Q1 results and MD&A

RNS Number : 6132H

Synchronica PLC

01 June 2011

 



Synchronica plc

First Quarter Results for 2011

Synchronica plc, the international provider of next-generation mobile messaging solutions, announces that it has, in compliance with TSX Venture Exchange regulations, as well as its own best practice responsibilities, filed its financial statements for the quarter ended March 31, 2011 and the accompanying Management Discussion and Analysis (MD&A), with the System for Electronic Document Analysis and Retrieval (SEDAR).

Abridged highlights are set out below, and the full documents may be downloaded from:

http://www.sedar.com/FindCompanyDocuments.do,

as well as the Company´s website at www.synchronica.com

All currency is expressed in United States dollars.

Quarter 1 Financial Highlights:

·     Quarter 1 revenues increased to US $1.93m (Q1'10: US $0.52m), an improvement of 271% when compared to the same period last year;

·     Gain on bargain purchase on  the acquisition of Neustar NGM Services business, customer contracts, accounts, intellectual property, patents and software, and other associated assets, US $3.8m;

·     Achieved profit after tax of US $0.865m during the quarter (Q1'10: Loss after tax US $ 2.278m);

·     EDITDA loss excluding exceptional items increased marginally to US $1.99m from US$ 1.83m, reflecting increased cost in the business required to service the enlarged customer base;

·     Remaining interest in iseemedia Inc. acquired in early January;

·     Recurring revenue increased to 75.3% of total quarterly revenues (Q1'10: 37.6%).

Quarter 1 Operational Highlights:

·     Initial feedback, from Carriers and Device Manufacturers, for Synchronica Mobile Gateway 6, announced at Mobile World Congress 2011, has been very positive;

·     IMPS technology acquired from Colibria AS, and patented transcoding technology acquired with iseemedia Inc., fully integrated into Mobile Gateway 6;

·     53 meetings held with prospective and existing operator and device manufacturer customers at Mobile World Congress 2011;

·     Available pool of potential subscribers across Synchronica´s 80+ operator customers increased to approximately 1.3 billion;

·     With its acquisition of the Instant Messaging business of Neustar NGM Services, Synchronica has widened its market focus to include developed markets as the next phase for business expansion;

·     Continued confidence that Synchronica will meet full year market expectations.

Quarter 1 Financial Results:

			Three months ended
			31 March 2011	31 March 2010
			US$'000	US$'000
Revenue			1,933	524
Profit/(losses) for the year attributable to the equity holders			865	(2,278)
Profit/(losses) before exceptional items			1,056	(2,278)
EBITDA losses before exceptional items*			(1,990)	(1,829)
Total assets			37,077	32,036
Long Term Liabilities			3,844	2,654
Dividend per share			-	-

			Three months ended
			31 March 2011	31 March 2010
			US Cents	US Cents
Basic earnings/(loss) per share			0.9	(5.9)
Diluted earnings/(loss) per share			0.8	(5.9)
Adjusted loss per share **			(2.0)	(4.8)

Synchronica plc	Carsten Brinkschulte, CEO	[phone]
www.synchronica.com	Angus Dent, CFO	[phone]
Northland Capital Partners
(Nominated Adviser)	Shane Gallwey/Rod Venables	[phone]
(Corporate Broker)	Katie Shelton	[phone]
Walbrook PR Limited		[phone]
(media enquiries)	Paul McManus	[e-mail]
(investor enquiries)	Paul Cornelius	[e-mail]

About Synchronica

Synchronica plc is a leading developer of next-generation mobile messaging solutions based on open industry standards. The award-winning product portfolio includes the flagship product Mobile Gateway, providing push email, synchronisation, instant messaging, backup & restore and mobile connectivity to social networks. Synchronica's products are white-labelled and offered by mobile operators in emerging and developed markets to provide mass-market messaging services, increasing data revenues and reducing churn.

Synchronica's Mobile Gateway provides a unique multi-protocol gateway combining Push IMAP, SyncML, ActiveSync, Email-to-MMS and Email-to-SMS, delivering push email and synchronisation to literally any mobile phone currently in the market without requiring an additional client to be downloaded. Expanding Instant Messaging to mobile devices, Mobile Gateway establishes carrier-branded IM communities using the industry-standard XMPP and provides gateways to popular Internet IM communities connecting any IMPS enabled handset.

Headquartered in England, Synchronica also maintains development centres in Germany and the Philippines, in addition to a regional presence in Canada, the USA, Hong Kong, Spain, and Dubai. Synchronica plc is a public company which is traded on the AIM list of the London Stock Exchange (SYNC.L), and the Venture Exchange of the Toronto Stock Exchange (SYN.V). For further information, please visit www.synchronica.com

===

Interim Unaudited Consolidated Financial Statements for the three month period ended 31 March 2011

Consolidated Statement of Comprehensive Income for the three month period ended 31 March 2011

				31 March	31 March
				2011	2010
				(unaudited)	(unaudited)
	Note			US $'000	US $'000
Revenue				1,933	524
Cost of sales				(98)	(55)
Gross profit				1,835	469
Administrative costs
Amortisation and depreciation				(518)	(275)
Gain on bargain purchase	5			3,853	-
Exceptional items	2			(191)	-
Other administrative expenses				(3,825)	(2,298)
Foreign exchange (losses)/gains on operating activities				(51)	40
Total administrative costs				(732)	(2,533)
Operating profit/(loss)				1,103	(2,064)
Finance costs				(316)	(241)
Profit/(loss) before taxation				787	(2,305)
Taxation	3			78	27
Profit/(loss) for the period after tax				865	(2,278)
Other comprehensive income
Actuarial gains				35	-
Total comprehensive income for the period				900	(2,278)
Earnings/(loss)per ordinary share from continuing operations
Basic earnings/(loss) per ordinary share (US cents)	4			0.9 c	(5.9)c
Diluted earnings per share	4			0.8 c	(5.9)c

Consolidated Statement of Financial Position as at 31 March 2011

		As at	As at
		31 March	31 December
		2011	2010
		(unaudited)	(unaudited)
		US $'000	US $'000
Assets
Non-current assets
Intangible assets		23,173	18,838
Property, plant and equipment		467	372
Derivative financial instruments		198	442
Total non-current assets		23,838	19,652
Current assets
Trade and other receivables		11,621	9,974
Derivative financial instruments		1,014	1,228
Cash and cash equivalents		604	1,182
Total current assets		13,239	12,384
TOTAL ASSETS		37,077	32,036
Current liabilities
Trade and other payables		5,214	4,112
Borrowings		1,542	-
Corporation tax		35	25
Provisions		139	139
Total current liabilities		6,930	4,276
Non-current liabilities
Provisions		1,876	1,921
Deferred tax liability		1,686	561
Finance lease due after more than 1 year		112	34
Retirement benefit obligation		170	138
Total non-current liabilities		3,844	2,654
Total liabilities		10,774	6,930
Equity and reserves
Ordinary shares		22,453	21,309
Share premium account		34,544	34,531
Merger reserve		5,975	4,920
Warrant reserve		1,073	1,073
Accumulated losses		(37,742)	(37,460)
Equity attributable to shareholders of the parent company		26,303	24,373
Non-controlling interest		-	733
Total Equity		26,303	25,106
TOTAL EQUITY AND LIABILITIES		37,077	32,036

Consolidated Statement of Cash Flow for the three month period ended 31 March 2011

			3 months to	3 months to
			31 March 2011	31 March 2010
			(unaudited)	(unaudited)
			US $'000	US $'000
Cash flow from operating activities
Profit/(loss) before taxation			787	(2,305)
Adjusted for:
Depreciation			65	45
Amortisation of intangibles			453	230
Foreign exchange gains on operating activities			51	(40)
Gain on bargain purchase			(3,853)	-
Finance costs			316	241
Actuarial gain			35	-
Equity-settled share-based payment			85	52
Cash flows from operating activities before changes in working capital and provisions			(2,061)	(1,777)
Decrease in receivables			373	77
Decrease in provisions			(61)	(166)
Decrease in payables			(183)	(347)
Cash utilised in operating activities			(1,932)	(2,213)
Tax paid			(1)	(100)
Net cash used in operating activities			(1,933)	(2,313)
Cash flow from investing activities
Acquisition			(1)	-
Purchase of intangible assets			(292)	(1,047)
Purchase of property, plant and equipment			(20)	(17)
Net cash used in investing activities			(313)	(1,064)
Cash flow from financing activities
Proceeds from issue of loan			1,542	-
Proceeds from derivative financial instruments			305	92
Payments to finance lease creditors			(17)	-
Finance costs paid			(79)	(2)
Interest received			-	3
Net cash generated from financing activities			1,751	93
Net increase in cash and cash equivalents			(495)	(3,284)
Cash and cash equivalents at 1 January			1,182	4,242
Effects of exchange rate changes on cash equivalents			(83)	-
Cash and cash equivalents at period end			604	958

Consolidated Statement of Changes in Equity for the three month period ended 31 March 2011

						Total
						attributable
						to equity	Non-
	Share	Share	Merger	Warrant	Accumulated	shareholders	controlling	Total
	capital	premium	reserve	reserve	losses	of the parent	interest	equity
	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)
	US $'000	US $'000	US $'000	US $'000	US $'000	US $'000	US $'000	US $'000
At 1 January 2010	8,644	30,033	2,269	-	(31,459)	9,487	-	9,487
Adjustment for share-based payments	-	-	-	-	52	52	-	52
Total comprehensive income	-	-	-	-	(2,278)	(2,278)	-	(2,278)
At 31 March 2010	8,644	30,033	2,269	-	(33,685)	7,261	-	7,261
Adjustment for share-based payments	-	-	-	-	318	318	-	318
Proceeds from placing	3,534	3,181	-	214	-	6,929	-	6,929
Shares issued in exchange for derivative financial assets	1,338	2,007	-	-	-	3,345	-	3,345
Shares issued as consideration for  acquisitions	7,555	1,464	2,689	859	-	12,567	1,208	13,775
Issue costs	-	(2,208)	(38)	-	-	(2,246)	-	(2,246)
Acquisition of non-controlling interest	238	54	-	-	(57)	235	(235)	-
Total comprehensive income	-	-	-	-	(4,036)	(4,036)	(240)	(4,276)
At 1 January 2011	21,309	34,531	4,920	1,073	(37,460)	24,373	733	25,106
Adjustment for share-based payments	-	-	-	-	85	85	-	85
Shares issued in exchange for services	91	76	-	-	-	167	-	167
Shares issued as consideration for loan fees	108	104	-	-	-	212	-	212
Acquisition of non-controlling interest	945	-	1,055	-	(1,267)	733	(733)	-
Issue costs	-	(167)	-	-	-	(167)	-	(167)
Total comprehensive income	-	-	-	-	900	900	-	900
At 31 March 2011	22,453	34,544	5,975	1,073	(37,742)	26,303	-	26,303

Notes to the Interim Financial Information for the three month period ended 31 March 2011

1. Basis of preparation and going concern

These interim unaudited financial statements have been prepared in accordance with IAS 34, "Interim Financial Reporting", as adopted by the European Union. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2010 Annual Report. The financial information for the period ended 31 March 2011 and 31 March 2010 does not constitute statutory accounts and is unaudited.

The principal accounting policies used in preparing the interim results are those the Group expects to apply in its financial statements for the year ended 31 December 2011 and are unchanged from those disclosed in the Group's Report and Financial Statements for the year ended 31 December 2010.

The annual financial statements of Synchronica plc are prepared in accordance with IFRS's as adopted by the European Union. The comparative financial information for the year ended 31 December 2010 included within this report does not constitute the full statutory accounts for that period. The auditors' report on those accounts was unqualified, but did contain references to going concern to which the auditors drew attention by way of an emphasis of matter paragraph without qualifying their report.

These Group financial statements have been prepared on the going concern basis which is supported by forecasts and projections covering the period to 31 December 2013.

The forecasts and projections, which include monthly cash flows, suggest that provided the Group trades in line with expectations it has sufficient funds to meet its liabilities as they fall due. There is however a risk that the Group may not meet its revenue expectations and/or that while it may meet these revenue expectations it might meet them more slowly than anticipated; either or both of these could test the Group's cash flow. The forecasts are reliant on collecting cash from existing customers and signing new deals with new customers which are expected but not guaranteed, negotiations are ongoing.

In addition, the Group is operating in a highly specialised and fast moving environment in which in order to generate revenue it is necessary that the products are and remain up to date. This leaves the Group with little opportunity to reduce costs if it is to remain competitive.

Given the above, the directors acknowledge that there is a material uncertainty related to these events, that may cast significant doubt on the Group's ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.

The Group has faced the uncertainties noted above throughout its life. To date, when required, management has been successful in raising additional funding from existing and new investors. Based on forecasts and projections, management expect the Group to continue as a going concern.

The Board of Directors approved this Interim Report on 27 May 2011.

2. Exceptional Items      

The exceptional items relate to the cost of closing an office acquired with the acquisition of iseemedia Inc.

3. Taxation

The taxation charges for the three month period to 31 March 2011 are based on the effective taxation rate, which is estimated will apply to earnings for the year ending 31 December 2011.

4. Loss per share

			3 months to	3 months to
			31 March	31 March
			2011	2010
			(unaudited)	(unaudited)
Numerator
Profit/(losses) used for calculation of basic and diluted EPS			865	(2,278)
Amortisation, impairment and depreciation			518	275
Exceptional items			191	-
Foreign exchange losses/(gains) on operating activities			51	(40)
Gain on bargain purchase			(3,853)	-
Finance costs			316	241
Taxation			(78)	(27)
Losses used for calculations of adjusted EPS			(1,990)	(1,829)
Denominator
Weighted average number of ordinary shares used in basic EPS			97,356,524	38,496,933
Basic earnings/(loss) per ordinary share (US$)			0.9c	(5.9)c
Adjusted loss per ordinary share (US$)			(2.0)c	(4.8)c
Weighted average dilutive securities			18,202,624	6,592,567
Weighted average number of ordinary shares used in basic EPS			115,559,148	45,089,500
Diluted earnings/(loss) per ordinary share (US$)			0.8 c	(5.9)c

For the three month period ended 31 March 2010 the weighted average number of dilutive securities (options, warrants and deferred shares) have been excluded from the calculation of diluted loss per share because they would reduce loss per share.

5. Acquisition of Neustar MIM

On 1 February 2011 the Group acquired certain assets and liabilities from Neustar NGM Services and certain affiliates relating directly to their IM business. 

	Carrying values	Provisional
	pre-acquisition	fair values
	US$'000	US$'000
Intellectual property rights	-	395
Customer relationships	-	4,101
Receivables	1,077	2,020
Payables	(289)	(540)
Deferred income	(908)	(908)
Deferred tax	-	(1,214)
Fair value of net assets	(120)	3,854
Bargain purchase		(3,853)
Consideration paid		1
Satisfied by:
Cash		1
Total consideration		1

The business was acquired to accelerate the Group's share of the Mobile Instant Messaging market.

Neustar made a decision to divest its Mobile Messaging division and concentrate on core businesses. In order to protect its position in the industry Neustar provided these assets at a significant discount to fair value.

The fair values are provisional to allow time for the transfer of the customers to Synchronica and to make a full assessment of the assets attached to the customer contracts.

===

Management Discussion and Analysis for the Quarter Ended 31 March 2011

This Management Discussion and Analysis relates to the financial statements of Synchronica plc and its subsidiaries, on a consolidated basis, for the quarter ended 31 March 2011.  Please read this Management Discussion and Analysis in tandem with the unaudited interim financial statements of Synchronica plc for the quarter ended 31 March 2011. Unless otherwise stated, all information is presented in United States Dollars (US$).

Wherever we use the term 'Group', we refer to Synchronica plc and its subsidiaries; please see note 18 of the Synchronica plc Annual Reports and Accounts 2010. Additional information relating to Synchronica plc is available on SEDAR at www.sedar.com.

Synchronica plc, the international provider of next-generation mobile messaging solutions, is pleased to announce its results for the three months ended 31 March 2011.

Highlights:

·     Quarter 1 revenues increased to US $1.93m (Q1'10: US $0.52m), an improvement of 271% when compared to the same period last year;

·     Gain on bargain purchase on the acquisition of Neustar NGM Services business, customer contracts, accounts, intellectual property, patents and software, and other associated assets, US $3.8m;

·     Neustar NGM Services acquisition provides a bold step in Synchronica's transition towards recurring revenue streams;

·     Recurring revenue increased to 75.3% of total quarterly revenues (Q1'10: 37.6%);

·     Strong deal flow with new Mobile Gateway deals for two fast-growing device manufacturers, and a Yemeni mobile operator;

·     Achieved profit after tax of US $0.865m for the quarter (Q1'10 loss after tax : US $ 2.278m);

·     Mobile Gateway 6 announced, introducing Pre-RCS Unified Messaging capabilities with presence-enabled address books, ultra-lightweight JSME clients, support for WAP Browsers, and advanced attachment transcoding;

·     Remaining interest in iseemedia Inc. acquired in early January;

·     Total number of operator customers increased to more than eighty with a total addressable market which exceeds 1.3 billion potential subscribers.

Synchronica is the de facto market leader for next generation mobile messaging in developing countries with group-wide agreements covering Latin America, Africa and Russia as well as contracts with large carriers in India. Through a combination of organic growth and acquisition, Synchronica has grown from a niche player with a limited footprint, into a leading international provider of mobile messaging solutions.

Synchronica provides a one-stop solution for next-generation mobile messaging. While Synchronica's competitors focus on building their offerings with proprietary clients for a rather limited number of high-end devices, Synchronica uses a mix of client or clientless and open industry standard approaches to connect its users to Email, IM, SNS and Web-Feeds.

Synchronica focuses on offering a true, mass-market solution which provides its customers with the largest possible addressable market and service uptake. 

Mobile Gateway 6, the latest version of Synchronica's flagship product, was announced in February 2011, and is compatible with literally any mobile phone in use today. It delivers the best possible user experience on any device, providing support for low-end basic phones using SMS, MMS and WAP push while also providing mid to high-end support with native Email, Synchronization and IM services for more sophisticated devices based on open industry standards, using unified messaging clients.

With Synchronica's recent acquisition of competitor Neustar NGM, a specialist developer for RCS products, Synchronica has broadened its geographic reach to encompass developed markets. This allows Synchronica to target an additional 127 mobile operators in 32 countries and territories worldwide. Synchronica has also been focused on diversifying its business model complementing perpetual and recurring license revenue, and ensuring a more predictable revenue and cash inflow. The Group continues to make great progress with this.

Financial Highlights:

·     Quarter 1 revenues increased to US $1.93m (Q1'10: US $0.52m), an improvement of 271% when compared to the same period last year;

·     Gain on bargain purchase on the acquisition of Neustar NGM Services business, customer contracts, accounts, intellectual property, patents and software, and other associated assets, US $3.8m;

·     Achieved profit after tax of US $0.865m during the quarter (Q1'10: Loss after tax US $ 2.278m);

·     EDITDA loss excluding exceptional items increased marginally to US $1.99m from US$ 1.83m, reflecting increased cost in the business required to service the enlarged customer base;

·     Remaining interest in iseemedia Inc. acquired in early January;

·     Recurring revenue increased to 75.3% of total quarterly revenues (Q1'10: 37.6%).

Operational Highlights:

·     Initial feedback, from Carriers and Device Manufacturers, for Synchronica Mobile Gateway 6, announced at Mobile World Congress 2011, has been very positive;

·     IMPS technology acquired from Colibria AS, and patented transcoding technology acquired with iseemedia Inc. fully integrated into Mobile Gateway 6;

·     53 meetings held with prospective and existing operator and device manufacturer customers at Mobile World Congress 2011;

·     Available pool of potential subscribers across Synchronica´s 80+ operator customers increased to approximately 1.3 billion;

·     With its acquisition of the Instant Messaging business of Neustar NGM Services, Synchronica has widened its market focus to include developed markets as the next expansion phase;

·     Continued confidence that Synchronica will meet full year market expectations.

Overview:

In an especially active quarter, Synchronica announced a number of contract wins, consolidating the Group's market leadership position in the high-growth emerging markets. Synchronica also acquired the Instant Messaging business of Neustar NGM Services, adding a number of high value customers and patents to Synchronica's accounts; and announced a major upgrade to its flagship mobile messaging product, Mobile Gateway at the GSMA Mobile World Congress event.

Synchronica recorded an almost four fold increase in revenue in what is traditionally Synchroncia's weakest quarter of the year. This augers well for the remainder of the year, giving confidence that full year market expectations will be met. Some 75% of the revenue was from recurring sources, suggesting that Synchronica's transition to recurring revenue is gathering pace.

While costs were up when compared with the same period in 2010, this too reflects the success of the business in that it now needs to support more than 80 carrier customers. Further growth in costs is expected as the year progresses in order to better serve the customers.

A gain, a bargain purchase, was recorded on the acquisition of Neustar's NGM Servcies business, the difference between the acquisition price and the fair value of the assets, customer contracts, accounts, intellectual property, patents and software, and other associated assets, acquired.

Financial Results:

			Three months ended
			31 March 2011	31 March 2010
			US$'000	US$'000
Revenue			1,933	524
Profit/(losses) for the year attributable to the equity holders			865	(2,278)
Profit/(losses) before exceptional items			1,056	(2,278)
EBITDA losses before exceptional items*			(1,990)	(1,829)
Total assets			37,077	32,036
Long Term Liabilities			3,844	2,654
Dividend per share			-	-

				Three months ended
				31 March 2011	31 March 2010
				US Cents	US Cents
Basic earnings/(loss) per share				0.9	(5.9)
Diluted earnings/(loss) per share				0.8	(5.9)
Adjusted loss per share **				(2.0)	(4.8)

*EBITDA is a non-GAAP measure under IFRS without a standardized meaning.

**Adjusted loss per share is also a non-GAAP measure under IFRS without a standardized meaning.

Summary of Quarterly Results

	2011 Q1	2010 Q4	2010 Q3	2010 Q2	2010 Q1	2009 Q4	2009 Q3	2009 Q2
Revenue	1,933	5,177	746	4,477	524	3,297	661	927
Profit/(loss)	865	(18)	(4,123)	(83)	(2,278)	(228)	(1,323)	(1,688)
EBITDA Pre-exceptional	(1,990)	2,028	(2,218)	1,186	(1,829)	1,518	(670)	(1,915)
Basic earnings /(loss) per share	0.9	0.3	(6.7)	(0.1)	(3.7)	(0.7)	(4.2)	(5.3)
Diluted EPS	0.8	0.0	-	-	-	-	-	-

Description of Synchronica's Business

Synchronica is a leading developer of next-generation mobile messaging solutions based on open industry standards. The product portfolio includes the flagship product Mobile Gateway, providing push email, synchronization, Instant Messaging (IM), backup and restore, and mobile connectivity to social networks. Synchronica's products are white-labelled for sale under the brand identities of mobile operators in emerging and developed markets, which allows them to provide mass market messaging services, increase data revenues and reduce customer churn.

Synchronica Mobile Gateway provides a unique email and messaging gateway that combines multiple communication protocols, including Push IMAP, SyncML (OMA DS), ActiveSync, Email to MMS, and Email to SMS, in order to deliver push email and synchronization to any mobile phone currently in the market, without requiring additional client software to be downloaded to the device. Expanding Instant Messaging (IM) to mobile devices, Mobile Gateway establishes carrier-branded IM communities, using the industry standard XMPP communication protocol and provides gateways to popular internet IM communities, connecting any handset enabled for the OMA IMPS communication protocol.

Headquartered in England, Synchronica also maintains development centres in Germany and the Philippines in addition to a regional presence in the USA, Hong Kong, Spain and Dubai.

Synchronica is a public company traded on AIM, a market operated by the London Stock Exchange ("AIM") under the trading symbol "SYNC.L". AIM is the most successful growth market in the world. AIM has to date provided Synchronica with the majority of its capital.

Synchronica also trades on the TSX Venture Exchange of the Toronto Stock Exchange (TSX). The TSX is the third largest exchange in North America by market capitalisation, and the second largest for technology companies. The North American listing provides Synchronica with a strategic route into an investment community that is very tech-savvy, and ready to back growing companies.

Mobile Gateway 6

Synchronica announced a new major version of the flagship product, Synchronica Mobile Gateway, during Mobile World Congress. Mobile Gateway 6 introduces Pre-RCS Unified Messaging capabilities, with a presence-enabled address book, an ultra-lightweight J2ME client, support for xHTML browsers, and advanced document transcoding capabilities.

Mobile Gateway continues to support literally any mobile phone in use today, providing push Email, synchronization, instant messaging and social networking even on low-end devices. The new Mobile Gateway 6 functionality adds an advanced user experience for feature phones and Smartphones, while also integrating key components of the IMPS technology which Synchronica acquired from Colibria AS in April 2010, and the patented transcoding technology which Synchronica acquired from iseemedia in September of the same year.

Based on the typical sales cycle of 6-9 months, Synchronica expects to announce resulting wins for Mobile Gateway 6 towards the end of the year.

Mobile World Congress 2011

Mobile World Congress is the industry's most important annual trade event, featuring prominent representation from mobile operators, device manufacturers and vendors from across the world. An estimated 60,000 visitors attended the event which was held between 14 and 17 February 2011 in Barcelona.

During Mobile World Congress, Synchronica met with 53 prospective and existing customers (37 Mobile Operators, 16 Device Manufacturers), demonstrating the features of Mobile Gateway 6 to each of them. A number of existing customers also used the opportunity to explore upgrade and expansion opportunities with Synchronica for their existing service.

Feedback from the Congress was very encouraging, with customers appearing to be excited about the branding and advanced functionality that Mobile Gateway 6 provides. The Group is now systematically pursuing each lead generated from its participation at Mobile World Congress.

Synchronica also recorded substantial Public Relations activity during Mobile World Congress with 8,537 industry Journalists, Analysts and Bloggers responding to the four press releases Synchronica issued during the event. In addition to the availability of Mobile Gateway 6, Synchronica also provided significant support to two of its device manufacturer customers, helping them to generate increased media interest in the launch of their products.

Synchronica's CEO, Carsten Brinkschulte, was invited to participate in a panel discussion on GSMA's Mobile Live TV. During this 15 minute broadcast, which was screened throughout the event, the panel discussed the future landscape for mobile messaging services, how messaging and social networking will become indistinguishable, the importance of presence and status information, and if RCS and IMS are set to become widely-used standards for mobile messaging.

Amalgamation of the remaining iseemedia interest

On 7 January 2011, Synchronica announced that it had acquired the remaining interest in iseemedia Inc. through an amalgamation approved by the TSX Venture Exchange on 5 January 2011. Iseemedia Inc. is now a wholly-owned subsidiary of Synchronica plc.

Acquisition of Neustar NGM instant messaging

On 2 February 2011, Synchronica announced that it had entered into an agreement to acquire the customer contracts, accounts, intellectual property, patents and software, and any other associated assets from Neustar NGM Services Ltd. This saw Synchronica gain access to Neustar NGM Services instant messaging business, including the technology. We also welcomed 13 new customers including contracts with Tier-1 and Tier-2 mobile operators, and Tier-1 device manufacturers.

The cash consideration paid was US $1,000 no further payments are due, and was designed to accelerate Synchronica's entry into next generation RCS messaging. It has increased Synchronica's competitive position and market share in the instant messaging segment; while also providing a springboard for Synchronica to expand its market focus to include prospects operating in developed markets.

Synchronica intends to continue to support Neustar NGM Services open standards-based IM technology and plans to integrate key elements of the software into Synchronica's award-winning Mobile Gateway infrastructure software. Synchronica will also propose a roadmap to existing customers which will see them transition to Synchronica Mobile Gateway, and extend their range of services from IM to push Email, Synchronization and Social Networking.

Business won during the quarter

In January, Synchronica announced three new contracts, and the expansion of an existing contract.

The first contract to be announced in 2011 was with a "Top-10" Indian device manufacturer that intends to bundle Synchronica Mobile Gateway onto a number of its handsets. With a contract value that exceeds US $1.25 million, this was a substantial deal for Synchronica, and will provide the Group with a monthly per-user hosting fee, in addition to licence fees and a 12-month support and maintenance contract.

Following closely on the Indian device manufacturer announcement, Synchronica announced that it had signed an initial contract with an African-focused device manufacturer. The value of this contract exceeds US $500,000, and the deal comprises user licences for Mobile Gateway, plus service fees for the contract's first-year. Synchronica will also host and maintain the service on behalf of the customer, attracting an additional premium that is applied every month for each user hosted by Synchronica.

In concert with its global reseller partner, Nokia Siemens Networks, Synchronica secured a contract and initial purchase order to deploy Mobile Gateway to a Yemeni mobile operator that wishes to provide a mass-market push email service. The contract will also see Synchronica provide professional services and support to the customer.

Synchronica's success in the region continued with a US $107,000 expansion order from the Middle Eastern subsidiary of a Tier-one multinational mobile operator group. The customer, who had already been using Mobile Gateway to provide a successful push email service, placed an order for additional user licenses, while also renewing their 24/7 support contract for a further 12 months.

In March, Synchronica received two separate orders from device manufacturers. The first purchase order, received from a Tier-1 device manufacturer, was to certify and license Synchronica's IMPS instant messaging client in order to satisfy the device certification requirements of a large Latin American mobile operator group. This was the fourth Tier-1 manufacturer to place a device certification order with Synchronica following a September 2010 mandate from the mobile operator group, which requires each device manufacturer to either certify their native clients or pre-install Synchronica's IM client onto their mobile devices.

The second order, received from a device manufacturer that shipped more than 100 million devices in 2010, was Synchronica's first order for the Neustar NGM technology it acquired in February 2011. As part of the deal, Synchronica will license its Java-based instant messaging client providing multi-headed access to Windows Live Messenger (WLM) and Yahoo! Messenger for one of the manufacturer's new handsets. Synchronica also benefits by receiving professional services and royalty revenues based on the quantity of devices shipped.

Synchronica's strategic focus

While Synchronica is considered the de facto market leader for next-generation messaging in emerging markets, the Group has now expanded its focus to include prospects in developed markets, adding further prospects for operator customers in European - and potentially also in North American - markets.

This move allows Synchronica to target an additional 127 mobile operators in 32 countries and territories worldwide.

Synchronica will continue to innovate with plans to integrate the acquired RCS (Rich Communication Suite) technology and is targeting the introduction of further innovations to its messaging platform throughout the year.

Outlook

By diversifying our business model, and embracing a growing mix of perpetual and recurring revenue streams, we remain confident that 2011 will continue to provide positive results with a more predictable revenue and cash inflow.

The acquisition of the Instant Messaging business of Neustar NGM Services Ltd and the organic growth that we expect to come from both our existing base, as well as our now enlarged target markets continues to gives us confidence in our ability to meet full year market expectations.

Non-GAAP performance measures

We have shown an EBITDA (Earnings before interest taxation, depreciation and amortisation) measure to provide users with a measure that is closer to the cash flow performance of the Group. The adjusted loss per share measure has also been provided to give a comparable measure per share.

EBITDA	3 months ended
	31 March 2011	31 March  2010
	US$'000	US$'000
Loss for the year after tax	865	(2,278)
Taxation	(78)	(27)
Finance costs	316	241
Gain on bargain purchase	(3,853)	-
Foreign exchange (losses)/gains on operating activities	51	(40)
Exceptional items	191	-
Amortisation, impairment and depreciation	518	275
EBITDA Loss	(1,990)	(1,829)

Adjusted loss per share	3 months ended
	31 March 2011	31 March  2010
	US$'000	US$'000
EBITDA Loss	(1,990)	(1,829)
Loss used to calculate adjusted loss per share	(1,990)	(1,829)
Weighted average number of ordinary shares	97,356,524	38,496,933
Adjusted loss per share	(2.0)c	(4.8)c

Liquidity

Until the end of January 2011, the Group was financed from equity funding and revenue. During this time, the Group spent significant resources on business development and developing its technology, and with this investment, the Group now benefits from a growing global footprint and a world-leading technology.  

This development phase of the business requires ongoing resources, and the Group has continued to require further funding, drawing this from its shareholders. To date, when required, management has been successful in raising additional funding when required.

To further enhance the source of funds, in February 2011 the Group took a short term loan of US$ 1.5m, repayable at any time in the period to 31st December 2011 without penalty. The loan carries interest at a rate of 1% per month and there was a bonus issue of approximately 450,000 new ordinary 15p shares made to the provider of the loan at the time the loan was granted. The loan was taken in conjunction with the acquisition of Neustar's NGM instant messaging business to ensure sufficient liquidity during the initial period after the acquisition.

This expansion of the Group's activities means that the Group will require ongoing funding in advance of the growth in revenue and as it strives to increase recurring revenue.  There is however a risk that the Group may not meet its revenue expectations and/or that while it may meet these revenue expectations it might meet them more slowly than anticipated; either or both of these could test the Group's cash flow.

The forecasts and projections, which include monthly cash flows, suggest that provided the Group trades in line with expectations it has sufficient funds to meet its liabilities as they fall due. The forecasts are reliant on signing new deals with new customers which is expected but not guaranteed, negotiations are ongoing.

With the acquisition of the Neustar NGM instant messaging business, a further US$ 1 million was added to accounts receivable balances in addition to the increase in Q4 2010. While the Group fully expects to collect on these balances in line with normal trading terms, there is a risk that some of these may not pay on due date which will mean that there is a risk that the working capital requirements will not be met.

Contractual Obligations	Total	Less than 1 Year	1-3 Years
	US$'000	US$'000	US$'000
Debt	1,532	1,532	-
Finance lease obligations	230	91	139
Operating lease obligations	700	306	394
Total contractual obligastions	2,472	1,939	533

Financial Instruments

The Group has two derivative contracts in issue at the year end. The purpose of the contracts is to provide working capital over the period of the contracts in exchange for ordinary shares at the commencement of the contracts. The contracts have equity SWAP and interest rate SWAP elements. The value of any equity swaps settled in a period is determined by reference to Synchronica plc's share price, and the value of the interest rate swap by reference to LIBOR (one month GBP London Interbank Borrowing Rate). The period is normally one calendar month.

To mitigate the credit risk of the amounts outstanding, the institutional investor lodges government bonds with an escrow agent. The government bonds are released from escrow over the period of the contracts.

Derivative Financial Instruments	31 March 2011	31 December  2010
	US$'000	US$'000
Current	1,014	1,228
Non-current	198	442
	1,212	1,670

Financial instruments measured at fair value

Fair value of the swaps is calculated by discounting the forecast cash flows by reference to the current share price and LIBOR on the reference date.

	Fair value measurements using the fair value hierarchy
	Level 1	Level 2	Level 3
	US$'000	US$'000	US$'000
1 January 2011	-	1,670	-
Losses on equity swaps	-	(193)	-
Foreign exchange movement	-	40	-
Amounts settled	-	(305)	-
31 March 2011	-	1,212	-

SWAP commencing 15 January 2008

	31 March  2011	31 December  2010
Company share price	28.5p	33p
Interest rate receivable	(2.60)%	(2.60)%
Discount rate	12.5%	12.5%
Fair value (US$'000)	169	282
SWAPS outstanding	6	9

The amount received in respect of each equity swap is based on Synchronica plc's share price divided by the base price of 125p multiplied by the principal being settled of £78,125. A change in share price of 1p from the base price will lead to a change in receipts of £625 per month. The settlement value of the interest rate swap to be deducted from the equity swap is arrived at by multiplying the outstanding notional principal amount over the period since the last settlement date by LIBOR minus 2.5% p.a.

SWAP commencing 6 April 2010

	31 March  2011	31 December  2010
Company share price	28.5p	33p
Interest rate payable	1.53%	1.53%
Discount rate	12.5%	12.5%
Fair value (US$'000)	1,043	1,388
SWAPS outstanding	15	18

Outstanding share data of Synchronica plc

At 24 May 2011	Authorised Number	Outstanding Number
Ordinary (Common) shares of 15p each	159,307,882*	97,988,058
Warrants **	N/A	22,290,090
Options ***	10% of outstanding ordinary shares	3,648,120

*The statute under which Synchronica plc does not limit the number of ordinary shares that may be issued. Directors are given authority to allot by the shareholders.

** Each whole warrant is exercisable for one ordinary share of Synchronica plc.  As noted in the accompanying financial statements, 2,590,000 warrants are exercisable until 6 July 2013 at 45p per ordinary share, 2,065,283 warrants are exercisable until 11 December 2011 at 77.18p per ordinary share, 16,739,141 warrants are exercisable until 20 September 2013 at 28.94p per ordinary share and 895,666 warrants are exercisable until 17 September 2013 at 33.49p per ordinary share.

***Each whole option is exercisable for one ordinary share of Synchronica plc. All options in issue are employee share options.

		Number of		Month
Exercise price		options		Options Lapse
43.125p		2,456,609		Aug-2019
56.25p		707,717		Oct-2018
120.00p		198,385		Feb-2018
108.75p		3,333		Oct-2017
116.25p		20,000		Sep-2016
120.00p		108,958		Sep-2017
176.25p		91,798		May-2017
405.00p		30,000		Dec-2015
225.00p		29,864		Aug-2015
5010.00p		225		May-2015
732.00p		264		Nov-2014
732.00p		967		Feb-2013
		3,648,120

Controls over financial reporting

The Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") of the Company file a Venture Issuer Basic Certificate with respect to the financial information contained in the financial statements and respective accompanying MD&A. The Venture Issuer Basic Certification includes a 'Note to Reader' stating that the CEO and CFO do not make any representations relating to the establishment and maintenance of disclosure controls and procedures and internal control over financial reporting, as defined in NI 52-109.

That being said, the Chief Executive Officer and Chief Financial Officer believe that they have established and maintain such disclosure controls and procedures sufficient to ensure that material information of the Group is made known to them. The Group also believes that it maintains a set of internal controls over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS. There were no changes in the Group's internal control over financial reporting during the fourth quarter that would have materially affected, or were reasonably likely to materially affect the Group's internal control over financial reporting.

Corporate governance

The Group's Board of Directors includes a majority of independent Directors and its Committees include Audit (also responsible for governance) and Compensation (also responsible for appointments). The members of the Audit Committee are all independent Board members and are financially literate. The Committee meets regularly to approve the release of financial information including the MD&A and also to oversee relations with auditors and stewardship issues including compliance with new regulatory requirements.

 

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