71,715	5,576

	Group 2014 £	Group 2013 £
Current service cost	39,468	35,649
Interest cost	1,694	34,249
Return differences transferred to employer	5,251	6,075
Total expense included in statement of income	46,413	75,973

(d) Changes in present value of defined benefit obligation are as follows:

	Group 2014 £	Group 2013 £
Liability at the beginning of the year	382,189	329,857
Current service cost	39,468	35,649
Interest cost	18,453	18,106
Benefits paid	(3,942)	(6,131)
Actuarial (loss)/gain on obligation	72,790	(12,427)
Foreign exchange differences	(29,302)	17,135
Liability at the end of the year	479,656	382,189

(e) Changes in fair value of plan assets are as follows:

	Group 2014 £	Group 2013 £
Plan assets at the beginning of the year	323,703	275,692
Expected return	16,662	(16,143)
Contributions by employer	33,683	29,909
Return differences transferred to employer	(5,251)	(6,075)
Actuarial loss	1,075	(6,885)
Foreign exchange differences	(26,173)	47,205
Plan asset at the end of the year	343,699	323,703

(f) The actuarial assumptions used are as follows:

	Group 2014	Group 2013
Discount rate	4.11%	4.73%
Future salary increase	3.50%	3.50%
Average expected remaining working years	12.89	13.20

22. Other payables

Royalty commitments

Under the research and development agreement with the Office of the Chief Scientist and pursuant to applicable laws, the subsidiary undertaking is required to pay royalties at the rate of 3% in the first three years and a rate of 3.5% from the fourth year of sales for products developed with funds provided by the OCS, up to an amount equal to 100% of the grants received, plus interest at the 12-month LIBOR rate. The subsidiary undertaking is obligated to make royalty payments in relation to the sale of products directly funded.

	2014	2013
	£	£
Amount outstanding at 1 January	23,618	41,022
Foreign exchange difference	1,362	(994)
Grants received in the year	17,749	149,424
Royalties paid in the year	(858)	(883)
Taken to statement of comprehensive income	(36,822)	(164,951)
Amount outstanding at 31 December	5,049	23,618

23. Share capital

	2014	2013
	£	£
Issued and fully paid

115,872,148 (2013 - 115,872,148) ordinary shares of 0.5p each	579,361	579,361

The company has one class of ordinary share which have no rights to fixed income.

Share options

The unapproved share option scheme was adopted by the board on 27 July 2005.

At 31 December 2014 there were 2,000,000 share options exercisable by non-employees.

500,000 share options were granted to a sales adviser to the company with an exercise price of 0.7p per share in addition to 1,500,000 share options issued to Arba Finance Company Ltd in 2009 with an exercise price of 0.5p per share.

During the year 15,025,000 share options were granted to employees and directors of the company and 1,209,402 share options lapsed or were forfeited by employees no longer with the company.

No share options were exercised in the year

At 31 December 2014 there were 33,960,399 (2013:19,980,399) share options held by employees and directors of the company.

Remaining share options exercisable by employees and directors at the year end are summarised below:

	Number of options	Date granted	Exercise price	Exercisable between
Directors:

Guy Levit	4,000,000	27.7.2007	0.5p	27.7.2009 - 27.7.2017
Guy Levit	4,000,000	28.1.2009	0.5p	28.1.2011 - 28.1.2019
Guy Levit	3,000,000	31.3.2014	1.22p	31.3.2014 - 31.3.2024
David Rubner	500,000	27.7.2005	5p	20.7.2006 - 20.7.2015
David Rubner	475,000	31.3.2014	1.22p	31.3.2014 - 31.3.2024
	11,975,000
Other employees	164,402	27.7.2005	3.06p	27.7.2005 - 31.12.2014
Other employees	39,520	27.7.2005	5p	27.7.2005 - 3.8.2015
Other employees	1,163,913	1.3.2006	5p	1.3.2006 - 1.3.2016
Other employees	431,624	6.10.2006	5p	6.10.2006 - 6.10.2016
Other employees	180,940	6.10.2006	3.2p	6.10.2006 - 6.10.2016
Other employees	4,000,000	27.7.2007	0.5p	27.7.2009 - 27.7.2017
Other employees	4,000,000	28.1.2009	0.5p	28.1.2011 - 28.1.2019
Other employees	1,500,000	28.1.2009	0.5p	28.1.2011 - 28.1.2019
Other employees	10,505,000	31.3.2014	1.22p	31.3.2014 - 31.3.2024
	33,960,399

Details of share option valuations are given in note 30.

Warrants in issue at 31 December 2014

The company granted Mizrahi Tefahot Bank Ltd warrants to the value of £100,000 to purchase ordinary shares, exercisable at any time from the time of the grant to 13 August 2014. These warrants were not taken up.

In February 2012 and as part of the agreement following completion of the buyback, Pacific were granted options to subscribe for up to 10,000,000 new ordinary shares at 0.5 pence per share exercisable in whole or in part, which will lapse on the earlier of three years from the date of grant or the date on which Pacific is dissolved.

In June 2012, as part of a new loan agreement, the company granted to Mizrahi Tefahot Bank Ltd 3,896,804 warrants exercisable at any time from grant until June 2017. The warrants are exercisable at a price of 0.63p per share, although in certain circumstances the exercise price might be subject to adjustment.

The exercise period was extended to January 2020 as part of an agreement reached with the bank in January 2015, details of which are given in note 27 below.

All warrants were valued under IFRS 2 using the Black Scholes pricing model.

The fair value per warrant granted and the assumptions used in the calculations were as follows:

Grant date	14 August 2008	19 December 2008	20 February 2012	17 June 2012

Share price at grant date	0.60p	0.50p	0.90p	0.88p
Exercise price	0.65p	0.67p	0.50p	0.63p
Shares under option	7,692,308	7,456,504	10,000,000	3,896,804
Vesting period	Immediately	Immediately	Immediately	Immediately
Expected volatility	226%	221%	90.7%	89.5%
Option life	6	5.67	3	5
Expected life	6	5.67	3	5
Risk free rate	3.55%	2.85%	1.12%	1.07%
Expected dividends expressed as dividend yield	0%	0%	0%	0%
Fair value per option	0.5969p	0.4955p	0.6247p	0.6480p

Expected volatility was determined by calculating the historical volatility of the Company's share price since admission of the shares to AIM. 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. The risk free rate is based on the redemption yield on US Federal Bonds with a life in line with the expected option life.

As no warrants were issued in 2014 there is no charge recognised in the accounts (2013: £Nil).

Further details in relation to share options is given in note 30.

24. Financial commitments

Lease commitments

The group's subsidiary undertaking in Israel is committed to making the following future minimum lease payments under non-cancellable operating leases for office facilities and motor vehicles terminating in 2020.

Future minimum commitments at 31 December 2014 are as follows:-

	2014 £	2013 £
Within one year	96,469	116,826
Between two to five years	318,960	195,258
More than five years	13,157	320,575
	428,586	632,659

Leasing costs charged in the statement of comprehensive income in the year ended 31 December 2014 and 2013 were £144,021 and £156,610 respectively.

25. Related parties

A H Montpelier

The group made payments to AH Montpelier totalling £23,500 (excluding vat) (2013: £23,500) for the services of I Fishman as a director and for the professional services of AH Montpelier Professional (West End) Limited, Chartered Accountants a company in which he was a director throughout the year.

Parent company management fees and interest

The company charged fees of £84,000 (2013:£84,000) for management services of its subsidiary undertakings. Interest of £8,349 (2013: £15,013) was charged by the company in relation to the interest bearing element of monies due from subsidiary undertakings which at 31 December 2014 was £202,130 (2013: £216,058).

26 Cash and cash equivalents and net funds

	At 1 January 2014	Cash Flow	At 31 December 2014
	£	£	£
Group
Cash and cash equivalents	765,026	(383,917)	381,109
Borrowings	(303,016)	193,003	(110,013)
	462,010	(190,914)	271,096

Company
Cash and cash equivalents	4,148	(3,289)	859

27 Post balance sheet events

In January 2015, TeleMessage Limited signed a new loan agreement in the amount of $ 1,000,000 from Mizrahi Tefahot Bank Ltd. Under the terms of the new loan agreement, the loan bears an interest rate of the London Interbank Offered Rate plus 6% to be repaid in 36 equal monthly instalments.

In addition, and as part of the agreement, the company granted Mizrahi Tefahot Bank Ltd a further 4,500,000 warrants to purchase ordinary shares, exercisable at any time from grant to January 24, 2020. These warrants are exercisable at a price of 0.91 pence per share. The company also extended the exercise period of the 3,896,804 warrants, granted to Mizrahi Tefahot Bank Ltd. under the agreement signed in 2012 from June 2017 to January 2020.

28 Controlling party

H Furman is the controlling party by virtue of his personal shareholding in the company together with other shareholdings in which he has a beneficial interest.

His shareholdings comprise of 68,808,276 ordinary shares representing 59.4% of the company's ordinary share capital and includes 34,492,934 ordinary shares owned by Prideway Holdings Limited, a company under his control,16,533,333 shares in the name of Lynchwood Nominees as well as 17,782,009 owned personally.

29. Financial instruments and risk management

The group is funded by equity together with a bank loan of £110,000 which represents the group's capital.

The group's objectives when maintaining capital are:

- To safeguard the entity's ability to continue as a going concern, so that it can begin to provide returns for shareholders and benefits for other stakeholders; and

- To provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

Financial assets and financial liabilities are recognised in the group's balance sheet when the group becomes a party to the contractual provision of the instrument.

At 31 December 2014 and 31 December 2013 there were no material differences between the fair value and the book value of the group's financial assets and liabilities which are set out below.

	2014	2013
	£	£

Financial assets

Cash and cash equivalents	381,109	765,026
Trade and other short term receivables	696,068	784,654
	1,077,177	1,549,680

Financial liabilities (which are included at amortised cost)

Trade and other payables	530,714	640,319
Bank borrowings	110,013	303,016
	640,727	943,335

The group's financial instruments comprise investments, cash and cash equivalents, receivables and payables that arise directly from its operations.

The group has not adopted a policy of using financial derivatives and does not rely on the use of interest rate hedges.

In common with other businesses, the group is exposed to risks that arise from its use of financial instruments. There have been no substantive changes to the group's response to financial instrument risk and the methods used to measure them from previous periods.

The main risks arising from the group's financial instruments are currency, credit and liquidity risks.

Currency risk

The Company operates internationally and is exposed to currency exchange risk arising from various currency exposures, primarily with respect to the new Israeli shekel ("NIS"), US Dollar, GBP and Euro. Currency exchange risk arises mainly from payroll and costs incurred in NIS, sale denominated in Euro and recognized assets and liabilities some of which denominated in GBP.

Credit risk

Credit risk arises from cash and cash equivalents as well as credit exposures to customers.

The group's cash and cash equivalents are invested in various financial institutions. The group's policy is spreading out its cash investments among the various institutions and assessing on an ongoing basis the relative credit strength of the various financial institutions.

Trade receivables are mainly derived from sales to customers primarily located in Israel and North America.

The group performs ongoing credit evaluations of its customers and an allowance for doubtful accounts is determined with respect to those amounts that the Company has determined to be doubtful of collection. Bad debts are written-off when identified by management.

At 31 December 2014, the group had no significant off-balance sheet concentration of credit risk, such as forward exchange contracts, options contract or other foreign hedging arrangements.

At 31 December 2014, the company had significant risk concentration by virtue of monies due from its subsidiary undertaking in Israel. The directors review the financial performance of its trading subsidiaries and its ability to commence reducing its debt to the company.

Liquidity risk:

Liquidity risk arises in relation to the group's management of working capital and the risk that the company or any of its subsidiary undertakings will encounter difficulties in meeting financial obligations as and when they fall due. To minimise this risk the liquidity position and working capital requirements are regularly reviewed by management.

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities.

Management monitors rolling forecasts of the Company's cash and cash equivalents on the basis of expected cash flow.

Anticipated future cash flows - Year ended 31 December 2014

	Total projected cash flows	First year	Years 2-5	More than 5 years
	£	£	£	£

Trade payables	105,000	105,000		-
Other financial payables	400,000	400,000		-
Bank loans	110,000	110,000		-
Royalty bearing grants	5,000	5,000		-
	620,000	620,000		-

Anticipated future cash flows - Year ended 31 December 2013

	Total projected cash flows	First year	Years 2-5	More than 5 years
	£	£	£	£

Trade payables	215,000	215,000	-	-
Other financial payables	425,000	425,000	-	-
Bank loans	315,000	220,000	95,000	-
Royalty bearing grants	25,000	1,000	24,000	-
	980,000	861,000	119,000	-

Interest rate risk

As the group's long term liabilities include a bank loan drawn down in June 2012, the group's interest rate risk from this borrowing which is linked to the LIBOR interest rate is not considered to be material in terms of the effect on cash flow for changes in the rate of interest. As a result the directors do not consider variations in interest rates will have a significant impact on the group's cost of finance or operating performance.

30. Share based payments - Equity settled share option scheme

Since incorporation the company has awarded share options enabling directors and employees to subscribe for ordinary shares of 0.5p each. Exercise of an option is subject to continued employment. Options were valued using the Black Scholes pricing model. The fair value per option granted and the assumptions used in the calculations were as follows:

Grant date	27 July 2005	27 July 2005	27 July 2005	27 July 2005	1 March 2006	6 October 2006

Share price at grant date	5p	5p	5p	5p	4.6p	2.25p
Exercise price	2.17p	3.06p	3.67p	5p	5p	5p
Shares under option	-	164,402	-	539,520	1,163,913	431,624
Vesting period	< 1 year	< 2.5 years	< 1.5 years	< 0-4 years	< 4 years	< 3 years
Expected volatility	39.80%	39.80%	39.80%	39.80%	158.30%	151.40%
Option life	10	10	10	10	10	10
Expected life	5 - 5.25	5 - 6	5 - 5.5	5 - 6	5.25 - 6	5.25 - 6
Risk free rate	3.86%	3.86%	3.86%	3.86%	4.40%	5.01%
Expected dividends expressed as dividend yield	0%	0%	0%	0%	0%	0%
Retention factor	100%	100%	100%	100%	85%	85%
Fair value per option	3.36p-3.39p	2.86p-3.00p	2.56p-2.64p	2.04p-2.24p	3.66p-3.72p	1.71p-1.76p

Grant date	6 October 2006	27 July 2007	28 January 2009	12 November 2010	31 March 2015

Share price at grant date	2.25p	0.38p	0.25p	0.7p	1.22p
Exercise price	3.2p	0.5p	0.5p	0.7p	1.22p
Shares under option	180,940	8,000,000	11,000,000	500,000	15,025,000
Vesting period	< 4 years	< 2 years	< 2 years	< 1 year	< 0 -4 years
Expected volatility	151.40%	194.40%	220.30%	223.29%	57%
Option life	10	10	10	10	10
Expected life	5.25 - 6	5 - 6	5 - 6	5 - 5.5	5.3 - 7
Risk free rate	5.01%	4.95%	2.06%	1.53%	1.84%
Expected dividends expressed as dividend yield	0%	0%	0%	0%	0%
Retention factor	85%	85%	85%	85%	85%
Fair value per option	1.75p-1.79p	0.31p-0.32p	0.21p-0.25p	0.59p-0.69p	0.59p-0.69p

The expected volatility for the options issued on 27 July 2005 is based on the volatility of similar AIM listed companies, while the volatility of options issued on 1 March 2006, 6 October 2006, 27 July 2007, 28 January 2009, 2 November 2010 and 31 March 2015 and reflects the changing volatility of the messaging share price arising from movements in the relevant period to date. The expected life of the options is based on research that takes into account the seniority of the employees to whom share options are issued. The risk free rate is based on the redemption yield on US Federal Bonds with a life in line with the expected option life.

Other than the options granted above, there were no movements in options granted or outstanding to employees at the end of the year.

In accordance with International Financial Reporting Standard 2 ("IFRS2") the group is required to reflect the cost of share-based payments in the income statement. The provisions of IFRS2 have been applied to share options and the charge to the income statement in respect of equity settled share based payments is as follows: