Final Results

RNS Number : 4919C

Messaging International Plc

28 June 2016

 

Messaging International Plc ('the Company')

Final Results

Messaging International Plc, the AIM traded company and provider of innovative messaging services, announces its results for the year ended 31 December 2015.

Overview 

§ Continued progress of new product: "Secure Mobile Messaging" with a decline in traditional Text-to-Landline product

§ Gross revenues of £3,465,182 down 4% from £3,607,978 in 2014

§ Adjusted pre-tax loss for the year (before goodwill impairment) of £55,309 (2014: loss £334,798)

§ Pre-tax loss for the year £274,309 after goodwill impairment (2014: £2,884,798)

§ The results for the year were affected by the impairment of goodwill of £219,000 reducing the carrying value of goodwill in these financial statements to £521,901

§ Full provision of  £1,799,475 has been made for subsidiary indebtedness to parent company

For further information visit www.telemessage.com

or contact:

Guy Levit    Messaging International Plc Tel:     Tel:      + 972 3 9225252

David Foreman    Cantor Fitzgerald Europe       Tel: [phone]

Catherine Leftley Cantor Fitzgerald Europe       Tel: [phone]

Continuing period of transition

As we described in our last interim report, the Company and its trading subsidiary TeleMessage Ltd are transitioning from its legacy Text-to-Landline product, to a new offering focused on Secure Mobile Messaging for Enterprises and also the "Mass Messaging" solution for Enterprises.

Revenues in the Text-to-Landline product have continued to decline in 2015. Some customers were lost due to market consolidation and, as announced on 27 March 2015, the Company 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 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 the customer, albeit with a higher gross margin percentage.

TeleMessage has been focused on developing its new product line - Secure Mobile Messaging for Enterprises. The huge success of mobile messaging services like iMessage, Facebook Messenger and WhatsApp for consumers in the USA and around the globe has identified unmet needs for enterprises. Similar capabilities can now be offered by enterprises to their employees, to enhance business communications, while ensuring company governance and controls required to meet more stringent standards, regulations and security needs. The TeleMessage solution provides tools that are managed, secure, reliable and IT ready. 

During the year a few companies were piloting the new offering and a few has transitioned into paying customers. TeleMessage has also focused on partnership opportunities for these products through its relationship with carriers. On 30 June 2015 TeleMessage signed such a partnership agreement with Sprint, one of the top tier North American mobile carriers, for a revenue share from selling its products. The agreement includes a payment in tranches for the customization of the product to meet the partner's requirements. Following long and intensive work, Sprint launched this product on 8 June 2016.

Financial Results

For the year ended 31 December 2015, we are reporting a pre-tax loss of £274,309 (2014: loss £2,884,798) based on gross revenues of £3,465,182 (2014: £3,607,978).

The results for the year are after adjusting for goodwill impairment of £219,000 (2014: £2,550,000).

In 2015, TeleMessage made efforts to match its expenses to the new lower level of revenues resulting from the decline in revenues of the Text-to-Landline product. These adjustments were implemented with the view to minimizing the impact on the future of the company.  The continued investment in R&D, which in 2015 was without a government subsidy from the Office of Chief Scientist (OCS), and the increased investment in marketing are the prime reasons for the operating loss in the year.

In March 2016, TeleMessage was approved for a new conditional grant from OCS that may cover some R&D expenses incurred in late 2015. However, because this grant was only approved in 2016, the relative R&D expenses reduction is not recognized in the 2015 annual results. 

During 2015 TeleMessage enjoyed some Israeli royalty bearing government funding for its marketing activities that reduced slightly its marketing expenses.

In January 2015, TeleMessage also 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 interest at LIBOR plus 6% and will be repaid in 36 equal monthly installments.

As part of the agreement, the Company granted Mizrahi Tefahot Bank Ltd 4,500,000 warrants to purchase ordinary shares, exercisable at any time from grant to 24 January 2020. Warrants are exercisable at a price of 0.91 pence per share.

The Company has also extended the exercise period of the 3,896,804 warrants, granted to Mizrahi Tefahot Bank Ltd. in June 2012, by 5 years from 17 June 2017 to 21 January 2020.

Full provision of £1,799,475 has been made for subsidiary indebtedness to the Company in view of the uncertainty surrounding the ability of the trading subsidiaries to repay indebtedness in the foreseeable future.

The group's cash balances at 31 December 2015 totaled £737,416 (2014: £381,109).

Outlook

TeleMessage has made considerable progress with its Secure Mobile Messaging solution and other enterprise solutions.  As of June 2016 we have already in excess of 20,000 paying users and is proof of the relevance of these solutions in the market. The users are from enterprises located in North America, Europe and Israel.  We are also very excited with our strategic partnership with Sprint.

We have recently added Mobile Device Management solutions (MDM) as partners. MDM companies are adding our products to their partner offerings. On September 2015, AirWatch, a leading MDM solution has also announced its partnership with us.

With a close eye on expenses, TeleMessage has managed to stabilise the reduction in revenues while continuing its efforts in building its new products. It has not neglected its legacy solutions and continues to explore many opportunities to maintain and grow that business.

Thanks to its investment in marketing, TeleMessage has seen an interest for the Mass Messaging solution for enterprises through application programming interfaces to the company's Messaging Gateway. This provides an opportunity to generate additional revenues and profits. 

To seize this opportunity and enhance its success in the Secure Mobile Messaging and Mass Messaging for enterprises, TeleMessage has recently launched a new website that should direct the different type of prospects to the relevant product line.

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. I look forward to reporting our next annual report.

Notice of Annual General Meeting

The Annual General Meeting of the Company in respect of the year ended 31 December 2015 will be held at 130 City Road London EC1Y 2AB on 29 July 2016 at 10.00AM.

				2015		2014
		Notes		£		£
Continuing operations:
Revenues		5b, 7		3,465,182		3,607,978
Cost of revenues				(1,140,630)		(1,218,844)
Gross profit				2,324,552		2,389,134
Operating expenses
Research and development				(1,009,551)		(1,235,070)
Selling and marketing				(829,065)		(865,147)
General and administrative				(490,439)		(552,676)
Goodwill impairment				(219,000)		(2,550,000)
Total operating expenses				(2,548,055)		(5,202,893)
Operating loss		8		(223,503)		(2,813,759)
Finance costs (net)		11		(50,806)		(71,039)
Loss before taxation				(274,309)		(2,884,798)
Taxation		12		(1,337)		(8,914)
Comprehensive loss for the year  attributable to equity holders of the parent company				(275,646)		(2,893,712)
Other comprehensive loss
Re-measurement of loss from defined benefit plan				14,805		(71,715)
Foreign exchange difference on translation of foreign operations				(3,167)		21,632
Foreign exchange difference arising from restating the carrying value of goodwill associated with foreign operations				(63,056)		(78,802)
				(51,418)		(128,885)
Total comprehensive loss attributable to equity holders of the parent company				(327,064)		(3,022,597)

Loss per share
Loss per share from operations		13		(0.24)p		(2.50)p
Diluted loss per share from operations		13		(0.24)p		(2.50)p

The group

	Share           capital	Capital redemption reserve fund	Foreign exchange reserve	Revenue reserves	Total
	£	£	£	£	£
As at 1 January 2014	579,361	600,039	118,602	2,845,271	4,143,273
Loss for the year	-	-	-	(2,893,712)	(2,893,712)
Re-measurement of loss from defined benefit plan	-	-	-	(71,715)	(71,715)
Foreign currency translation changes for goodwill	-	-	(78,802)	-	(78,802)
Other foreign currency translation changes	-	-	35,208	-	35,208
Share based payments for employee share options	-	-	-	56,725	56,725
At 31 December 2014	579,361	600,039	75,008	(63,431)	1,190,977
Loss for the year	-	-	-	(275,646)	(275,646)
Re-measurement of loss from defined benefit plan	-	-	-	14,805	14,805
Foreign currency translation changes for goodwill	-	-	(63,056)	-	(63,056)
Other foreign currency translation changes	-	-	(3,167)	-	(3,167)
Share based payments-warrants				26,257	26,257
Share based payments- employees	-	-	-	16,541	16,541
At 31 December 2015	579,361	600,039	8,785	(281,474)	906,711

The company

	Share           capital	Capital redemption reserve fund	Foreign exchange reserve	Revenue reserves	Total
	£	£		£	£
As at 1 January 2014	579,361	600,039	-	3,717,136	4,896,536
Loss for the year	-	-	-	(2,568,831)	(2,568,831)
Foreign currency translation gain on capital note	-	-	117,839	-	117,839
At 31 December 2014	579,361	600,039	117,839	1,148,305	2,445,544
Loss for the year	-	-	-	(2,014,932)	(2,014,932)
Foreign currency translation gain on capital note	-	-	68,096	-	68,096
At 31 December 2015	579,361	600,039	185,935	(866,627)	498,708

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.

			Notes	2015		2014
				£		£
Non-current assets
Intangible assets			15	521,901		803,957
Property, plant and equipment			16	48,207		86,526
Other investments			17	391,946		343,699
Total non-current assets				962,054		1,234,182
Current assets
Trade and other receivables			18	850,096		696,068
Cash and cash equivalents			26	737,416		381,109
Total current assets				1,587,512		1,077,177
Total assets				2,549,566		2,311,359
Current liabilities
Trade and other payables			19	(599,274)		(525,664)
Borrowings			20	(229,425)		(110,013)
Total current liabilities				(828,699)		(635,677)
Non-current liabilities
Other payables			22	(44,076)		(5,049)
Provisions			21	(536,976)		(479,656)
Borrowings			20	(233,104)		-
Total non-current liabilities				(814,156)		(484,705)
Total liabilities				(1,642,855)		(1,120,382)
Net assets				906,711		1,190,977
Equity attributable to owners of the parent company
Share capital			23	579,361		579,361
Capital redemption reserve				600,039		600,039
Foreign currency translation reserve				8,785		75,008
Revenue reserves				(281,474)		(63,431)
Total Equity				906,711		1,190,977

			Notes	2015		2014
						Restated
				£		£
Non current assets
Investment in subsidiary undertakings			15	500,000		719,000
Other investments			17	-		1,450,684
Total non-current assets				500,000		2,169,684
Current assets
Receivables due after one year			18	42,932		315,278
Trade and other receivables			18	10,068		4,595
Cash and cash equivalents			26	7,316		859
Total current assets				60,316		320,732
Total assets				560,316		2,490,416
Current liabilities
Trade and other payables			19	(61,608)		(44,872)
Total liabilities				(61,608)		(44,872)
Net assets				498,708		2,445,544
Equity
Share capital			23	579,361		579,361
Capital redemption reserve				600,039		600,039
Foreign currency translation reserve				185,935		117,839
Revenue reserves				(866,627)		1,148,305
Total equity				498,708		2,445,544

		Notes		2015		2014
				£		£
Cash flow from operating activities
Operating loss				(223,503)		(2,813,759)
Adjustments for:
Goodwill impairment				219,000		2,550,000
Share based payments				28,676		56,725
Defined benefit plan				14,805		(71,715)
Depreciation and amortisation				61,436		100,094
Foreign currency differences				1,009		(2,899)
				324,926		2,632,205
Operating cash flow before working capital movements				101,423		(181,554)
(Increase)/decrease in receivables				(154,978)		75,086
Increase/(decrease) in payables				112,639		(105,019)
Increase in provisions				57,320		97,466
				14,981		67,533
Cash (outflow)/inflow from operating activities				116,404		(114,021)
Investing activities
Interest received				-		232
Investments				(48,248)		(19,995)
Purchase of tangible assets				(18,599)		(14,581)
Net cash used in investing activities				(66,847)		(34,344)
Taxation				(387)		-
Financing activities
Interest and related costs				(53,755)		(25,068)
Bank loan				674,500		-
Bank loan repayments				(313,608)		(210,484)
Net cash from/(used for) financing activities				307,137		(235,552)
Net change in cash and cash equivalents				356,307		(383,917)
Cash and cash equivalents and bank overdraft at the beginning of the year				381,109		765,026
Cash and cash equivalents and bank overdraft at the end of the year		26		737,416		381,109

		Notes		2015		2014
				£		£
Cash flow from operating activities
Operating loss				(2,025,425)		(2,563,680)
Provision for non- recoverable debts				1,799,475		-
Impairment of investments				219,000		2,550,000
Operating cash flow before working capital movements				(6,950)		(13,680)
Decrease/(Increase) in receivables				(14,773)		11,990
Increase/(decrease) in payables				16,737		(9,948)
Cash flow from operating activities				(4,986)		(11,638)
Investing activities				-		-
Net cash used in investing activities				-		-
Taxation (recovered)/paid				-		-
Financing activities
Finance income				11,443		8,349
				-		-
Net cash from financing activities				11,443		8,349
Net change in cash and cash equivalents				6,457		(3,289)
Cash and cash equivalents and bank overdraft at the beginning of the year				859		4,148
Cash and cash equivalents and bank overdraft at the end of the year		26		7,316		859

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 consolidation financial statements of the group for the year ended 31 December 2015 have been prepared under the historical cost convention and are in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU. These policies have been applied consistently except where otherwise stated.

The following new and amended IFRSs have been adopted during the year.

• Annual Improvements to IFRS 2011-2013 Cycle

• IFRIC interpretation 21 Levies

There were no material changes in the financial statements as a result of adopting new or revised accounting standards during the year.

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.

(c)        Research and development costs

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 2015 and 2014, 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 amortised 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 £219.000 (2014: £2,550,000). Taking into account exchange rate fluctuations, the carrying value at 31 December 2015 was £521,901 (2014: £803,957).

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 2015 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 as follows:

Customer location	2015 £		2014 £
North America	2,852,915		3,171,573
Europe and Middle East	582,827		405,494
Rest of the world	29,440		30,911
	3,465,182		3,607,978

Revenues originating from:-

	2015 £		2014 £
USA	1,822,690		2,142,978
Canada	1,030,225		1,028,596
Other countries	612,267		436,404

Revenues of £1,122,396 (2014: £1,693,165) 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

				2015		2014
The operating profit is stated after charging:				£		£
Staff costs				2,075,848		2,127,782
Research and development				1,009,551		1,235,070
Leasing costs				126,782		144,021
Auditors' remuneration				30,696		29,495
Fees to auditors for other services				3,175		4,460
Goodwill impairment				219,000		2,550,000
Depreciation and amortisation				61,436		94,634

Included in the audit fee for the group is an amount of £15,000 (2014: £14,950) in respect of the company.

9.         Staff Costs

Payroll costs include:					Group
					2015		2014
					£		£
Staff payroll and related costs					1,853,563		1,873,181
Directors' remuneration					172,314		208,188
Defined benefit scheme expense					49,971		46,413
					2,075,848		2,127,782

Payroll costs included above for key personnel including the directors totalled £372,306 (2014: £410,555)

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

					2015		2014
					No.		No.
Administration					2		2
Sales and marketing					6		8
Research and development					17		20
Operations					6		6
Directors					4		5
					35		41

10         Directors' remuneration

		2015		2014
An analysis of directors' remuneration (who are the key management personnel) is set out below		£		£
Executive directors		162,314		198,188
Non-executive directors		10,000		10,000
		172,314		208,188

Directors' remuneration includes pension contributions of £11,215 (2014: £10,329)

		2015		2014
		£		£
G Levit		161,064		178,188
I Fishman		5,000		20,000
G Simmonds		1,250		5,000
D Rubner		5,000		5,000
		172,314		208,188

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

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

There is one director enrolled under the defined benefit scheme.

11.        Financial income and finance costs	2015		2014
	£		£
Finance income:
Interest received	-		232
Finance costs:
Interest payable	53,755		25,068
(Gain)/loss on foreign currency transactions	(2,949)		46,203
	50,806		71,271
Total	50,806		71,039

12.        Taxation

Current tax charge/(credit)	2015		2014
	1,337		8,194

Factors affecting the tax charge in the year

Loss on ordinary activities before taxation	(275,646)		(2,884,798)
Loss on ordinary activities before taxation at the applicable rate of corporation tax 20.25% (2014: 21.5%)	(55,818)		(620,232)
Effects of:
Depreciation and amortisation	12,460		20,346
Goodwill Impairment	44,347		548,250
US taxation	387		(986)
Israeli withholding tax deemed irrecoverable	-		13,500
Unused losses	(39)		47,316
Tax charge	1,337		8,194

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 £8.4 million. Trading losses of approximately £5.9 million in relation to TeleMessage Ltd in Israel may be carried forward and offset against future trading income indefinitely and without restriction. The remaining £2.5 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 (2014: £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 £275,646 (2014: loss £2,893,712) and on the weighted average number of shares in issue, which was 115,872,148 (2014:115,872,148).

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 £2,014,932 after impairment of the company's investment of  £219,000 and the provision for non- recoverable indebtedness from its subsidiary undertaking of £1,799,475 (2014-loss:£2,568,831 after impairment of the company's investment of £2,550,000).

15.       Intangible assets

Goodwill and investment in subsidiary undertakings.
					2015		2014
Cost					£		£
At  31 December					3,236,617		3,236,617
Impairment
At 1 January					(2,550,000)		-
Charge in the year					(219,000)		(2,550,000)
At  31 December					(2,769,000)		(2,550,000)
Value net of impairment  at  31 December					467,617		686,617
Exchange rate changes
At 1 January					117,340		196,142
Exchange rate change in the year					(63,056)		(78,802)
At 31 December					54,284		117,340
Carrying value at 31 December					521,901		803,957

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% (2014 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 directors believe that any reasonable 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:-

					2015		2014
Revenue growth rate					6%		6%
Annual expected future growth					217,705		167,684
Revenue discount factor					10%		10%

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

The directors' re-assessment of goodwill having regard to current trading conditions and expected future operating performance justifies further impairment £219,000 (2014: £2,550,000).

Company information

								2015		2014
								£		£
Cost of shares:
At 1 January and 31 December								3,269,000		3,269,000
Impairment								(2,769,000)		(2,550,000)
								500,000		719,000
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				2015		2014
				£		£
Cost
At 1 January				462,236		423,237
Additions				18,599		14,581
Foreign exchange movement				24,137		24,418
At 31 December				504,972		462,236
Depreciation
At 1 January				375,710		260,582
Depreciation in the year				61,436		100,094
Foreign exchange				19,619		15,034
At 31 December				456,765		375,710
Carrying value
At 31 December				48,207		86,526
At 1 January				86,526		162,655

All the above assets are included in the accounts of subsidiary undertakings at their net book values comprising computers and related equipment of £33,312 (2014: £70,196) and office furniture and equipment of £14,895 (2014: £16,330).

17.        Other investments 

	Group				Company
	2015		2014		2015		2014
	£		£		£		£
							Restated
Investment plans for employee severance	391,946		343,699		-		-
Loan note due from subsidiary undertakings	-		-		1,518,780		1,450,684
	391,946		343,699		1,518,780		1,450,684

Other investments of £391,947 represents the funds at 31 December 2015 (2014:£343,699) 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 $2,400,000t repayable 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.

As a result of an appraisal of the total debt due by its wholly owned subsidiary undertaken in 2015, a revision reducing the capital note to $2,251,713 was made with no other variations to the terms referred to above. This change was balanced by a reclassification of the indebtedness between the subsidiary at its parent as set out in the table below:-

Due from TeleMessage Limited				2015		2014
5 year capital note - June 2014				1,518,780		1,450,684
loan - 2007 and accrued interest				323,627		315,278
Inter- company current account				(42,932)		(25,371)
				1,799,475		1,740,591

The change in the carrying value of the capital note at year end dates arise from variations in the exchange rate only giving rise to foreign exchange translation gains totalling  £185,935 to  31 December 2015 of which £117,839 has been recognised in foreign exchange reserves in 2014 and £68,096 in 2015.

In view of the uncertainty surrounding the ability of the trading subsidiaries to repay indebtedness in the foreseeable future, the company's directors have taken the decision to make full provision for non-recoverability in these accounts.  

18.        Trade and other receivables 

	Group				Company
	2015		2014		2015		2014 Restated
	£		£		£		£
Trade receivables	755,719		625,487		-		-
Due from subsidiary after one year (see note 17)	-		-		323,627		315,378
Provision for non- recoverability					(280,695)		-
Due from government authorities	2,713		1,313		2,713		1,313
Other receivables and prepaid expenses	91,664		69,268		7,355		3,281
	850,096		696,068		53,000		319,872

Trade receivables - ageing	Total	Neither overdue or impaired	<30 days	30-60 days	60-90 days	More than 90 days
	£	£	£	£	£	£
2015	755,719	62,064	327,262	148,220	99,520	118,653
2014	625,487	65,845	323,583	134,090	64,351	37,618

The average credit period given for trade receivables at the end of the year is 80 days (2014:63 days).

19.       Trade and other payables

	Group				Company
	2015		2014		2015		2014 Restated
	£		£		£		£
Trade payables	108,192		105,888		-		-
Taxes and social security	268,771		223,979		-		-
Due to subsidiary undertaking (see note 17)	-		-		42,933		25,371
Accruals and other payables	222,311		195,798		18,675		19,501
	599,274		525,665		61,608		44,872

The average credit period taken for trade payables at the end of the year is 78 days (2014: 66 days).

20.        Borrowings

	Group 2015 £		Group 2014 £		Company 2015 £		Company 2014 £
Due within one year	229,425		110,013		-		-
Due after one year	233,104		-		-		-
	462,529		110,013		-		-

On 24 January 2015, the company's subsidiary, TeleMessage Ltd, signed an agreement for a loan of $1,000,000 from Mizrahi Tefahot Bank Ltd following the full repayment of an earlier bank loan for $1,000,000 taken out in 2012.

Under the terms of the new loan agreement, repayments are over 36 equal monthly instalments with an interest rate based on the London Interbank Offered Rate plus 6%.

In addition and as part of the agreement, the company granted Mizrahi Tefahot Bank a further 4,500,000 warrants to purchase ordinary shares exercisable at any time from grant to 24 January 2020 at a price of 0.91p per share.

The company also extended the exercise period in relation to 3,896,804 warrants granted to the bank in June 2012 to January 2020.

The fair value of both new and extended warrants of £26,257 has been as a deduction from the bank loan in 2015 to be amortised over the period of the term of the loan.

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 2015 £		Group 2014 £
Expense in respect of defined contribution plan	54,025		46,582

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

	Group 2015 £		Group 2014 £
Defined benefit obligation	(536,976)		(479,656)
Fair value of plan assets	391,946		343,699
Benefit liability	(145,030)		(135,957)

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

	Group 2015 £		Group 2014 £
Net actuarial gain (loss) recognised in the year	14,805		(71,715)
Total expenses included in the statement of comprehensive income	14,805		(71,715)

(c)        Amounts recognised in arriving at  the operating loss is as follows:

	Group 2015 £		Group 2013 £
Current service cost	38,026		39,468
Interest cost	5,552		1,694
Return differences transferred to employer	6,393		5,251
Total expense included in statement of income	49,971		46,413

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

	Group 2015 £		Group 2014 £
Liability at the beginning of the year	479,656		382,189
Current service cost	38,026		39,468
Interest cost	20,596		18,453
Benefits paid	(218)		(3,942)
Actuarial (loss)/gain on obligation	(25,575)		72,790
Foreign exchange differences	24,491		(29,302)
Liability at the end of the year	536,976		479,656

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

	Group 2015 £		Group 2014 £
Plan assets at the beginning of the year	343,699		323,703
Expected return	15,143		16,662
Contributions by employer	32,642		33,683
Return differences transferred to employer	(6,393)		(5,251)
Actuarial loss	(10,771)		1,075
Foreign exchange differences	17,626		(26,173)
Plan asset at the end of the year	391,946		343,699

(f)       The actuarial assumptions used are as follows:

	Group 2015		Group 2014
Discount rate	4.05%		4.11%
Future salary increase	3.50%		3.50%
Average expected remaining working years	12.95		12.89

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.

		2015		2014
		£		£
Amount outstanding at 1 January		5,049		23,618
Foreign exchange difference		218		1,362
Grants received in the year		-		17,749
Royalties paid in the year		(920)		(858)
Taken to statement of comprehensive income		(511)		(36,822)
Amount outstanding at 31 December		3,836		5,049

          Under the Ministry of Economy "Smart Money" Marketing Fund rules and pursuant to applicable laws, the subsidiary undertaking is required to pay royalties at the rate of 3.5% on increased sales of products in the US market above the 2014 level of product sales up to an amount equal to 100% of the grant received, plus interest at the 12-month LIBOR rate.

		2015		2014
		£		£
Amount outstanding at 1 January		-		-
Grants received in the year		53,246		-
Royalties paid in the year		-		-
Taken to statement of comprehensive income		(12,390)		-
Amount outstanding at 31 December		40,856		-

23.         Share capital

		2015		2014
		£		£
Issued and fully paid
115,872,148 (2014 - 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 2015 there were 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 760,000 share options were granted to employees and directors of the company and 1,558,922 share options lapsed or were forfeited by employees no longer with the company.

No share options were exercised in the year

At 31 December 2015 there were 33,161,477 (2014:33,960,399) share options held by employees and directors of the company.

Share options exercisable by employees and directors at 31 December 2015 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	475,000	31.3.2014	1.22p	31.3.2014 -  31.3.2024
	11,475,000
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	9,745,000	31.3.2014	1.22p	31.3.2014 -  31.3.2024
Other employees	665,000	29.1.2015	0.91p	29.1.2015 -  29.1.2025
	33,161,477

Details of share option valuations are given in note 30.

Warrants in issue at 31 December 2015

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.

In addition,  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.

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	17 June 2012	24 January 2015	24 January 2015
Share price at grant date	0.88p	0.93p	0.93p
Exercise price	0.63p	0.91p	0.91p
Shares under option	3,896,804	3,896,804	4,500,000
Vesting period	Immediately	Immediately	Immediately
Expected volatility	89.5%	64.2%	64.2%
Option life	5	5	5
Expected life	5	5	5
Risk free rate	1.07%	1.75%	1.75%
Expected dividends expressed as dividend yield	0%	0%	0%
Fair value per option	0.6480p	0.5101	0.5101

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.

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 2015 are as follows:-

		2015 £		2014 £
Within one year		93,102		96,469
Between two to five years		281,447		318,960
More than five years		-		13,157
		374,549		428,586

Leasing costs charged in the statement of comprehensive income in the year ended 31 December 2015 and 2014 were £126,782 and £144,021 respectively.

25.        Related parties

Arram Berlyn Gardner (AH) Limited

The group made payments to Arram Berlyn Gardner AH Limited (chartered accountants) totalling £14,167 for the services of I Fishman as a director and for the professional services of Arram Berlyn Gardner AH Limited. (2014: £23,500 was paid to AH Montpelier Professional (West End) Limited, Chartered Accountants, a company in which I Fishman was a director throughout that year.

Parent company management fees and interest

The company charged fees of £72,000 (2014:£84,000) for management services of its subsidiary undertakings. Interest of £11,443 (2014: £8,349) was charged by the company in relation to an interest bearing loan. Further details are given in note 17 above.

26         Cash and cash equivalents and net funds

	At 1 January 2015		Movements in the year		At 31 December 2015
	£		£		£
Group
Cash and cash equivalents	381,109		356,307		737,416
Borrowings	(110,013)		(352,516)		(462,529)
	271,096		3,791		274,887
Company
Cash and cash equivalents	859		6,457		7,316

27         Post balance sheet events

No significant events have taken place since the year end.

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 £462,500 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.

Financial instruments and risk management (cont)

At 31 December 2015 and 31 December 2014 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.

			2015		2014
			£		£
Financial assets
Cash and cash equivalents			737,416		381,109
Trade and other short term receivables			850,096		696,068
			1,587,512		1,077,177
Trade and other payables			643,350		530,714
Bank borrowings			462,529		110,013
			1,104,879		640,727

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, Canadian Dollar (CAD), GBP and Euro. Currency exchange risk arises mainly from payroll and costs incurred in NIS, sale denominated in Euro and CAD 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 2015, 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 2015, 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 2015

	Total projected cash flows	First year	Years 2-5	More than 5 years
	£	£	£	£
Trade payables	108,000	108,000		-
Other financial payables	490,000	490,000	-	-
Bank loans	463,000	230,000	233,000	-
Royalty bearing grants	44,500	500	44,000	-
	1,105,500	828,000	277,000	-

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	-	-

Interest rate risk

As the group's long term liabilities include a bank loan drawn down in January 2015,  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 Nov  2010	31 March  2014	29 Jan  2015
Share price at grant date	2.25p	0.38p	0.25p	0.7p	1.22p	0.78p
Exercise price	3.2p	0.5p	0.5p	0.7p	1.22p	0.91p
Shares under option	180,940	8,000,000	11,000,000	500,000	15,025,000	665,000
Vesting period	< 4 years	< 2 years	< 2 years	< 1 year	< 0 -4 years	< 1 year
Expected volatility	151.40%	194.40%	220.30%	223.29%	57%	63.98%
Option life	10	10	10	10	10	10
Expected life	5.25 - 6	5 - 6	5 - 6	5 - 5.5	5.3 - 7	5-6
Risk free rate	5.01%	4.95%	2.06%	1.53%	1.84%	1.75%
Expected dividends expressed as dividend yield	0%	0%	0%	0%	0%	0%
Retention factor	85%	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	0.47p

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 2010,31 March 2014 and 29 January 2015 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:

			2015		2014
			£		£
Group			16,541		56,725

Equivalent credits have been released to reserves.

 

END

 

 

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