dotDigital Group Regulatory News (DOTD)

FOR IMMEDIATE RELEASE 15 OCTOBER 2013

Analyst meeting today: 9.30am start - at the offices of finnCap, 60 New Broad Street, EC2

Please call Lisa Baderoon if you would like to attend or email on: lisa.baderoon@dotdigitalgroup.com

dotDigital Group Plc

("dotDigital" or the "Company")

Final Results for the year ended 30 June 2013

"Results ahead of expectations and positive start to the new year"

dotDigital Group Plc (AIM:DOTD), a leading provider of intuitive Software as a Service ("SaaS") and managed services to digital marketing professionals, is pleased to announce its Final Results for the year ended 30 June 2013.

2013 Highlights

• Turnover up 16% to £13.8m (2012: £11.9m)

• EBITDA of £4.1m, up 21% (2012: £3.4m)

• Profit before tax increased 18% to £3.3m (2012: £2.8m)

• Continued strong cash generation of £3.6m with net cash of £6.1m at year end

• Announced today: Maiden Final Dividend Proposed of 0.1p per share - please see separate announcement

• dotMailer - the core SaaS Products division - performed strongly with revenue growth of 28% and profit before tax up 41% to £4.5m (2012: £3.2m)

• Continued mid-to-large corporate client wins including BBC worldwide, e-Consultancy, Harveys, Investec, Osprey London, BP International, ITV, Odeon Cinemas, Ryman, Balfour Beatty, EDF Energy, Nationwide, Liverpool Victoria and Michael Page International

• Continued focus on successful organic growth for the remainder of 2013 and 2014 and investment in people, sales, effective targeted marketing and the SaaS platform

A summary of Peter Simmonds, Chief Executive, comments on current trading and outlook:

"I am pleased to report that the new financial year has started well and in the first quarter our new business sales and monthly recurring revenues have been in line with our plans.

In this period we have seen some notable new customer signings in the UK including Heal's, Payzone, Paperchase, DMA and Shakespeare's Globe and in the US we have signed Verifone, AIP and Chromogenex where we are also seeing average order values significantly higher than the UK average. In the US, dotMailer was recently placed in the final three in the GREAT Tech awards sponsored by UKTI for demonstrating potential to grow in the US market.

As economic confidence in the UK improves, we are starting to see customers investing in new initiatives and for the first time in some years actually talking about increasing marketing budgets. This should translate into increased spending from our existing customers over the coming years and combined with continued new client wins with higher average spending patterns than the past years, gives the Board confidence about the rest of the year ahead and the medium and longer term."

For further enquiries please contact:

CHAIRMAN'S REPORT

We are delighted to report that during the 2012/13 financial year dotDigital has continued the success of previous years with strong growth in our SaaS email platform business. The Group continues to be cash generative with no debt. There has been a dramatic increase in the number of clients signing longer-term contracts as well as an increase in monthly spend per client. We have made considerable progress in signing larger corporate clients.

At the half year we announced that we were reviewing our agency business and how that sits within the Group. That review was completed in the second half of the year. After considering all the strategic options it was decided that we run down the order book and transfer some of the skills and experiences of individuals into the core business. This ensured that we used the opportunity to focus management's efforts on our core SaaS email business. The impact of this is already evident and reflected in our continued growth and profitability.

The Board has recently appointed a new Nominated Advisor and Joint Brokers and I would like to take this opportunity to thank Charles Stanley and Zeus Capital for their efforts in their time as advisors to the business.

In the 2012/13 financial year, we will reinvest a proportion of our net cash (£6.1m at the year-end) to further accelerate the organic growth of the business. We will invest a significant part of those funds in additional sales and marketing resource with particular emphasis on channel sales and overseas sales development. Our New York office is up and running and we hope to accelerate our activities there as well as identifying strategic channel partners in both the UK and further afield. We will also make further investment in our SaaS platform and hardware infrastructure ensuring we maintain our competitive advantage. Whilst we have not ruled out growth by acquisition our focus is very much on organic growth by continued increase in revenues from our existing customers and signing new larger clients on longer contracts.

On behalf of all our stakeholders, I would like to thank our employees for their invaluable contribution to another successful year. I would also like to pay tribute to the executive management team for their continued commitment, hard work and passion in developing the business.

Frank Beechinor-Collins

Chairman14 October 2013

CHIEF EXECUTIVE REPORT

Financial Overview

As announced in the trading update on 15 August, the Group delivered EBITDA and profits, before exceptional items, ahead of expectations.

Total revenues including discontinued operations for the period to 30 June 2013 increased by 16% compared to the same period in 2012 and profit before tax and exceptional items grew by 18%.

Divisional Income Statement

The table above shows that performance in the core SaaS Products division under the dotMailer brand has performed strongly with revenue growth of 28% and profit before tax growing from £3.2m to £4.5m, an increase of 41%.

The consolidated profit for this year was however impacted by the decision, announced at the interim stage, to exit from the Services Division (web design and search) where revenues charged to third parties declined by 33% and profits fell from £0.3m to a loss of £0.5m.

In addition to the operating loss in this division, the Board have reviewed the goodwill being carried from the Netcallidus acquisition in 2009 and these results contain an exceptional (non-cash) goodwill impairment charge of £2.3m of which £1.3m relates to the impairment of the consideration paid and the balance relating to the contingent consideration that was accrued at the date of acquisition but eventually not paid.

The Company has now fully exited from the services division with the exception of a small number of ecommerce clients where on-going support is being provided, leaving trailing revenues of c£30k per month. More detail can be found in the table on page 7 of the Company's Report & Accounts 2013, issued in parallel today and can be found on our website: www.dotdigitalgroup.com.

Market Leading Provider of Email Marketing Software

dotDigital has grown to become a leader in the provision of intuitive Software-as-a- Service (SaaS) products for digital marketing professionals. Its flagship product, dotMailer, is a powerful email and cross-channel marketing automation platform with easy to use tools that enable large corporations and SME marketers to efficiently create, manage, execute and evaluate effective targeted campaigns. Alongside its SaaS technology, the Group also provides expert email marketing consultancy and services for businesses seeking to maximise customer acquisition, conversion and retention. The Company is headquartered in the UK and employed 140 staff at the end of June 2013.

Email is one of the most established online marketing channels and has consistently year on year been in the top performing digital channels for return on investment (ROI), as it can be used effectively to acquire, convert, retain and grow customers. The DMA Email Marketing Council's 2013 National Client Email report underscores this, with respondents to a poll indicated an average ROI of £21.48 for every £1 spent in 2012 on email marketing.

dotMailer is a well-established product with over 70,000 users in over 150 countries. Over the last seven years, we have seen strong evidence of the scalability of the Group's platform with monthly send volumes growing from under 5m sends per month to currently nearly 300m sends per month. The Company has done significant development work on the dotMailer platform over the years, providing continuous innovation and functionality to its users. This includes a highly compelling visual drag and drop email template editor, drag and drop segmentation and query builder, translation of the user interface into eight languages and responsive template toolkits that optimises display content and layout on mobile devices (smartphones and tablets). The Company also has pre-built integrations with best-in-class CRM products and e-commerce platforms such as Salesforce, Microsoft Dynamics, SalesLogix and Magento.

dotMailer has a broad customer base, with the five largest clients accounting for approximately 5% of total revenues (top 20 clients less than 15% of total revenue). To some extent, this reflects some of the Group's historical success in the SME space but increasingly, the Group is gaining solid traction in the mid-to-large corporate market. Example wins in this area include BBC worldwide, e-Consultancy, Harveys, England Hockey Board, Investec, Osprey London, BP International, ITV, Odeon Cinemas, Ryman, Balfour Beatty, EDF Energy, Nationwide, Liverpool Victoria and Michael Page International.

Market Size

The UK market for email marketing platforms and services is forecast to be worth nearly £500m this year.

Over the last five years, revenues in the Group have grown 457% from £2.5m to £13.8m (year to June 2013) and EBITDA has grown from £0.8m to £4.1m June 2013. This equates to a 5-year CAGR of 41%, which is higher than the market growth in that time, reflecting market share gains.

Whilst the Group has always enjoyed a high degree of repeat revenue, much work has been done in the last 18 months to shift its revenues to contractual, recurring revenues (which reduces churn), with the sales team incentivised on total contracted value of deals (so length of deal also a factor).

This has had the effect of increasing the overall ratio of monthly billing under contract from 51% in Dec 2011 (49% pay as you go) to 71% in June 2013 (29% pay as you go). In the year to June 2013, 65% of new contracts signed have been on long-term agreements ranging from 12-36 months.

Services Division

On 19 March 2013, following completion of a thorough review of the Group's Services Division (dotAgency Limitied which had been providing a bespoke website design and search engine optimisation service), the Board announced its plans to gradually wind down activity within this division, which had become non-core. We have managed the exit of this division at a cost to the Group of less than £200k with remaining trailing revenues of around £30k per month being managed by a small team of support staff. As previously disclosed, the remaining goodwill on the acquisition of Netcallidus will be written-off as a one-off non-cash adjustment.

Whilst it is disappointing to exit from this division the additional focus within the business on the core email marketing business has already started to provide tangible benefits in terms of prioritisation of resource allocation and clarity of marketing message.

Balance Sheet and Cash Position

The Company continues to be strongly cash generative from its operations with the year-end net cash balance growing, yet again, at the year-end by £2.1m to £6.1m. This has also been partly as a result of more effective and efficient cash collection processes and a push towards cash collection via direct debit (approximately 50% at year-end). In addition, apart from a small number of operating leases there is no debt finance. Together, this has led to an even stronger balance sheet position at the year end.

Dividend Policy - Maiden Dividend Proposed

I am pleased to report that the Board has conducted a review of the business plans for the next three years including evaluating the cash needs for increased investment in organic growth and has concluded that the business has reached the point where we have sufficient confidence in its on-going cash generation capabilities to commence paying a dividend to shareholders.

Therefore subject to approval at the AGM on 17 December 2013 the Board proposes that the Company will pay a Maiden dividend of 0.1 pence per share, payable at the end of January 2014.

People

In October 2012, we announced the appointment to the Board a new non-Executive Director, Simone Barrett. Simone has a wealth of relevant sector experience having been Managing Director of e-Dialog UK, an eBay Group Company, for 10 years and more recently President of e-Dialog globally.

Simone's background, growing a multi-channel marketing platform across EMEA and APAC as well as the US, is proving invaluable as we embark on our international expansion programme.

With ambitious growth plans for the future the Board believes that hiring the best people and providing a culture where all staff are engaged in the business is vital to the continued success, albeit this will have a short impact on cost/income ratios.

The Board's commitment to an open and honest working environment continues with clear communication of business progress through weekly Company meetings; including an anonymous 'Ask the Board' Directors questions slot, regular newsletters, and lunches for new and existing employees with the Board.

The Board strives to continue to offer a competitive benefits package in order to attract and retain the best talent, including share option schemes and bonuses based on the Company and individual performances. Total reward statements are now available to all employees to provide complete visibility into the total value of salaries, benefits and rewards earned through the year.

Focus on organic growth

During the year we evaluated a number of potential acquisition opportunities in the email marketing space. However, in the opinion of the Board none of the businesses evaluated were judged to be likely to create long-term shareholder value when integration risks were factored in.

Analysis of historic activities combined with the market leading position of the dotMailer brand has convinced the Board that there is the potential for significant return on investment from hiring additional sales personnel and effective targeted marketing.

Therefore our strategy for 2013/14 will the Group delivered EBITDA and profits, before exceptional items, ahead of expectations and as a business we will invest in cost effective marketing, adding more sales and account management staff and continue to invest in the dotMailer platform to ensure that the significant long-term growth opportunity is maximised.

The Board has agreed to allocate up to half of the Group's current net cash to accelerate our organic growth by hiring a further 20-30 sales and account management executives and increasing marketing spend.

Current Trading Performance and Outlook

I am pleased to report that for the first three months of the new financial year our new business sales and monthly recurring revenues have been in line with our plans. The strategy, announced in August, to invest in hiring additional sales, account management and marketing staff has resulted in an increase of 12 staff over the last three months and we will start to see the impact of their activities over the coming months.

We recently completed an "Investors in Customers" survey on our existing clients and were awarded an "outstanding" rating. This exercise helped highlight some areas where we can continue to make improvements to delight our clients and we will be focussing on these areas in the coming 12 months including aligning staff rewards to levels of client satisfaction. It was particularly pleasing to see that client feedback about our underlying email marketing product was extremely positive and the areas for improvement lie largely in areas where additional training and more segmented approaches to service can be implemented quickly and at relatively low cost.

In the first quarter we have seen some notable new customer signings in the UK including Heal's, Payzone, Paperchase, DMA and Shakespeare's Globe. In the US we have signed Verifone, AIP and Chromogenex where we are also seeing average order values significantly higher than the UK average. In the US, dotMailer was recently placed in the final three in the GREAT Tech awards sponsored by the UKTI for demonstrating potential to grow in the US market.

As economic sentiment in the UK improves we are starting to see customers investing in new initiatives and for the first time in some years actually talking about increasing marketing budgets. This should translate into increased spending from our existing customers over the coming years and combined with continued new client wins with higher average spending patterns than the past years gives rise to confidence about the year ahead.

P A Simmonds

Chief Executive and Chief Financial Officer14 October 2013

DOTDIGITAL GROUP PLC

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 30 JUNE 2013

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2013

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

30 JUNE 2013

DOTDIGITAL GROUP PLC

COMPANY STATEMENT OF FINANCIAL POSITION

30 JUNE 2013

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2013

- Share capital is the amount subscribed for shares at nominal value.

- Share premium represents the excess of the amount subscribed for share capital over the nominal value of the net share issue expenses.

- Retained earnings represents the cumulative earnings of the Group attributable to equity shareholders.

- The reverse acquisition reserve relates to the adjustment required to account the reverse acquisition in accordance with International Financial Reporting Standards.

- Other reserves relate to the charge for the share based payment in accordance with International Financial Reporting Standard 2.

- Retranslation reserve relates to the retranslation of a foreign subsidiary into the functional currency of the Group.

DOTDIGITAL GROUP PLC

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2013

- Share capital is the amount subscribed for shares at nominal value.

- Share premium represents the excess of the amount subscribed for share capital over the nominal value of the net share issue expenses.

- Retained earnings represents the cumulative earnings of the Group attributable to equity shareholders.

- Other reserves relate to the charge for the share based payment in accordance with International Financial Reporting Standard 2.

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2013

DOTDIGITAL GROUP PLC

COMPANY STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2013

DOTDIGITAL GROUP PLC

ABBREVIATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

1. ACCOUNTING POLICIES

Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards and IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention.

The Group has applied all accounting standards and interpretations issued by the International Accountancy Standards Board and International Accounting Interpretations Committee effective at the time of preparing the financial statements.

The financial statements are presented in sterling (£), rounded to the nearest thousand.

New and amended standards adopted by the Company

There are no IFRSs or IFRIC interpretations that are effective for the first time in this financial period that would be expected to have a material impact on the Group.

New standards, amendments and interpretations issued but not effective

There are no IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

Basis of consolidation

In the period ended 2009 the Company acquired via a share for share exchange the entire issued share capital of dotMailer Limited, whose principle activity is that of web and email based marketing.

Under IFRS 3 'Business combinations' the dotMailer Limited share exchange has been accounted for as a reverse acquisition. Although these consolidated financial statements have been issued in the name of the legal parent, the company it represents in substance is a continuation of the financial information of the legal subsidiary, dotMailer Limited. The following accounting treatment has been applied in respect of the reverse acquisition:

- The assets and liabilities of the legal subsidiary, dotMailer Limited are recognised and measured in the consolidated financial statements at their pre combination carrying amounts, without restatement to their fair value;

- The retained reserves recognised in the consolidated financial statements for the beginning of the prior period reflect the retained reserves of dotMailer Limited to 30 April 2008. However, in accordance with IFRS3 'Business combinations' the equity structure appearing in the consolidated financial statements reflects the equity structure of the legal parent dotDigital Plc, including the equity instruments issued under the share exchange to effect the business combination;

- A reverse acquisition reserve has been created to enable the presentation of a consolidated balance sheet which combines the equity structure of the legal parent with the non statutory reserves of the legal subsidiary;

- Comparative numbers are prepared on the same basis.

- The following accounting treatment has been applied in respect of the acquisition of dotDigital Plc:

- The assets and liabilities of dotDigital Plc are recognised and measured in the consolidated financial statements at their fair value at the date of acquisition.

- The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the date of acquisition, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Subsidiaries

A subsidiary is an entity whose operating and financing policies are controlled by the Group. Subsidiaries are consolidated from the date on which control was transferred to the Group. Subsidiaries cease to be consolidated from the date the Group no longer has control. Intercompany transactions, balances and unrealised gains on transactions between Group companies have been eliminated on consolidation.

As a result of applying reverse acquisition accounting in the prior period, the consolidated IFRS financial information of dotDigital Group Plc is a continuation of the financial information of dotMailer Limited.

Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group's activities. Revenue is shown net of value added tax returns, rebates and discounts after eliminating sales within the Group.

The Group recognises revenue when the amount of revenue can be reliably measured and it is probable that the future economic benefits will flow to the entity. The Group bases it's estimates on historical results, taking in to consideration the type of customer, the type of transaction and the specifics of each arrangement.

The Group sells web based marketing services to other businesses and services are either provided on a usage basis or fixed price bespoke contract. Revenue from contracts are recognised under percentage of completion method based on a percentage of services performed to date as a percentage of the total services to be performed.

Goodwill

Goodwill represents the excess of the fair value of the consideration over the fair values of the identifiable net tangible and intangible assets acquired.

Under IFRS 3 "Business Combinations" goodwill arising on acquisitions is not subject to amortisation but is subject to annual impairment testing. Any impairment is recognised immediately in the income statement and not subsequently reversed.

Intangible assets

Intangible assets are recorded as separately identifiable assets and recognised at historical cost less any accumulated amortisation. These assets are amortised over their useful economic lives 4-5 years, with the charge included in administrative expenses in the income statement.

Intangible assets are reviewed for impairment annually. Impairment is measured by determining the recoverable amount of an asset or cash generating unit (CGU) which is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest Group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU.

- Domain names

Acquired domain names are shown at historical cost. Domain names have a finite life and are carried at cost less accumulated amortisation. Amortisation is calculated using straight line method to allocate the cost of domain names over their useful lives of four years.

- Software

Acquired software and websites are shown at historical cost. They have a finite life and are carried at cost less accumulated amortisation. Amortisation is calculated using straight line method to allocate the cost of software and websites over their useful lives of four years.

- Product development

Product development expenditure is capitalised when it is considered that there is a commercially and viable technically product, the related expenditure is separable identifiable and there is a reasonable expectation that the related expenditure will be exceeded by future revenues. Following initial recognition, product developments are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of these intangible assets are assessed to have a finite life of five years. Amortisation is charged on assets with finite lives, this expense is taken to the income statement and useful lives are reviewed on an annual basis. Amortisation is provided at the following annual rates' commencing from the date the asset is developed to a stage at which the company can receive economic benefits from the asset.

Property, plant and equipment

Tangible non current assets are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits are associated with the item will flow to the company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation is provided at the following rates in order to write off each asset over its estimated useful life and are based on the cost of assets less residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately.

Short leasehold: 25% on cost

Fixtures and fittings: 25% on cost

Computer equipment: 25% on cost

The asset's residual values and useful economic lives are reviewed and adjusted, if appropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable value.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within other (losses) or gains in the income statement. When devalued assets are sold, the amounts included in other reserves are transferred to retained earnings.

Borrowings

Borrowings are recognised at their fair value net of transaction costs incurred. They are classified as current liabilities unless the Group has an unconditional right to defer the settlement of the liability of at least 12 months after the balance sheet date.

Borrowing costs are recognised in the income statement in the period in which they are incurred.

Capital risk management

The Group manages it's capital to ensure it is able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of, cash and cash equivalents, short term finance and equity attributable to the owners of the parent as disclosed in the Statement of Changes in Equity.

Taxation

Current taxes are based on the results shown in the financial statements and are calculated according to local tax rules, using tax rates enacted or substantially enacted by the balance sheet date.

Deferred taxation

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary difference will be utilised.

Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when they related deferred income asset is realised or deferred income tax liability is settled.

Research and development

Research expenditure is recognised as an expense when incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when the following criteria are fulfilled:

- It is technically feasible to complete the intangible asset so that it will be available of use or resale

- Management intends to complete the intangible asset and use or sell it

- There is an ability to use or sell the intangible

- It can be demonstrated how the intangible asset will generate possible future economic benefits

- Adequate technical, financial and other resource to complete the development and to use or sell the intangible asset are available and

- The expenditure attributable to the intangible asset during its development can be reliably measured.

Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which they are ready for use on a straight line basis over its useful life.

Operating leases

Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance the accounting policy applicable to that asset.

Other leases are operating leases and are not recognised in the Group's statement of financial position on a straight line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total expense, over the term of the lease.

Use of estimates and judgements

The Group makes judgements, estimates and assumptions that effect the application of policies and reported amounts of assets and liabilities, income and expenses. The resulting accounting estimates calculated using these judgements and assumptions will, by definition, seldom equal the related actual results but are based on historical experience and expectations of future events. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision effects only that period, or in the period of revision and future periods if the revision affects both current and future periods.

The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are discussed below:

- Impairment of non financial assets (excluding goodwill)

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

-Plant and equipment, intangible assets & impairment of goodwill

Intangible assets excluding goodwill and plant and equipment are amortised or depreciated over their useful lives. Useful lives are based on management's estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness. Changes to the estimates used can result in significant variations in the carrying value.

The Group assesses the impairment of plant and equipment and intangible assets subject to amortisation or depreciation whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Additionally, goodwill arising on acquisitions is subject to impairment review. The Group's management undertakes an impairment review of goodwill annually or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable.

The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent in the application of the Group's accounting estimates in relation to plant and equipment and intangible assets affect the amounts reported in the financial statements, especially the estimates of the expected useful economic lives and the carrying values of those assets. If business conditions were different, or if different assumptions were used in the application of this and other accounting estimates, it is likely that materially different amounts could be reported in the Group's financial statements.

The Directors have carried out a detailed impairment review in respect of goodwill. The Group assesses at each reporting date whether there is an indication that an asset may be impaired, by considering the net present value of discounted cash flows forecasts which have been discounted at 10%. The cash flow projections are based on the assumption that the Group can realise projected sales. A prudent approach has been applied with no residual value being factored. At the period end, based on these assumptions there was an indication of impairment of the value of goodwill for dotSearch. See note 10 for details.

However, if the projected sales do not materialise there is a risk that the value of the intangible assets shown above would be impaired.

- Share-based compensation

The fair value of options and warrants are determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates if any, in the income statement, with corresponding adjustment to equity.

Trade receivables

Trade receivables are recognised initially at the lower of their original invoiced value and recoverable amount. A provision is made when it is likely that the balance will not be recovered in full. Terms on receivables range from 30 to 90 days.

Equity

Share capital is the amount subscribed for shares at their nominal value.

Share premium represents the excess of the amount subscribed for the share capital over the nominal value of the respective shares net of share issue expenses.

Retained earnings represent the cumulative earnings of the Group attributable to equity Shareholders.

The reverse acquisition reserve relates to the adjustment required by accounting for the reverse acquisition in accordance with IFRS3 'Business combinations'.

Other reserves relate to the charge for share based payments in accordance with IFRS2 'Share based payments'.

Share based payments

For equity settled share based payment transactions the Group, in accordance with IFRS 2 "Share Based Payments" measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted. The fair value of those equity instruments is measured at the grant date using the trinomial method. The expense is apportioned over the vesting period of the financial instrument and is based on the number which is expected to vest and the fair value of those financial instruments at the date of grant. If the equity instruments granted vested immediately, the expense is recognised in full.

The assumptions on the expected life of share options, volatility of shares and risk free yield to maturity and expected dividend yield on shares are used in the fair value calculation of the share options outstanding at the year end.

Trade payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Terms on accounts payables range from 10 to 90 days.

Functional currency translation

- Functional and presentation currency

Items included in the financial statements if the company are measured using the currency of the primary economic environment in which the entity operates (functional currency), which is mainly pounds sterling (£) and it this currency the financial statements are presented in.

- Transaction and balances

Foreign currency transactions are translated in to the presentation currency using exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Employee benefit costs

The Group operates a defined contribution pension scheme. Contributions payable by the Group's pension scheme are charged to the income statement in the period in which they relate.

Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environment.

2. DISCONTINUED OPERATIONS

Analysis of continuing and discontinued operations is as follows: