Arcontech Group Regulatory News (ARC)

31 Mar 2008 07:02

Knowledge Technology Solutions PLC31 March 2008 RNS Release: 31 March 2008 KNOWLEDGE TECHNOLOGY SOLUTIONS PLC INTERIM REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2007 Knowledge Technology Solutions PLC (AIM: KTS), providers of market informationservices in the finance sector, reports its unaudited results for the six monthsended 31 December 2007. Financial and business highlights: • Increase in turnover of 65% to £917,701 (2006: £555,884) • Group loss of £718,908 (2006: £596,356) before tax, interest and exceptional items. • Completed substantial fund raising amounting to over £0.9 million (net of expenses) • Completed acquisition of Arcontech Limited Richard Last, Chairman of Knowledge Technology Solutions, said: "The Directors consider that the opportunities for the re-shaped business,focussed on the Arcontech product set and exploiting the skill set andIntellectual Property of the Market Terminal team, are good despite the presentuncertainties in the financial services sector generally. In particular we areexperiencing strong demand for the CFD and Spread Betting AXE system with newprospects arising in Europe and the Middle East." Enquiries; please contact: Andrew Miller Knowledge Technology Solutions PLC 020 7256 2300Mike Coe/Marc Davies Blue Oar Securities PLC 0117 933 0020 Chairman's Statement The results for the six months ended 31 December show an increase in turnover of65 % to £917,701 (2006 £555,884). This includes a four-month contribution fromArcontech of £504,708, which was acquired on 4 September 2007. The Group lossbefore tax, interest and exceptional items amounted to £718,908 (2006 £596,356). The acquisition of Arcontech has proved to be extremely positive for the Group,in its first four months it contributed £504,708 to turnover and produced anoperating profit of £109,153. It continues to grow its business with increasinginterest in its CityVision and Axe products. The Contract for Difference (CFD)and Spread Betting sector is also a significant area of opportunity forArcontech. The Arcontech business has relocated successfully to the KTSpremises resulting in rent and other property cost savings and improvingbusiness efficiency. In my Chairman's statement dated 4 December 2007 I reported that we werecarrying out a detailed review of the Market Terminal subscription business,this review is now complete. We have concluded that the financial andmanagement resources required to develop this business further should moreappropriately be applied to growing our software and solutions business wherethe financial results are more certain. We are presently in discussions for thesale of the subscription business. These discussions are at an early stage andtherefore not certain as to the outcome and are not as yet exclusive. We willhowever, continue to maintain ownership of the Market Terminal IntellectualProperty ("IP") which is currently being used to deliver the recently awardedcontract to provide a managed and hosted solution to Borse Berlin/Equiduct, thenew pan-European stock exchange, for a real-time market data and full order bookweb portal. The IP will be incorporated within the Arcontech product set, withwhich integration is already completed. The exceptional charge of £221,787 relates to the cost of terminating theArcontech lease prior to moving to the KTS premises, and the settlement with theformer chief executive. These costs will not recur. Financing As at 31 December 2007 the Group held total cash balances of £796,951. We arecurrently undertaking a fund raising by way of a placing of new ordinary shares.The proceeds of the fund raising will be used to increase sales and marketingresources and related expenditure, to support further product development aswell as to provide the working capital necessary to support the implementationand delivery of larger contracts that tend to be of a longer duration. Employees We are extremely grateful to our staff for their excellent support andcommitment during these changing times. Outlook The Directors consider that the opportunities for the re-shaped business,focussed on the Arcontech product set and exploiting the skill set andIntellectual Property of the Market Terminal team, are good despite the presentuncertainties in the financial services sector generally. In particular we areexperiencing strong demand for the CFD and Spread Betting AXE system with newprospects arising in Europe and the Middle East. The Board is planning to change the name of the company to Arcontech Plc at theAGM in December 2008 and expects the company to trade profitably in 2008/2009. In addition to the organic growth of the business we will continue to look forsuitable acquisition opportunities, which add to our product proposition as wellas increasing the size and scale of the Group. Richard LastChairman CONSOLIDATED INCOME STATEMENT for the six months ended 31 December 2007 Six months ended Six months ended Year ended 30 31 December 31 December June Notes 2007 2006 2007 £ £ £ Continuing operationsRevenue 4 917,701 555,884 981,745 Distribution costs (523,257) (595,667) (1,043,738) Administrative expenses (1,113,352) (556,573) (1,129,359)Administrative expenses - 3 (221,787) - -exceptional Operating loss 4 (940,695) (596,356) (1,191,352) Finance income 25,732 16,073 50,834 Loss before taxation (914,963) (580,283) (1,140,518) Taxation 5 - - - Loss for the year (914,963) (580,283) (1,140,518) Loss per share Basic 6 (0.21)p (0.33)p (0.45)p Diluted 6 (0.21)p (0.33)p (0.45)p CONSOLIDATED BALANCE SHEET as at 31 December 2007 31 December 31 December 30 June Notes 2007 2006 2007 £ £ £ Non-current assetsGoodwill 7 1,422,598 - -Plant and equipment 128,731 140,523 122,226 Total non-current assets 1,551,329 140,523 122,226 Current assetsInventories 281 - -Trade and other receivables 519,158 253,929 216,641Cash and cash equivalents 796,951 1,937,108 1,473,451 Total current assets 1,316,390 2,191,037 1,690,092 Current liabilitiesTrade and other payables 962,851 373,487 421,109Current tax liabilities 121,536 28,062 21,433 Total current liabilities 1,084,387 401,549 442,542 Net current assets 232,003 1,789,488 1,247,550 Net assets 1,783,332 1,930,011 1,369,776 EquityShare capital 10 488,643 332,532 332,532Share premium account 7,489,278 6,316,870 6,316,870Retained earnings (6,194,589) (4,719,391) (5,279,626) 1,783,332 1,930,011 1,369,776 CONSOLIDATED CASH FLOW STATEMENT for the six months ended 31 December 2007 Six months Six months ended Year ended 30 ended 31 31 December June December Notes 2007 2006 2007 £ £ £ Net cash used in operating activities 8 (821,433) (759,096) (1,254,885) Investing activitiesInterest received 25,732 16,073 50,834Acquisition of subsidiary, net of cash 7 (782,574) -acquired -Purchases of property, plant and (21,744) (6,344) (8,971)equipmentDisposal of property, plant and equipment - 1,044 1,042 (778,586) 10,773 42,905 Net cash (used in)/generated frominvesting activities Financing activitiesProceeds on issue of shares 1,000,000 1,842,571 1,842,571Expenses paid in connection with shareissues (76,481) (119,018) (119,018) Net cash generated from financingactivities 923,519 1,723,553 1,723,553 Net (decrease)/increase in cash and cash (676,500) 975,230 511,573equivalents Cash and cash equivalents at beginning of 1,473,451 961,878 961,878year Cash and cash equivalents at end of year 796,951 1,937,108 1,473,451 NOTES TO THE FINANCIAL INFORMATION for the six months ended 31 December 2007 1 Accounting policies Basis of preparation The next annual financial statements of the Knowledge Technology Solutions plc("the Group") will be prepared in accordance with International FinancialReporting Standards (IFRS) as adopted for use in the EU, applied in accordancewith the provisions of the Companies Act 1985. Accordingly, the interim financial information in this report has been preparedusing accounting policies consistent with IFRS. IFRS is subject to amendment andinterpretation by the International Accounting Standards Board (IASB) and theInternational Financial Reporting Interpretations Committee (IFRIC) and there isan ongoing process of review and endorsement by the European Commission. Thefinancial information has been prepared on the basis of IFRS that the Directorsexpect to be applicable as at 30 June 2008. The financial information has been prepared under the historical costconvention. The principal accounting policies set out below have beenconsistently applied to all periods presented. IFRS transition The disclosures required by IFRS 1 concerning the transition from UKGAAP to IFRS are given in note 12. Non-statutory accounts The financial information for the year end 30 June 2007 set out in this interimreport does not comprise the Group's statutory accounts as defined in section240 of the Companies Act 1985. The statutory accounts for the year ended 30 June 2007, which were preparedunder UK Generally Accepted Accounting Practice (UK GAAP), have been deliveredto the Registrar of Companies. The auditors reported on those accounts; theirreport was unqualified and did not contain a statement under either Section 237(2) or Section 237 (3) of the Companies Act 1985. The financial information for the 6 months ended 31 December 2007 and 31December 2006 is unaudited. Basis of consolidation The financial information incorporates the results of the Company and entitiescontrolled by the Company (its subsidiaries). Control is achieved where theCompany has the power to govern the financial and operating policies of aninvestee entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the period areincluded in the consolidated income statement from the effective date ofacquisition or up to the effective date of disposal, as appropriate. Wherenecessary, adjustments are made to the results of subsidiaries to bring theaccounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Business combinations and goodwill On acquisition, the assets and liabilities and contingent liabilities ofsubsidiaries are measured at their fair values at the date of acquisition. Anyexcess of cost of acquisition over the fair values of the identifiable netassets acquired is recognised as goodwill. Goodwill arising on consolidation isrecognised as an asset and reviewed for impairment at least annually. Anyimpairment is recognised immediately in profit or loss and is not subsequentlyreversed. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for goods and services provided inthe normal course of business, net of discounts, VAT and other sales relatedtaxes. Sales of goods are recognised when goods are delivered and title has passed. Revenue arising from the sale of services is recognised when and to the extentthat the Group obtains the right to consideration in exchange for theperformance of its contractual obligations as follows: Subscriptions, software, advertising and sponsorship - over the contract period Long-term contracts - attributable turnover in the period Foreign currency Transactions in foreign currency are recorded at the rates of exchangeprevailing on the dates of the transactions. At each balance sheet date,monetary assets and liabilities that are denominated in foreign currencies areretranslated at the rates prevailing on the balance sheet date. Exchange gainsand losses on short-term foreign currency borrowings and deposits are includedwith net interest payable. Exchange differences on all other transactions,except relevant foreign currency loans, are taken to operating profit. Taxation The tax expense represents the sum of the tax currently payable and any deferredtax. The tax currently payable is based on the estimated taxable profit for the year.Taxable profit differs from net profit as reported in the income statementbecause it excludes items of income or expense that are taxable or deductible inother years and it further excludes items that are never taxable or deductible.The Group's liability for current tax is calculated using tax rates that havebeen enacted or substantially enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if thetemporary difference arises from goodwill or from the initial recognition (otherthan in a business combination) of other assets and liabilities in a transactionthat affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries, except where the Group is able tocontrol the reversal of the temporary difference and it is probable that thetemporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset realised. Deferred tax ischarged or credited to profit or loss, except when it relates to items chargedor credited directly to equity, in which case the deferred tax is also dealtwith in equity. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current tax liabilitiesand when they relate to income taxes levied by the same taxation authority andthe Group intends to settle its current assets and liabilities on a net basis. Share based payments The cost of share-based employee compensation arrangements, whereby employeesreceive remuneration in the form of shares or share options, is recognised as anemployee benefit expense in the income statement. The total expense to be apportioned over the vesting period of the benefit isdetermined by reference to the fair value (excluding the effect of nonmarket-based vesting conditions) at the date of grant. The assumptionsunderlying the number of awards expected to vest are subsequently adjusted forthe effects of non market-based vesting to reflect the conditions prevailing atthe balance sheet date. Management give consideration to the best estimate forthe effects of the non-transferability, exercise restrictions and behaviouralconsiderations. Plant and equipment Plant and equipment are stated at cost less accumulated depreciation and anyrecognised impairment loss. Depreciation is charged so as to write off the cost of assets, over theirestimated useful lives, using the straight-line method, on the following bases: Leasehold property - over the period of the lease Computer equipment - 33% Office furniture and equipment - 25% Inventories Inventories comprise long term contracts, which are stated at cost, lessforeseeable losses and applicable payments on account. Cost is comprised ofdirect labour costs and, where applicable, those overheads that have beenincurred in bringing the inventories to their present location and condition. Financial instruments Financial assets and financial liabilities are recognised on the balance sheetwhen the Group becomes a party to the contractual provisions of the instrument. Trade and other receivables are measured at initial recognition at fair value,and are subsequently measured at amortised cost using the effective interestmethod. A provision is established when there is objective evidence that theGroup will not be able to collect all amounts due. The amount of any provisionis recognised in the income statement. Cash and cash equivalents comprises cash held by the Group and short-term bankdeposits with an original maturity of three months or less. Trade and other payables are initially measured at fair value, and aresubsequently measured at amortised cost, using the effective interest ratemethod. Financial liabilities issued by the Group are classified in accordance with thesubstance of the contractual arrangements entered into and the definitions of afinancial liability. Leasing commitments Payments made under operating leases are charged against profit as incurred. Research and development Research costs are charged to the profit and loss account in the year incurred.Development expenditure is capitalised to the extent that it meets all of thecriteria required by IAS 38, otherwise it is charged to the profit and lossaccount in the year incurred. 2 Critical accounting judgements and key sources of estimation uncertainty The preparation of financial information in conformity with generally acceptedaccounting practice requires management to make estimates and judgements thataffect the reported amounts of assets and liabilities as well as the disclosureof contingent assets and liabilities at the balance sheet date and the reportedamounts of revenues and expenses during the reporting period. Estimates and judgements are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that arebelieved to be reasonable under the circumstances. The significant judgementsmade by management in applying the Group's accounting policies and the keysources of estimation uncertainty were: Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value inuse of the cash generating units to which goodwill has been allocated. The valuein use calculation requires the Group to estimate the future cash flows expectedto arise from the cash-generating unit and a suitable discount rate in order tocalculate the present value. No provision for impairment was made in the periodand the carrying value of goodwill at the balance sheet date was £1,422,598. Share based payments In determining the fair value of equity settled share based payments and therelated charge to the income statement, the Group makes assumptions about futureevents and market conditions. In particular, judgement must be made as to thelikely number of shares that will vest, and the fair value of each awardgranted. The fair value is dependent on further estimates, including the Group'sfuture dividend policy, employee turnover, the timing with which options will beexercised and the future volatility in the price of the Group's shares.Different assumptions about these factors to those made by the Group couldmaterially affect the reported value of share based payments. Six months ended Six months Year ended 30 31 December ended 31 June December 3 Administrative costs - exceptional 2007 2006 2007 £ £ £ Directors remuneration - payment in lieu 135,315 - - of notice Restructuring costs - office relocation 86,472 - - expenses 221,787 - - 4 Segmental reporting Revenue and operating profit/(loss) for the period are attributable as follows: Revenue Operating profit/(loss) £ £ Arcontech Limited 504,708 109,153 MarketTerminal business 412,993 (639,639) PLC costs - (188,422) 917,701 (718,908) Exceptional items - (221,787) 917,701 (940,695) Six months ended Six months Year ended 30 31 December ended 31 June December5 Taxation 2007 2006 2007 £ £ £ Current tax - - - Deferred tax - - - Total tax expense for the period - - - Tax has been calculated using an estimated annual effective tax rate of 30% (2006 interim 30%, 2007 actual 30%) on loss before tax and exceptional items. Six months ended 31 Six months ended Year ended 30 December 31 December June6 Earnings per share 2007 2006 2007 £ £ £ Earnings Earnings for the purposes of basic and diluted earnings per share being net loss attributable to equity shareholders (914,963) (580,283) (1,140,518) Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 434,098,861 176,973,016 254,113,141 Number of dilutive shares under option - - - Weighted average number of ordinary shares for the purposes of dilutive earnings per share 434,098,861 176,973,016 254,113,141 The calculation of diluted earnings per share assumes conversion of all potentially dilutive ordinary shares, all of which arise from share options. A calculation is performed to determine the number of shares that could have been acquired at fair value, based upon the monetary value of the subscription rights attached to outstanding share options. The impact on the net loss of these potential ordinary shares is anti-dilutive. 7 Acquisition of subsidiary On 4 September 2007, the Group acquired 100 per cent of the issued share capital of Arcontech Limited. The initial consideration was satisfied with cash of £1,239,933 and the issue of 45 million shares of 0.1 pence. In addition, deferred consideration capped at £300,000 is payable in cash or shares if Arcontech Limited achieves turnover over £1.2 million and up to £2.2 million in the twelve month period immediately following the completion of the acquisition. The principal activity of Arcontech Limited is that of real-time software specialists. This transaction has been accounted for by the purchase method of accounting. Book value Fair value Fair value adjustments Net assets acquired: £ £ £ Plant and equipment 4,737 - 4,737 Trade and other receivables 266,263 - 266,263 Cash and cash equivalents 537,240 - 537,240 Trade and other payables (506,024) - (506,024) 302,216 - 302,216 Goodwill 1,422,598 - 1,422,598 Total consideration 1,724,814 - 1,724,814 Satisfied by: Cash 1,239,933 - 1,239,933 Directly attributable costs 79,881 79,881 1,319,814 - 1,319,814 Shares 405,000 - 405,000 1,724,814 - 1,724,814 Net cash outflow arising on acquisition: Cash consideration 1,319,814 - 1,319,184 Cash and cash equivalents acquired (537,240) - (537,240) 782,574 - 782,574 8 Cash used in operations Six months ended 31 Six months ended Year ended 30 December 31 December June 2007 2006 2007 £ £ £ Operating loss (940,695) (596,356) (1,191,352) Depreciation charge 19,976 23,796 44,722 (Increase)/decrease in trade and other (36,255) (24,870) 12,418 receivables Increase in inventories (281) - - Increase/(decrease) in trade and other 135,822 (161,174) (120,181) payables Profit on disposal of property, plant - (492) (492) and equipment Cash used in operations (821,433) (759,096) (1,254,885) 9 Dividends There were no dividends paid or proposed during the period (2006: Nil). 10 Share capital The Company allotted Ordinary Shares of 0.1 pence each during the period as follows: Date Number 3 September 2007 111,111,111 shares at 0.9 pence per share 4 September 2007 45,000,000 shares at 0.9 pence per share 11 Copies of this statement Copies of this statement are available from the Company Secretary at the Company's registered office at 8th Floor Finsbury Tower, 103-105 Bunhill Row, London, EC1Y 8LZ or from the Company's website at www.ktsplc.com. 12 Transition to IFRS The transition to IFRS has not resulted in any impact on the net assets, loss or cash flow statement at 1 July 2006, 31 December 2006 or 30 June 2007. Cashflow statement The Group's consolidated cash flow statements are presented in accordance with IAS 7. The statements present substantially the same information as that required under UK GAAP, with the following principle exceptions: 1. Under UK GAAP, cashflows are presented under nine standard headings, whereas IFRS requires the classification of cash flows resulting from operating, investing and financing activities. 2. The cash flows reported under IAS 7 relate to movements in cash and cash equivalents, which include cash and short term liquid investments. Under UK GAAP, cash comprises cash in hand and deposits repayable on demand. This information is provided by RNS The company news service from the London Stock Exchange