CBUY.L Regulatory News (CBUY)

28 Mar 2007 07:02

@UK PLC28 March 2007 Embargoed until 7am 28 March 2007 @UK plc ("@UK" or "the Group") Audited Preliminary results for the year ended 31 December 2006 @UK plc (AIM: ATUK), a leading provider of software solutions that facilitateeCommerce and eProcurement in the government, health and private sectors, todayannounces its audited Preliminary results for the year ended December 2006. Financial Highlights: • Turnover increased by 49% to £2.2m (2005: £1.5m) • Loss before tax of £3.2m (2005: £0.9m), before exceptionals and share based payments • Loss before tax of £3.5m (£2005: 1.7m), after exceptional items and share based payments • Loss per share of 9.3p (2005: 8.5p) • Year end net cash of £4.0m (2005: £8.6m) Operating Highlights: • Strategic review completed and now fully implemented • Board and Management restructuring: Grant Oliver appointed CEO in January 2007 • Cost reduction programme has reduced overheads by an annualised £1.2m • Substantial reduction in cash burn going forward • Refocused sales efforts to maximise growth Commenting on the Preliminary results, Grant Oliver, Chief Executive said:"The beginning of this year has been satisfactory as a result of the benefits ofthe action plan put in place following the strategic review. Our financialperformance has stabilised as a result of the reduction in our cash burn and weaim to sustain this improvement. As at the year end we had £4.0m of cashavailable to take the Group through to profitability. "There are still significant opportunities to substantially grow our businessand I am looking forward to the challenges of the next year as we take advantageof these. We intend to provide a trading update at the time of the Group's AGMon 24 May." For further information, please contact: @UK 0118 369 7000Grant Oliver, Chief ExecutiveJohn Aiken, Chief Financial Officer Shore Capital 020 7408 4080Dru Danford / Graham Shore Smithfield 020 7360 4900Tania Wild / Reg Hoare Notes to Editors: @UK is one of the UK's leading eMarketplace providers. @UK's software provides asecure internet eMarketplace enabling buyers such as local authorities, schoolsand hospitals to buy online from commercial suppliers ranging from largecorporations to small to medium enterprises (SMEs). It works by linking the financial systems of bodies such as local authorities,hospitals, schools and large corporations to all their suppliers. This allowsbuying and selling to take place with no paperwork and no chance oftransposition errors, achieving major savings throughout the supply chain. @UK provides eCommerce to thousands of suppliers of every size, frommultinational businesses to "one man band" window cleaners and plumbers and thenumbers are growing daily. Even the smallest suppliers can now tradeelectronically with customers creating electronic orders and more importantlyraise electronic invoices for all their customers. @UK PLC also offers services to new businesses, including incorporation, companysecretary services and filing annual returns. Over 120,000 companies have beenincorporated using @UK's online company formation service. @UK joined AIM in December 2005, raising £8 million before expenses at an issueprice of 60p. In May 2006 it purchased Coding International Limited, its firstacquisition since becoming a quoted company, @UK is included in the Software andComputer Services Sector (9530). For further information please visitwww.ukplc.net. CHAIRMAN'S STATEMENT IntroductionI am pleased to present @UK's second report to shareholders as an AIM listedcompany. 2006 has been a challenging year for @UK, with growth slower than wehad originally anticipated. Nevertheless it has still been a year of progresstowards our target of becoming the company of choice for providing eCommercesolutions to the public and private sectors. With the changes we have made inmanagement and strategy we are confident that we are moving in the rightdirection. ResultsNotable elements in the results were: • in the year ended 31 December 2006, @UK increased sales by 49% to £2.2m (2005: £1.5m); • sales of web and eCommerce services increased by 152% to £0.9m in the year ended 31 December 2006 (2005: £0.4m); • loss before taxation (before exceptional items and share based payments) in 2006 was £3.2m compared to £0.9m in the prior year which reflects the increased cost base in preparation for the roll out of our products and services; • after taking account of exceptional costs and share based payments the loss before tax for 2006 was £3.5m (2005: £1.7m); and • at 31 December 2006 the Group had net funds of £4.0m available to take the Group through to profitability. Strategic ReviewIn November 2006 we announced that we had carried out a review of the businessof the Group, its operating structure and cost base. The review highlighted theneed to: • undertake a management restructuring; • appoint a new Chief Executive Officer; • implement a new cost reduction programme focusing on headcount and sales and marketing expenditure; and • refocus our sales efforts to maximise growth. The overall impact of the review has been to streamline our management, whilstreducing costs on an annualised basis by £1.2m. StrategyThe Board's strategy is to take advantage of the growth opportunities in itsmarket and to achieve profitability in the medium term. We remain focussed onthe provision of our buy-side eCommerce solutions, and using this as a channelto sell our supply-side solutions, but: • we have simplified our approach to implementation to make it easier for existing and new buy-side customers to achieve the benefits our solutions bring; • we are adopting more flexible sales techniques such as offering to sell on a risk/reward model and targeting areas of spend within organisations where the return on investment is particularly quick; • we are commencing a targeted sales campaign in the private sector for our buy-side solutions; and • these changes on the buy-side will have a positive impact on supplier adoption. ManagementAs a result of the review, Chris Hoar and Dudley George, the Commercial andMarketing Directors, left the Board. I would like to take this opportunity tothank Chris Hoar and Dudley George for their contribution to the development ofthe Group. Lyn Duncan moved to the role of Business Development Director inorder to focus wholly on maximising her strong relationships within the PublicSector and in particular the NHS, and we also started a search for a new ChiefExecutive Officer. Subsequently I was pleased to announce in January that we had appointed GrantOliver as our new CEO. The benefits of these changes are now being seen and ithas been pleasing to see some client wins recently. PeopleOn behalf of the Board I would like to thank all our employees for their hardwork and effort during the year. SummaryWith the management changes which have been made, the Group's level of fundingand good progress in implementing the new strategy, the Board is confident in@UK's future. Bernard R. Fisher Chairman28 March 2007 CHIEF EXECUTIVE'S REVIEW IntroductionI am pleased to present the first Chief Executive's Review since my appointment. Before presenting a review of operations in the year I think it would be usefulto make some observations on my initial findings: • @UK has a well perceived product which works; • that product can deliver substantial savings and hence return on investment to purchasing organisations; • the sales cycle has been slower than anticipated. This is particularly the case in our traditional core market, Local Government; • there has been a tendency for projects to stall due to lack of internal resources available within our client base; • the Group's sales effort needed refocusing; and • costs had increased rapidly in anticipation of a level of sales growth which had not occurred, and needed to be reduced. I believe we have made substantial progress in addressing these issues which Iwill move on to explain. @UK's eCommerce OfferingThe Company has developed a unique approach to allow transactions via eCommercebetween buyers such as Public Sector Bodies - Local Authorities, schools andhospitals, and corporate enterprises, and sellers such as small to mediumenterprises (SMEs) as well as larger companies. Our solution has significantLocal Economic Development benefits as well as allowing Local Authorities topurchase via the @UK Marketplace in a cost-effective, paperless way. What sets @UK apart from other eProcurement suppliers in the market is that wehave a solution which is used by both sides of a transaction. Buyers such as aPublic Sector Body or a large private enterprise (our "buy-side" customers),interact electronically with their suppliers (our "supply-side" customers),providing seamless, user friendly eCommerce for all sizes of supplier. As theprocess is electronic from despatch of order through to receipt of an electronicinvoice, this enables process cost savings from eProcurement to be achieved. Our strategy is to target buyers in the Public Sector, signing them up ascustomers before turning our attention to their suppliers. Once set-up work andtraining has been completed, we work with the buy-side customer to adopt theirsuppliers onto the @UK eCommerce platform. This means that buyers can use ournetwork to purchase from their suppliers. One of the attractive features of thesystem for the suppliers is that they are then also immediately available to beaccessed by any other buyer on the network at no extra charge. In order to achieve the cost savings, and for @UK to get good rates of sign-upwith suppliers, the buying organisation must commit to the change to paperlessprocurement. Typically, the suppliers who individually have few purchases peryear but are large in number can be a block to going 100% electronic. To helpwith this we have introduced our "100% Model", which provides the functionalityto allow the organisation to trade with ease electronically, even with thosesuppliers. Operational Overview eProcurementSince we reported in last year's annual report and accounts it has become clearthat the Public Sector was taking longer to initiate and implement eProcurementthan @UK had anticipated at the time of the IPO in December 2005. This wasparticularly true in the local authority market where few signed up to aneProcurement solution during 2006. In response to this we have: • refocused our Local Authority sales effort on better quality prospects; • allocated resource to progressing projects with existing prospects which had stalled; • increased sales effort in the NHS sector where cost reduction is a priority; • initiated test selling of our solution in the private sector; and • started to work in partnership with major FMS (Financial Management Systems) vendors to broaden our sales effort. We are currently working with 66 Public Sector Organisations and one privatesector buy-side client. Many of these organisations have moved slowly from letter of intent through to afully functioning system. In many cases the delay is due to the customer nothaving sufficient resources available. To address this, in March 2007 welaunched our Rapid Deployment service, which aims to get the purchasingorganisation fully operational within as little as five days. To date six of ourcustomers have signed up for this service and two have already gone live as aresult. Local Authorities - We now have a total of 59 authorities who have adopted the@UK eProcurement solution as their chosen approach. We are pleased to announcethat since the year end that the London Borough of Hillingdon and SomersetCounty Council have become customers. Central Government - As part of our focus on deploying our resources where wecan maximise revenues, we withdrew from the Zanzibar consortium in September2006. The demand for value added services from suppliers proved to be very lowand the Board took the decision to redeploy resource where it will be moreeffective. This enabled us to sell direct into Central Government, which wecommenced in November 2006, having recruited an experienced salesman to focus onthis area. National Health Service - 2006 saw @UK move successfully into the NHS, winningthe mandate for the Leeds Teaching Hospitals Trust, while continuing to work atUniversity Hospital Birmingham. With Leeds as a major reference site we havemade sales in the NHS a key priority in 2007. Education - We are currently working with four Local Education Authorities,three of which now have live sites. This is a net reduction of eight LEAs sincewe last reported. The project with the nine Greater Manchester Boroughs for anelectronically based schools purchasing information service was cancelled at anearly stage, by mutual agreement, after they received funding from theDepartment for Education and Skills to take part in a national pilot for anothersolution. Other Public Sector - In 2006 we were pleased to have gained our first customerin the Emergency Services, Thames Valley Police. Suppliers - We have attracted an impressive range of large suppliers to ourmarketplace. During 2006 we changed our approach to signing up suppliers fromusing on site supplier adoption officers to the use of supplier advisers workingfrom a call centre environment at our offices in Aldermaston. These advisersfollow up mailings sent out by buying organisations to their suppliers. Thevolume of sign-ups is critically dependent on the buy-side providing thosemailings, and on the letters containing a call to action from the buyingorganisation as they change the way they procure. This inter-dependency betweenthe buy-side and supply-side makes the push to get buy-side projects movingreferred to above doubly important. Company Formations - Our company formation services business grew by 13% in theyear. In 2006 approximately 10% of companies formed in Great Britain werecompleted using our system, either directly by @UK or by other agents paying aroyalty for use of our service (2005: 8%). During the year we tested themarketing of our eCommerce services and third party accounting software forbusiness start-ups directly to all newly incorporated companies. However, thetake-up was not sufficient to warrant continuing with this relatively expensive,direct marketing approach. We have, therefore, reverted to making additionalservices available on the company formations area of our website. These areprovided by third parties, on which we make a margin or commission. Marketing - During 2006 marketing spend (including pay per click advertising)increased to £0.7m from £0.4m in the previous year. The increase wasattributable to increased attendance at industry exhibitions and advertising viatrade press. We consider that the aim of increasing awareness of @UK in themarket has now been achieved, so spend is being reduced this year. Marketingactivity will now be more focused on events such as the seminar we organised forLocal Authorities. Acquisition of Coding International LimitedThe acquisition of Coding International Limited ("CIL") at the end of April 2006was an important enhancement to our business as we believe proper coding ofproducts is essential to gain the full benefits from eProcurement. CIL is seenas expert in this area. The North West London Health Trusts contract was announced in July, and isprogressing well. The trusts will soon be able to show savings based on thesolution and it is already being showcased to other NHS bodies. The first saleof coding services into one of our local authority clients has just taken place,and we are confident that many more will follow. Financial ResultsTurnover for the year was £2.16m, an increase of 49% over the previous year(2004: £1.45m). Web and eCommerce sales rose by 152% to £0.94m, assisted by amaiden contribution of £0.15m from CIL. Gross margin fell from 67% to 59%reflecting the costs of staff carrying out implementation work for supply-sidecustomers increasing ahead of sales. Operating expenses before exceptional items increased from £1.88m to £4.84m. Therise reflects the increase in the cost base in preparation for the roll-out ofour products and services across the UK Public Sector. £0.05m was charged as the cost calculated under FRS 20 of share options grantedto employees (2005: £Nil). Following the strategic review carried out in November staff numbers werereduced and have fallen from a peak of 115 to 85, including 11 at CIL. Anexceptional cost of £0.22m was incurred in making this reduction. After taking account of exceptional items, the loss before tax for the year was£3.51m compared to £1.68m in the previous year. As anticipated, cash outflow before financing increased substantially in 2006 to£4.51m (2005: £1.58m). The larger part of the outflow went on operating costs,but capital expenditure increased significantly to £792,000 from £121,000 in2005, with the expenditure on the new data centre in London and officerefurbishment as well as equipment for the additional staff. Following thereduction in operating expenses as a result of the strategic review in November,our cash burn has been reduced to a rate of £0.2m per month. At 31 December 2006 the Group had net funds of £4.04m available, which we areconfident is sufficient to take us through to profitability. Dividend PolicyThe Board is not recommending the payment of a dividend for 2006. In theimmediate future, the Board is committed to building the group's business andaccordingly all the group's financial resources are being applied to this end.In the longer term, the Directors intend to adopt a progressive dividend policyappropriate to the Group's financial performance. Transition to International Financial Reporting Standards (IFRS)As an AIM listed company @UK will adopt IFRS for our financial statements forthe year ending 31 December 2007 and the interim results to 30 June 2007 will beprepared under the new standards. The audit committee has been regularly briefed on the development of IFRS andthe associated International Accounting Standards (IAS) so that it canunderstand their impact and manage the transition to IFRS. As well as the different presentation formats, the most notable changes for ourresults are likely to be related to: • Acquisitions and goodwill - IFRS 3 (IAS 27) Under IAS 38 ('Intangible Assets') there will be no amortisation of goodwill. Instead it will be carried as a permanent item and be subject to an annual impairment review of the carrying value. Future acquisitions will involve the identification and evaluation of separate intangible assets; • Research and development expenditure - IAS38 'Research and Development', which requires expenditure meeting certain recognition criteria to be capitalised, amortised over its useful economic life and subject to impairment review; and • Increased disclosure generally, but in particular in relation to IAS 14 'Segmental Reporting' and IAS 24 'Related Party Transactions'. Overall the change to IAS is not expected to have a material impact on theresults. OutlookThe beginning of this year has been satisfactory as a result of the benefits ofthe action plan put in place following the strategic review. Our financialperformance has stabilised as a result of the reduction in our cash burn and weaim to sustain this improvement. As at the year end we had £4.0m of cashavailable to take the Group through to profitability. There are still significant opportunities to substantially grow our business andI am looking forward to the challenges of the next year as we take advantage ofthese. We intend to provide a trading update at the time of the Group's AGM on24 May. Grant Oliver Chief Executive28 March 2007 Consolidated Profit and Loss Account For the year ended 31 December 2006 2006 2005 Notes £ £ (restated*)----------------------------------------- ------ ----------- -----------Turnover 4Existing operations 2,018,004 1,454,073Acquisitions 144,976 ------------------------------------------ ------ ----------- ----------- 2,162,980 1,454,073Cost of sales (891,124) (474,570)----------------------------------------- ------ ----------- -----------Gross profit 1,271,856 979,503Administrative expenses (4,844,179) (1,882,939)----------------------------------------- ------ ----------- -----------Operating loss before exceptional item (3,572,323) (903,436)Exceptional reorganisation costs 2 (219,962) -Exceptional goodwill write-off 2 - (798,408)----------------------------------------- ------ ----------- -----------Operating lossExisting operations (3,784,766) (1,701,844)Acquisitions (7,519) ------------------------------------------ ------ ----------- ----------- (3,792,285) (1,701,844)Interest receivable 290,901 27,510Interest payable 3 (5,989) (9,549)----------------------------------------- ------ ----------- -----------Loss on ordinary activities before taxation (3,507,373) (1,683,883)Taxation 5 - ------------------------------------------ ------ ----------- -----------Loss on ordinary activities aftertaxation, retained 10 (3,507,373) (1,683,883)----------------------------------------- ------ ----------- -----------Loss per shareBasic and diluted 6 9.3p 8.5p----------------------------------------- ------ ----------- ----------- The turnover and operating loss for the year arises from the Company'scontinuing operations. No separate Statement of Total Recognised Gains and Losses has been presented asall such gains and losses have been dealt with in the Profit and Loss Account. * certain expenses have been reclassified within the profit and loss account inthe prior year (see note 1) Consolidated Balance Sheet31 December 2006 2006 2005 Notes £ £----------------------------------------- ------ ----------- -----------Fixed assetsIntangible assets 83,438 -Tangible assets 752,481 114,067Investments - ------------------------------------------ ------ ----------- ----------- 835,919 114,067----------------------------------------- ------ ----------- -----------Current assetsDebtors 397,667 226,839Cash at bank and in hand 4,119,248 8,644,345----------------------------------------- ------ ----------- ----------- 4,516,915 8,871,184Creditors: Amounts falling due within one year (891,074) (1,079,796)----------------------------------------- ------ ----------- -----------Net current assets 3,625,841 7,791,388----------------------------------------- ------ ----------- -----------Total assets less current liabilities 4,461,760 7,905,455Creditors: Amounts falling due in more than one year (66,667) (79,167)----------------------------------------- ------ ----------- -----------Total net assets 4,395,093 7,826,288----------------------------------------- ------ ----------- -----------Capital and reservesCalled up share capital 8 376,074 375,654Share premium account 9 10,113,881 10,113,881Other reserve - merger 9 606,754 582,174Other reserve - share-based payments 9 51,178 -Profit and loss account 9 (6,752,794) (3,245,421)----------------------------------------- ------ ----------- -----------Equity shareholders' funds 10 4,395,093 7,826,288----------------------------------------- ------ ----------- ----------- Consolidated Cash Flow Statementfor the year ended 31 December 2006 2006 2005 Notes £ £----------------------------------------- ------ ----------- -----------Net cash outflow from operating activities 11a (3,917,875) (1,307,510)Returns on investments and servicing offinance 11b 284,912 (5,747)Taxation (65,783) (25,012)Capital expenditure 11b (791,858) (120,755)Acquisitions 11b (21,994) (125,918)----------------------------------------- ------ ----------- -----------Cash outflow before management of liquidresources and financing (4,512,598) (1,584,942)Management of liquid resources 3,652,998 (7,567,974)Financing 11b (12,500) 10,224,927----------------------------------------- ------ ----------- -----------(Decrease)/Increase in cash 11c, 11d (872,100) 1,072,011----------------------------------------- ------ ----------- ----------- Notes to the Preliminary Results 1. Accounting policies The financial information set out in this preliminary announcement does notconstitute the Group's statutory accounts for the years ended 31 December 2006or 2005, but is derived from those accounts. The preliminary statement wasapproved by the Board of Directors on 28 March 2007 and has been agreed forrelease with the auditors. Copies of the Group's audited statutory accounts forthe year ended 31 December 2006 will be dispatched to shareholders and the AIMteam shortly. Copies will also be available to the public at the Company'swebsite www.ukplc.net. The statutory accounts for the year ended 31 December 2005 have been deliveredto the Registrar of Companies, and those for the year ended 31 December 2006will be delivered to the Registrar of Companies following the Annual GeneralMeeting. The auditors have reported on those accounts; their reports wereunqualified and do not contain statements under Companies Act 1985 sections 237(2) or (3). The Financial Information is presented on the basis of the accounting policiescontained in the Financial Statements for the year ended 31 December 2005 saveas explained in the following paragraph. Certain expenses, principally relating to "pay per click" advertising are nowclassified within administrative expenses and not cost of sales as the directorsbelieve that this gives a fairer presentation. The amount reclassified in theprior period is £289,616. 2. Exceptional item The reorganisation costs in 2006 represent the costs incurred in reducing staffnumbers following the review announced in November 2006. The exceptional item in2005 represents the provision for impairment, in full, of the goodwill whicharose on the acquisition of @Software PLC. 3. Interest payable and similar charges 2006 2005 £ £----------------------------------------- ----------- -----------Bank interest 5,989 5,627Other interest - 3,922----------------------------------------- ----------- ----------- 5,989 9,549----------------------------------------- ----------- ----------- 4. Segmental analysis 2006 2005 £ £----------------------------------------- ----------- -----------Turnover by class of businessCompany formation services 1,223,130 1,081,607Web and eCommerce services 939,850 372,466----------------------------------------- ----------- ----------- 2,162,980 1,454,073----------------------------------------- ----------- ----------- All turnover arose in the UK. 5. Taxation 2006 2005 £ £----------------------------------------- ----------- -----------Tax charge for the year - ------------------------------------------ ----------- -----------Factors affecting tax charge for the yearLoss on ordinary activities before taxation (3,507,373) (1,683,883)----------------------------------------- ----------- ----------- Loss on ordinary activities before taxation multiplied by standard rate of UK corporation tax of 30% (2005: 30%) (1,052,211) (505,165)----------------------------------------- ----------- -----------Effects of:Expenses not deductible for tax purposes 15,487 340,995Share based payments 15,353 -Capital allowances less than/(in excess) ofdepreciation (55,201) (10,845)Carry forward of tax losses 1,076,572 175,015----------------------------------------- ----------- ----------- 1,052,211 505,165----------------------------------------- ----------- -----------Current tax charge - ------------------------------------------ ----------- ----------- The Group has estimated tax losses of £7,200,000 (2005: £3,664,000) availablefor carry forward against future trading profit. No deferred tax asset has beenrecognised in respect of the losses given the uncertainty regarding availablefuture taxable profits. 6. Loss per share The calculations for loss per share are based on the weighted average number ofshares in issue during the year 37,593,941 (2005: 19,920,248) and the followinglosses: 2006 2005 £ £----------------------------------------- ----------- -----------Unadjusted earnings:Loss on ordinary activities after tax (3,507,373) (1,683,883) Add back: Exceptional reorganisation costs 219,962 - Exceptional write-off of goodwill - 798,408Share-based payments 51,178 ------------------------------------------ ----------- -----------Adjusted earnings (3,236,233) (885,475)----------------------------------------- ----------- ----------- The share options and warrants are non-dilutive as they would not increase theloss per share in the year. The basic and diluted loss per share calculated on the adjusted earnings is 8.6p(2005: 4.4p). 7. Acquisition On 28 April 2006 the Company acquired 100% of the issued share capital of CodingInternational Limited, a company incorporated in the United Kingdom, for aninitial consideration of £50,000, satisfied as to £25,000 in cash and £25,000 bythe issue of 42,015 ordinary 1p shares in the Company at 59.5p. Deferredconsideration of up to £25,000 per year, to be satisfied by the issue of furthershares in the Company, is payable dependant on Coding International'sperformance for the years ended 31 December 2006 and 2007. The amount in respectof 2006 has been earned in full. It is too early to know if any of the paymentin respect of 2007 will be earned. In accordance with Sections 131 and 133 of the Companies Act 1985, the Companyhas taken no account of any premium on the shares issued and has recorded thecost of the investment at the nominal value of the shares issued plus the fairvalue of the other consideration. The resulting difference on consolidation hasbeen credited to other reserves. The following table sets out the book values, which were also the fair values tothe Group, of the identifiable assets and liabilities acquired: Fair value £----------------------------------- -------------Tangible fixed assets 1,746Trade debtors 17,182Other debtors 4,323Cash at bank and in hand 6,256Trade creditors (8,706)Other creditors (38,825)----------------------------------- -------------Net liabilities (18,024)----------------------------------- -------------Goodwill 96,274----------------------------------- ------------- 78,250----------------------------------- -------------Satisfied by:Cash, including costs of acquisition 28,250Shares issued 25,000Shares to be issued 25,000----------------------------------- ------------- 78,250----------------------------------- ------------- The goodwill is being amortised over its estimated economic useful life of fiveyears. In the period from 1 October 2005 (the start of its accounting period) to thedate of acquisition Coding International Limited had turnover of £79,000, anoperating profit of £4,000 and a profit before tax of £3,000. For the year ended30 September 2005 the comparative figures were £148,331, loss of £225 and lossof £14 respectively. 8. Share capital 2006 2005 £ £----------------------------------------- ----------- -----------Authorised:250,000,000 (2005: 250,000,000) ordinary shares of 1p each 2,500,000 2,500,000----------------------------------------- ----------- -----------Allotted, issued and fully paid:37,607,409 (2005: 37,565,394) ordinary shares of 1p each 376,074 375,654----------------------------------------- ----------- ----------- During the year 42,015 ordinary shares were issued at 59.5p in connection withthe acquisition of Coding International Limited (see note 7). At 31 December 2006 options had been granted under the @UK PLC Share OptionScheme to subscribe for ordinary shares in the Company as follows: Number of options under Subscription Exercise periodgrant price per share 750,000 45p December 2008 to December 2015489,677 63p January 2009 to January 2016225,501 61.5p June 2009 to June 2016 The Company has granted to Shore Capital a warrant to subscribe for 375,654ordinary shares at 60p per share. The warrant is exercisable, in whole or inpart, at any time for a period up to 14 December 2008. Share based payments The Group has a share option scheme under which the Remuneration Committee cangrant options over shares in the Company to employees of the Group. Options aregranted with a fixed option price equal to the market price of the shares underoption at the date of grant. The contractual life of an option is 10 years.There are no performance criteria or market conditions attached to the options.Options are valued using the Black Scholes option pricing model. The charge forthe year arising from this valuation was £51,178 (2005: £Nil). The fair value ofoptions granted and the assumptions used in the calculations are as follows: Grant Date 8 December 2005 31 January 2006 30 June 2006--------------------- --------------- --------------- ------------Share price at grant date 60p 63p 61.5pExercise price 45p 63p 61.5pNumber of employees 1 31 20Shares originally underoption 250,000 644,121 270,895Vesting period (years) 3 3 3Expected volatility 31% 31% 31%Expected life (years) 4 4 4Risk free rate 4.30% 4.30% 4.78%Rate ceasing employmentbefore vesting (annual) 0% 12.5% 35.0%Fair value per option £0.17 £0.15 £0.15 No dividends were assumed. The expected volatility is based on the historicalvolatility of the Company's shares to the extent information was available andof the shares of similar entities. In addition to the grant above on 8 December2005, options over 500,000 shares were also granted to former directors of theCompany on the same terms. As part of the terms of their compensation for lossof office they were allowed to retain those options. These were valued at thedate on which the directors ceased to be employees and the value written off asit was in respect of past services. 9. Reserves Other Other reserve Profit and Share reserve share based Loss premium merger payments Account £ £ £ £----------------------- ---------- --------- --------- ---------GroupAt 1 January 2006 10,113,881 582,174 - (3,245,421)Shares issued inthe year - 24,580 - -Share based payments - - 51,178 -Retained loss forthe year - - - (3,507,373)----------------------- ---------- --------- --------- ---------At 31 December 2006 10,113,881 606,754 51,178 (6,752,794)----------------------- ---------- --------- --------- --------- 10. Reconciliation of movements in shareholders' funds 2006 2005 £ £------------------------------------------------ ----------- ---------GroupLoss for the year (3,507,373) (1,683,883)Shares issued in the year 25,000 11,154,920Share based payment 51,178 -Purchase of own shares - (1,111,624)Gain on placing and purchase of own shares - 194,132------------------------------------------------ ----------- ---------Net (depletion)/addition to shareholders' funds (3,431,195) 8,553,545Opening shareholders' funds 7,826,288 (727,257)------------------------------------------------ ----------- ---------Closing shareholders' funds 4,395,093 7,826,288------------------------------------------------ ----------- --------- 11. Notes to the cash flow statement a. Reconciliation of operating loss to net cash outflow from operatingactivities 2006 2005 £ £----------------------------------------------- ----------- ---------Operating loss (3,792,285) (1,701,844)Depreciation 155,190 17,252Amortisation of goodwill 12,836 -Write-off of goodwill - 798,408Share based payments 51,178 -Increase in debtors (149,323) (376,312)Decrease in creditors (195,471) (45,014)----------------------------------------------- ----------- --------- (3,917,875) (1,307,510)----------------------------------------------- ----------- --------- b. Analysis of cash flows 2006 2005 £ £----------------------------------------------- ----------- ----------Returns on investments and servicing of financeInterest received 290,901 9,802Bank interest (5,989) (5,627)Other interest - (9,922)----------------------------------------------- ----------- ----------Net cash outflow for returns on investments andservicing of finance 284,912 (5,747)----------------------------------------------- ----------- ----------Capital expenditurePurchase of tangible fixed assets (791,858) (120,755)----------------------------------------------- ----------- ----------Net cash outflow for capital expenditure (791,858) (120,755)----------------------------------------------- ----------- ----------AcquisitionsPurchase of subsidiary undertaking (28,250) -Cash/(Overdraft) in subsidiary acquired 6,256 (125,918)----------------------------------------------- ----------- ----------Net cash outflow for acquisitions (21,994) (125,918)----------------------------------------------- ----------- ----------FinancingLoan repayments in year (12,500) (12,500)Proceeds on issue of shares - 10,237,427----------------------------------------------- ----------- ----------Net cash inflow from financing (12,500) 10,224,927----------------------------------------------- ----------- ---------- c. Analysis of changes in net funds/debt 1 January Cash Non-cash 31 December 2006 flows movement 2006---------------------------- --------- --------- -------- -----------Net cash:Cash at bank and in hand 1,076,371 (872,100) - 204,271Money market deposits 7,567,974 (3,652,998) - 3,914,976Debt:Bank loan due within one year (12,500) 12,500 (12,500) (12,500)Bank loan due after one year (79,167) - 12,500 (66,667)---------------------------- --------- --------- -------- ----------- 8,552,678 (4,512,598) - 4,040,080---------------------------- --------- --------- -------- ----------- d. Reconciliation of net funds/debt 2006 2005 £ £----------------------------------------------- ----------- ----------(Decrease)/Increase in cash for the year (872,100) 1,072,011Cash outflow from management of liquid resources (3,652,998) 7,567,974Cash outflow from decrease in net debt 12,500 12,500----------------------------------------------- ----------- ----------Change in net debt arising from cash flows (4,512,598) 8,652,485Net Funds/(Debt) at 1 January 8,552,678 (99,807)----------------------------------------------- ----------- ----------Net Funds at 31 December 4,040,080 8,552,678----------------------------------------------- ----------- ---------- Coding International Limited, acquired in the year, contributed £15,545 to theGroup's net operating cash flows, received £187 in respect of net returns oninvestment and servicing of finance and utilised £1,476 for capital expenditure. This information is provided by RNS The company news service from the London Stock Exchange