Mobile Tornado Regulatory News (MBT)

29 Dec 2006 07:00

Mobile Tornado Group PLC29 December 2006 Mobile Tornado Group plc (the "Company") Chairman's Statement Introduction It is a great pleasure to present Mobile Tornado's first accounts as a publiclylisted Company. The listing was obtained in March 2006 through the reversetakeover by Mobile Tornado International Limited of TMT Group plc, a Companyalready listed on AIM, but with no underlying business. Following this, TMTchanged its name to Mobile Tornado Group plc and the existing business of MobileTornado has continued, unchanged and uninterrupted. I first became involved with Mobile Tornado as a shareholder in February 2004having been attracted by the technology platform that had been developed. Thetechnology was developed from 1999 onwards by Eyal Fishler and Jorge Pinievskywhilst working for Mobile Tornado Israel Limited, a technology Company whichthey co-owned together with other investors. In February 2004, Mobile TornadoInternational Limited, a newly incorporated Irish Company, acquired the assetsand employees of Mobile Tornado Israel Limited. Following this acquisition,Mobile Tornado maintained an Israeli research and development centre, appointeda new management team based in Dublin, and commenced the process ofcommercialising the technology. This 'streaming' technology, for which patentshave been filed in a number of territories, addresses an area of thetelecommunications market, instant communications, which I believe over the nextfew years will present enormous opportunity. Mobile Tornado's platform currentlyenables the provision of the following services: Push to Talk - PTT applications allow users to exchange real time voice messagesbetween mobile phones and/or personal computers. Users can message individualsin their contact list one-on-one, or broadcast to a larger group of contacts. Aswith instant messaging on the internet, users signal their availability status,known as presence, which is then displayed on phones across their group ofcontacts. This allows very quick instant messaging on mobiles worldwide, withouthaving to text. Presence - In the same way that instant messaging users on the internet can seewho in their contact group is on-line, the Mobile Tornado platform provides thesame presence functionality for mobile phones. Mobile users can see the currentstatus being signalled by users in their group, including online, offline and donot disturb, and choose whether to contact them. Desktop-Mobile PTT - As well as, or instead of, using their mobile phone to makePTT calls, users can install a small piece of software on their personalcomputer from which they can then make calls to other PTT users. This isparticularly valuable to enterprises with central dispatch functions. Since February 2004, Mobile Tornado has raised approximately £5.3 million inequity and convertible loans from a number of private individuals. The reversalinto TMT Group plc in March 2006 was accompanied by a further placing of £880k.The injection of £4 million into the Company by InTechnology plc in October 2006has, I believe, now given the Company and it's subsidiaries (together the "Group") the financial platform to fully exploit the global opportunity. Results The primary focus during the period under review has been to put the businessonto a stable financial platform. The first stage was successfully achievedthrough the reversal into TMT Group plc in March 2006. This has significantlyenhanced the Group's status and credibility with its customers and partners whoinclude some of the biggest global operators in the telecommunications sector. The second stage of this process was achieved on 23 October 2006 with the £4.0minvestment by InTechnology plc. This investment will provide the Group with theresources to strengthen its sales and marketing activities and to maintain thedevelopment of its core technology platform. Turnover in the year amounted to £289k (2005: £766k). Operating losses increasedto £3,381k (2005: £2,809k). After interest charges and other finance costs of£469k (2005: £232k) the loss on ordinary activities before taxation was £3,850k(2005: £3,041k). Net cash outflow from operating activities was £1,649k (2005:£916k inflow) driven by increased investment in research and development. The full audited accounts will be sent to shareholders today. The Annual GeneralMeeting of the Company will be held at Central House, Beckwith Knowle,Harrogate, HG3 1UG on 31 January 2007 at 10 a.m. Review of operations A disproportionate amount of executive time has been spent on securing theCompany's listing onto AIM in March of this year and in procuring subsequentfunding. As a consequence, the lack of focus and resources applied to the salesfunction has inevitably resulted in a disappointing performance with sales forthe period under review lower than the previous year. This result does not inany way lessen the opportunity that exists in the market place for the Group'stechnology platform. Following the appointment of the new board of Directors on24 November the primary focus has been to establish a clear sales strategy toincrease the sale of current products and services to mobile operators andenterprises. Although Alcatel and Nortel Networks, the Group's existing partners, provideMobile Tornado with access to a number of the world's mobile network operators,we will seek additional distribution partners, particularly targeting specificmarkets. Efforts will be focussed on supporting Tier 2 and Tier 3 mobileoperators through such distribution partners, especially those outside the USand Western Europe. The Directors consider that many mobile operators in Asia,Africa, South America and Eastern Europe are looking for low-cost, quick todeploy, tried and tested PTT solutions. These relatively small operators may notbe able to justify an investment in expensive next generation IMS solutions andtherefore represent a good long-term opportunity for the Group. The Group aims to further establish its indirect sales model and distributionnetwork to sell enterprise solutions to businesses. Mobile Tornado currently hasdistribution agreements with partners in the US, Germany, and the Netherlands.These partners are considered to be credible providers of mobile data solutionsand managed mobile services, and have customers in the market sectors to whichPTT is attractive. The Directors are in the process of identifying furtherpotential distribution partners in different geographical regions and aim topursue negotiations with a view to entering into contractual arrangements withthem. I expect to make announcements on new partners early in 2007. On the technology front, the Group will continue to invest in its research anddevelopment operation based in Tel Aviv. The team is currently working on thefollowing applications to complement its range of services - • Push to e-mail - sends a voice message to a contact's e-mail; • Push to call - triggers a normal voice call from within PTT; • Push to video - lets other users see what one user's phone sees; and • Push to send content - allows customers to send and receive data such as pictures and files. These applications will support the strategy of supplementing initial licencefees with upgrade fees. We currently believe the Israeli research anddevelopment centre is resourced to complete most of the development programmefor new applications and upgrades to the current platform, although we willconsider outsourcing some elements where appropriate. Management At the time of my appointment to the Board a number of other key boardappointments were made. Jeremy Fenn has joined the board as Chief FinancialOfficer, David Parry as VP Sales Worldwide and Eyal Fishler as Chief TechnicalOfficer. I have worked very closely with Jeremy and David in the past and I amconfident that the skill sets they bring will help the Group to realise itsenormous potential. The introduction of Eyal onto the Board demonstrates ourbelief in the technical platform he and his team have created and my commitmentto ensure that it remains at the forefront of the instant communicationsrevolution. Current trading and future prospects It is quite clear to me, from the short time I have been on the Board that theGroup does not suffer from a lack of opportunity. The market for instantcommunications in a mobile world is starting to grow very rapidly. I believe weare ideally placed to capitalise on this momentum and I am confident that we candeliver significant progress during 2007. I would like to record my appreciation for the continuing commitment of all ourteam members throughout the business and thank them for their support during ayear of significant change. I look forward to the next 12 months with confidence. Peter WilkinsonNon Executive Chairman29 December 2006 Consolidated profit and loss accountFor the year ended 30 June 2006 Group Group 12 mths to 12 mths to 30 June 30 June 2006 2005 Note £'000 £'000TurnoverContinuing operations 289 766 Acquisitions - - 1 289 766 Cost of SalesContinuing operations (68) (149)Acquisitions - -Gross profit 221 617 Net operating expenses before depreciationand amortisationContinuing operations (2,712) (2,832) Acquisitions (211) - Depreciation - all continuing operations (77) (65)Amortisation - all continuing operations (602) (529) Administrative expenses (3,602) (3,426) Group operating lossContinuing operations (3,170) (2,809)Acquisitions (211) - (3,381) (2,809) Interest receivable/(payable) 2 (469) (232)Loss on ordinary activities before tax (3,850) (3,041) Taxation 4 - - Loss sustained for the financial year (3,850) (3,041) EBITDA (2,702) (2,215) Loss per share (pence)Basic and diluted 6 (4.79) (3.89) There were no recognised gains or losses other than the loss for the financialyear. Balance sheetsAs at 30 June 2006 Group Group Company Company At At At At 30 June 30 June 30 June 30 June 2006 2005 2006 2005 Notes £'000 £'000 £'000 £'000Fixed AssetsIntangible Assets 7 1,580 2,182 - -Tangible Assets 8 67 119 - -Investment in subsidiary undertakings 9 - - 12,758 - 1,647 2,301 12,758 - Current AssetsDebtors 10 336 432 1,394 26Cash at Bank and in hand 192 856 8 938 528 1,288 1,402 964 Creditors - amounts fallingdue within one year 11 (1,334) (3,761) (205) (42) Net Current Assets (806) (2,473) 1,197 922 Total assets less current liabilities 841 (172) 13,955 922 Creditors - amounts fallingdue after more than one year 12 (2,463) (3,024) - - Net Assets (1,622) (3,196) 13,955 922 Capital and ReservesShare Capital 14 &15 1,844 3 1,844 119Share Premium 15 1,624 1,359 1,624 974Reverse Acquisition Reserve 15 (7,620) - - -Merger Reserve 15 10,938 - 10,938 -Profit and loss account 15 (8,408) (4,558) (451) (171) (1,622) (3,196) 13,955 922 Consolidated cash flow statementFor the year ended 30 June 2006 2006 2005 Note £'000 £'000 Net cash (outflow)/inflow from operating activities 16 (1,649) 916 Returns on investments and servicing of finance Interest received 4 1 Interest paid (473) (224) Net cash outflow from returns on investments and servicing of finance (469) (223) Capital expenditure and financial investmentPurchase of tangible fixed assets (37) (10) Net cash outflow from capital expenditure and financial investment (37) (10) Acquisitions and disposalsNet cash at bank acquired with purchaseof subsidiary undertakings 584 - Net cash inflow from acquisitions and disposals 584 - Net cash (outflow)/inflow before financing (1,571) 683 Financing Issue of ordinary share capital 1,298 - Share Issue costs (391) - Net cash inflow from financing 907 - (Decrease)/increase in cash in the year 17 & 18 (664) 683 Accounting policies Basis of preparation The financial statements have been prepared in accordance with the Companies Act1985, applicable Accounting Standards in the United Kingdom and the historicalcost convention except for the adoption of reverse acquisition accounting,described below, which constitutes a true and fair override departure fromUnited Kingdom accounting standards. A summary of the main accounting policies which have been applied consistentlyis set out as follows. Basis of consolidation The Group financial statements consolidate those of the Company and itssubsidiary undertakings at 30 June 2006. Acquisitions of subsidiaries are dealtwith using the acquisition method of accounting except for the reverse takeovertransaction detailed below. On 7 March 2006 the Company, then named TMT Group plc, became the parent ofMobile Tornado International Limited, in a share for share transaction. Due tothe relative value of the companies, the former Mobile Tornado InternationalLimited shareholders became majority shareholders with 97% of the share capital.Following the transaction, the Company's continuing operations and executivemanagement were that of Mobile Tornado International Limited. Accordingly thesubstance of the combination was that Mobile Tornado International Limitedacquired TMT Group plc in a reverse acquisition. As part of the businesscombination TMT Group plc changed its name to Mobile Tornado Group Plc. The Companies Act 1985, FRS 6 and FRS 7, would normally require the Company'sconsolidated accounts to follow the legal form of the business combination. Inthat case the pre-acquisition results would be that of TMT Group plc and itssubsidiary undertakings, which would exclude Mobile Tornado InternationalLimited. The results of Mobile Tornado International Limited would then beincluded in the Group from 7 March 2006. However, this would portray thecombination as the acquisition of Mobile Tornado International by TMT Group plc,and would, in the opinion of the Directors, fail to give a true and fair view ofthe substance of the business combination. Accordingly the Directors haveadopted reverse acquisition accounting as the basis of consolidation in order togive a true and fair view. In invoking the true and fair override the Directors note that reverseacquisition accounting is endorsed under International Financial ReportingStandard 3. Furthermore, the Urgent Issues Task Force of the UK's AccountingStandards Board considered the subject and concluded that there are instanceswhere it is right and proper to invoke the true and fair override in such a way. As a consequence of applying reverse acquisition accounting, the results of theGroup for the year ended 30 June 2006 comprise the results of Mobile TornadoInternational Limited to its year ending 30 June 2006 plus the results of TMTGroup plc from 7 March 2006, the date of acquisition, to 30 June 2006. Thecomparative figures are those of Mobile Tornado International Limited for theyear ending 30 June 2005. As set out in note 7, goodwill amounting to £448,134arose on the difference between the sum of the fair value of TMT Group plc'sshare capital and the cost of acquisition, and the fair value of its net assetsat the reverse acquisition date. The goodwill has been written off in the yearto 30 June 2006 because TMT Group plc had no continuing business and thegoodwill had no intrinsic value. The Company is entitled to the merger relief offered by section 131 of theCompanies Act 1985 in respect of the consideration received in excess of thenominal value of the equity shares issued in connection with the acquisition ofMobile Tornado International Limited which has been credited to a mergerreserve. The effect on the consolidated financial statements of adopting reverseacquisition accounting, rather than following the legal form, are widespread.However, the following table indicates the principal effect on the compositionof the consolidated reserves: Reverse Impact of acquisition Normal reverse accounting acquisition acquisition (as accounting accounting disclosed) £'000 £'000 £'000 Called up share capital 1,844 1,844 - Share premium account 1,624 1,624 - Merger reserve 10,938 10,938 - Reverse acquisition reserve (7,620) - (7,620) Profit and loss account (8,408) (1,542) (6,866) (1,622) 12,864 (14,486) Goodwill Goodwill arising on the reverse acquisition of TMT Group plc has been writtenoff to the reverse acquisition reserve for the reasons explained above. Intangible fixed assets The cost of intangible fixed assets is their purchase cost. Amortisation iscalculated so as to write off the cost of an asset, less its estimated residualvalue, over the useful economic life of that asset as follows: Intellectual Property 5 years Tangible fixed assets The cost of tangible fixed assets is their purchase cost. Depreciation iscalculated so as to write-off the cost of an asset, less its estimated residualvalue, over the useful economic life of that asset as follows: Office equipment 3 yearsComputer equipment 3 years Investments Investments in subsidiary undertakings are stated at cost less any provision forimpairment. Revenue recognition Turnover represents the invoiced sales price, less trade discounts allowed,value added tax and other sales taxes (where applicable). The majority ofrevenues are derived from software licence sales of Mobile Tornado products. Licences For software licence arrangements that do not require significant modification or customisation of the underlying software, revenues are recognised on the later of: 1. The entering into a legally binding arrangement with the customer for the licence of the software. 2. The fulfilment of any related obligation defined in such an arrangement related to the various stages of the product(s) delivery, such as installation, upgrades or acceptance. 3. Customer payment being deemed fixed or determinable and free of material contingencies or other significant uncertainties. Consulting services (fixed price basis) Many of these software licence arrangements also include short-term consulting implementation services. To the extent that such consulting services are considered distinct from the installation of Mobile Tornado's licensed product: • Expenses relating to the provision of such consulting services are recognised as incurred. • The related revenues are recognised in the accounting period in which the work is performed. • Any related loss on completion of such work is recognised as soon as it is anticipated. Factors considered in determining whether consulting service revenues should be accounted for separately include:- the nature of the services (ie. whether the services are essential to the functionality of the licensed product), the degree of risk, the availability of services from other vendors, timing of payments and the impact of milestones or other acceptance criteria on the realisation of the software licence fee. The revenue streams detailed above constitute one class of business. Revenue invoiced to customers that has not fulfilled the recognition criteriadetailed above, is held in a deferred income account. Foreign currencies Transactions in foreign currencies are recorded at the rate of exchange rulingat the date of the transaction. Monetary assets and liabilities denominated inforeign currencies are translated to sterling at the exchange rates ruling atthe balance sheet date. The results and assets and liabilities of overseas subsidiary undertakings aretranslated at the year end exchange rate. Any resulting exchange differences aretaken to reserves and are reported in the statement of total recognised gainsand losses if material. All other exchange differences are taken to the profit and loss account. Research and development Research and development expenditure is written off to the profit and lossaccount as incurred. Deferred taxation Deferred tax is recognised on all timing differences where the transactions orevents that give the group an obligation to pay more tax in the future, or aright to pay less tax in the future, have occurred by the balance sheet date.Deferred tax assets are recognised when it is more likely than not that theywill be recovered. Share options The Group grants share options to employees and Directors on a discretionarybasis. When share options are granted to employees a charge is made to theGroup profit and loss account and a reserve created in capital and reserves torecord the fair value of the awards in accordance with UITF Abstract 17 "Employee Share Schemes". No charge has been made to date as the exercise priceof all share options granted has been equal to the Company's share price at thedate of award. Financial instruments Income and expenditure arising on financial instruments is recognised on anaccruals basis, and credited or charged to the profit and loss account in thefinancial period to which it relates. Financial liabilities and equityinstruments are classified according to the substance of the contractualarrangements entered into. An equity instrument is any contract that evidences aresidual interest in the assets of the entity after deducting all of itsfinancial liabilities. Where the contractual obligations of financialinstruments (including share capital) are equivalent to a similar debtinstrument, those financial instruments are classed as financial liabilities.Financial liabilities are presented as such in the balance sheet. Finance costsand gains or losses relating to financial liabilities are included in the profitand loss account. Finance costs are calculated so as to produce a constant rateof return on the outstanding liability. Where the contractual terms of sharecapital do not have any terms meeting the definition of a financial liabilitythen this is classed as an equity instrument. Dividends and distributionsrelating to equity instruments are debited direct to equity. Compound instruments Compound instruments comprise both a liability and an equity component. At thedate of issue, the fair value of the liability component is estimated using theprevailing market interest rate for a similar debt instrument. The liabilitycomponent is accounted for as a financial liability. The residual is thedifference between the net proceeds of issue and the liability component (attime of issue). The residual is the equity component, which is accounted for asan equity instrument. The interest expense on the liability component iscalculated applying the effective interest rate for the liability component ofthe instrument. The difference between this amount and any repayments is addedto the carrying amount of the liability in the balance sheet. Where thecontractual obligations of financial instruments (including share capital) areequivalent to a similar debt instrument, those financial instruments are classedas financial liabilities. Financial liabilities are presented as such in thebalance sheet. Finance costs and gains or losses relating to financialliabilities are included in the profit and loss account. Finance costs arecalculated so as to produce a constant rate of return on the outstandingliability. The impact of applying this accounting policy has been to continue toclassify all preference share capital and the convertible loan notes asfinancial liabilities. 1 Segmental information 2006 2005Turnover by destination £'000 £'000 Europe - 169 Middle East 222 93 Africa 67 300 Asia/Pacific - 204 Total 289 766 Turnover by source The source of all turnover detailed above is the Republic of Ireland 2006 2005Turnover by product type £'000 £'000 Licences 48 418 Hardware 127 235 Software 43 89 Maintenance 23 - Professional services 48 24 Total 289 766 2 Net interest payable 2006 2005 £'000 £'000 Interest payable on convertible loan notes 406 214 Finance charge on 9% cumulative preference shares 22 19 Other interest payable 45 - 473 233 Bank interest receivable (4) (1) Net interest payable 469 232 The 9% cumulative preference shares are classified as a liability under FRS25. 3 Loss on ordinary activities before taxation 2006 2005 £'000 £'000Loss on ordinary activities before taxation is stated aftercharging / (crediting): Staff costs (note 22) 1,684 1,252 Depreciation of owned tangible fixed assets (note 8) 77 65 Amortisation of intangible assets 602 529 Other operating lease rentals 109 83 Auditors' remuneration - audit 43 8 Auditors' remuneration - tax compliance 5 4 Net exchange (gain)/loss on foreign currency borrowings (62) 262 Loss on disposal of tangible fixed assets 12 - 4 Tax on loss on ordinary activities Corporation Tax:No charge to UK corporation tax arose in the period due to group trading losses incurred. Deferred Tax:Unrelieved tax losses of £8,408,000 remain available to offset against future trading profits.No deferred tax asset has been recognised in respect of these losses. The tax assessed for the period differs from that resulting from applying the standard rateof corporation tax, the differences are explained below: Loss on ordinary activities before taxation (3,850) (3,041) At standard rate of corporation tax of 30% (2005: 30%) (1,155) (912) Effects of: Amortisation of intangible assets 181 159 Expenses not deductible for tax purposes 2 37 Un-utilised tax losses 972 716 - - 5 Loss of the holding company As permitted by section 230 of the Companies Act 1985, the profit and lossaccount of the Company is not presented in these financial statements. Theparent Company's loss for the year ended 30 June 2006 was £279,708 (2005:£170,899). 6 Loss per share Basic loss per share is calculated by dividing the loss attributable to ordinaryshareholders of £3,850,000 (2005: £3,041,000) by the weighted average number ofordinary shares in issue during the year of 80,339,651 (2005: 78,130,096). Theweighted average number of shares for the year ended 30 June 2006 assumes thatthe 78,130,096 ordinary shares issued in relation to the reverse acquisition ofMobile Tornado Group plc (formerly TMT Group plc) existed for the entire year.Mobile Tornado Group plc shares have been included since 7 March 2006 the dateof the reverse acquisition, and all other shares have been included in thecomputation based on the weighted average number of days since issuance. Theweighted average number of ordinary shares for the year ended 30 June 2005 isassumed to be equal to the 78,130,096 ordinary shares issued in relation to thereverse acquisition. The adjusted basic earnings per share has been calculated to provide a betterunderstanding of the underlying performance of the Group as follows: 2006 2005 Basic and diluted Basic and diluted (Loss)/ (Loss)/ (Loss)/ (Loss)/ earnings earnings earnings earnings per share per share £'000 pence £'000 pence Loss attributable to ordinary shareholders (3,850) (4.79) (3,041) (3.89) Amortisation of goodwill 602 0.75 529 0.68 Adjusted basic earnings per share (3,248) (4.04) (2,512) (3.21) The loss attributable to ordinary shareholders and the weighted average numberof ordinary shares for the purpose of calculating the diluted earnings perordinary share are identical to those used for basic earnings per ordinaryshare. This is because the exercise of share options is not dilutive under theterms of FRS 22 'Earnings per share'. 7 Intangible fixed assets Purchased Intellectual Goodwill Property TotalGroup £'000 £'000 £'000CostAt 1 July 2005 - 3,009 3,009 Acquisitions 448 - 448 At 30 June 2006 448 3,009 3,457 Amortisation At 1 July 2005 - 827 827 Charge for the year 448 602 1,050 At 30 June 2006 448 1,429 1,877 Net book amount at 30 June 2006 - 1,580 1,580 Net book amount at 30 June 2005 - 2,182 2,182 8 Tangible fixed assets Office Computer LeaseholdGroup Equipment Equipment Improvement Total £'000 £'000 £'000 £'000CostAt 1 July 2005 5 209 - 214 Additions 8 21 8 37 Disposals (1) (24) - (25) At 30 June 2006 12 206 8 226 Accumulated depreciation At 1 July 2005 - 95 - 95 Charge for the year 1 75 1 77Disposals - (13) - (13) At 30 June 2006 1 157 1 159 Net book amount at 30 June 2006 11 49 7 67 Net book amount at 30 June 2005 5 114 - 119 9 Investments Company £'000Shares in group undertakingsAt 1 April 2005 - Subsidiary undertakings:Acquisition of Mobile Tornado International Ltd 12,758 At 30 June 2006 12,758 Investments in Group undertakings are stated at cost. Details of the principal investments at 30 June 2006 in which the Group orCompany holds more than 20% of the nominal value of ordinary share capital areas follows: Subsidiary undertakings Country of Nature of business Group Company incorporation or proportion proportion registration held held Mobile Tornado International Republic of Sale of instant 100% 100%Ltd Ireland communication services M.T. Labs Ltd Israel Sale of instant 100% 0% communication services M.T. Labs Ltd is a wholly owned subsidiary of Mobile Tornado International Ltd. 10 Debtors Group Company 2006 2005 2006 2005 £'000 £'000 £'000 £'000 Amounts falling due within one year: Trade debtors 184 348 - - Other debtors and prepayments 152 84 21 26 Amounts owed by Group undertakings - - 1,373 - Total 336 432 1,394 26 11 Creditors - amounts falling due within one year Group Company 2006 2005 2006 2005 £'000 £'000 £'000 £'000 Trade creditors and accruals 653 1,131 187 12 Other taxation and social security 94 13 18 3 Other creditors 278 330 - 27 Deferred income 45 74 - - Deferred consideration 264 - - - 9% Cumulative Preference Shares - 310 - - Convertible Loan Notes - 1,903 - - Total 1,334 3,761 205 42 The convertible loan notes and preference shares were converted to issuedordinary share capital of Mobile Tornado International Limited on 7 March 2006. 12 Creditors - amounts falling due after more than one year Group Company 2006 2005 2006 2005 £'000 £'000 £'000 £'000 Deferred consideration 2,463 3,024 - - Total 2,463 3,024 - - The deferred consideration represents a royalty payable on future sales of Pushto Talk related product by Mobile Tornado, payable in part consideration for theacquisition of the rights to the technology underlying such product. The royaltyis payable quarterly on any relevant sales (on a cash receipts basis) asfollows: (i) 50% of the first US$200,000 relevant sales. (ii) 15% of any additional relevant sales, subject to any relatedcumulative royalty payments being capped at a maximum of US$5.3 million. Directreseller and other third party costs may be deducted in arriving at theseroyalty payments, subject to such costs not exceeding 10% of the relevant sales.The deferred consideration is secured by a charge over the intellectual propertyof the Mobile Tornado Group. 13 Financial instruments Interest rate risk profile of financial assets The financial assets of the Group comprise cash of £192,000, all held infloating rate accounts, as follows: 2006 2005 £'000 £'000Currency Sterling 28 475 US dollar 120 247 Euro 44 134 192 856 The Group's policy of managing financial risk is detailed in the Directors'report on page 5. 14 Called up share capital Company 2006 2005 £'000 £'000Authorised200,000,000 (2005: 25,000,000) Ordinary shares of 2p each 4,000 500 Total 4,000 500 2006 2005 £'000 £'000Allotted, called up and fully paid 92,180,096 (2005: 5,937,500) Ordinary shares of 2p each 1,844 119 Total 1,844 119 The share capital in the Group balance sheet at 30 June 2005 reflected that ofMobile Tornado International Limited prior to the reverse acquisition. On 7 March 2006 the Company issued 78,130,096 ordinary shares of 2p each inrespect of the reverse acquisition of Mobile Tornado International Limited. On 7 March 2006 the Company issued 5,500,000 ordinary shares of 2p each inrespect of a placing at 16p per share. On 21 April 2006 the Company issued 312,500 ordinary shares of 2p each as partpayment for professional fees in relation to the reverse acquisition of MobileTornado International Limited. On 26 April 2006, the Company announced a placing of 14,551,333 shares at aprice of 16p per share to fund the acceleration of its global marketing and thedevelopment of extensions to its fixed-mobile convergence products. JorgePinievsky, then a Director of the Company, subscribed for 12,251,333 shares inthe April Placing. On 27 June 2006 the Company announced that it had not received payment for theshares issued to Mr Pinievsky in the April Placing. Mr Pinievsky subsequentlyresigned from the board of Directors of the Company, although he remains anemployee of the Group, owing to his technical expertise in the Group's market.Mr Pinievsky has surrendered all shares issued to him in the April Placing tothe Company. Mr Pinievsky's unpaid shares, which have been surrendered to the Company, willbe held by the Company and either re-allotted or cancelled in due course. Theunpaid 12,251,333 shares and the associated debtor are not included in thebalance sheet or associated notes of the Group or the legal parent. If thesurrendered shares are not re-allotted within three years of their surrender,they must be cancelled. Mr Pinievsky remains liable to the Company for theunpaid issue price (less any amount realised by the Company if the shares arere-allotted). Share issue costs The Company incurred issue costs of £486,000 in respect of the above sharesissued during the year. These have been debited to the share premium account ofthe Company. Share options Certain employees hold options to subscribe for shares in the Company at pricesranging from 2p to 5p under the share option schemes. The number of sharessubject to options is as follows: Name of scheme No. of shares Exercise 2006 2005 price (p) Mobile Tornado Group plc scheme 1 2,461,918 - 2.0 Mobile Tornado Group plc scheme 2 3,600,000 - 5.0 6,061,918 - 15 Shareholders' funds Group Ordinary Share Reverse Profit & Total share premium acquisition Merger loss shareholders' capital account reserve reserve account funds £'000 £'000 £'000 £'000 £'000 £'000 At 1 July 2005 3 1,359 - - (4,558) (3,196) Issue of shares 1,841 265 - 10,938 - 13,044 Reverse acquisition capital adjustment - - (7,620) - - (7,620) Loss sustained for the year - - - - (3,850) (3,850) At 30 June 2006 1,844 1,624 (7,620) 10,938 (8,408) (1,622) Company Ordinary Share Reverse Profit & Total share premium acquisition Merger loss shareholders' capital account reserve reserve account funds £'000 £'000 £'000 £'000 £'000 £'000 At 1 July 2005 119 974 - - (171) 922 Issue of shares 1,725 650 - 10,938 - 13,313 Loss sustained for the year - - - - (280) (280) At 30 June 2006 1,844 1,624 - 10,938 (451) 13,955 On 7 March 2006 the company acquired 79,689,970 ordinary shares of €0.0001 ofMobile Tornado International Limited, being 100% of its nominal share capitalsatisfied by the issue of 78,130,096 ordinary shares. Advantage has been takenof section 131 of the Companies Act 1985 on merger relief in respect of thepremium on the issue of shares to finance the acquisition. 16 Reconciliation of operating loss to net cash (outflow)/ inflow from operatingactivities 2006 2005 £'000 £'000 Operating loss (3,381) (1,665) Depreciation of tangible fixed assets 77 35 Amortisation of intangibles 602 301 Loss on disposal of tangible fixed assets 12 - Decrease/(increase) in debtors 126 (273) Increase in creditors and provisions 915 2,518 Net cash (outflow)/inflow from operating activities (1,649) 916 17 Reconciliation of movement in net funds 2006 2005 £'000 £'000 (Decrease)/increase in cash in the year (664) 683 Change in net debt resulting from cash flows (664) 683 Non-cash changes:Conversion of Convertible Loan Notes 2,213 (1,551) Movement in net funds in the year 1,549 (868) Net debt at start of year (1,357) (489) Net funds/(debt) at end of year 192 (1,357) 18 Analysis of net funds At 1 July Cashflow Non-cash At 30 June 2005 changes 2006 £'000 £'000 £'000 £'000 Cash at bank and in hand 856 (664) - 192 Convertible loan notes (2,213) - 2,213 - Net funds (1,357) (664) 2,213 192 19 Post balance sheet event In October 2006 InTechnology plc subscribed £4 million for 80 million shares at5p per share. Following this subscription, InTechnology plc held 43.38% of theenlarged share capital. Peter Wilkinson and Richard James, Directors ofInTechnology, also own approximately 13.3% and 1.6% respectively of the enlargedshare capital in their personal capacities. Peter Wilkinson is also a 57 percent shareholder in InTechnology. InTechnology's principal activity is providing IT services and products viachannel partners for the deployment of data storage and security, and data andvoice services through its wide-area private network infrastructure. The Groupalso provides IT professional services relating to pre-sales consultancy,technical services, customer support and training. 20 Related party transactions The Company has taken advantage of the exemption available under FRS 8 'RelatedParty Disclosures' from disclosing transactions between the Company and itssubsidiary undertakings as these have been eliminated on consolidation of thesefinancial statements. Peter Wilkinson and John Swingewood, holders of Mobile Tornado Group plc sharesare shareholders of InTechnology plc. Peter Wilkinson is also a Director ofInTechnology plc. Mobile Tornado International Limited has bought servicestotalling £4,000 (2005; £nil) from InTechnology plc in the year. As at 30 June2006, Mobile Tornado International Limited owed £1,000 (2005; £nil) toInTechnology plc. John Swingewood and Jeremy Fenn are Directors and shareholder of YooMedia plc.Peter Wilkinson also holds shares in YooMedia plc. Mobile Tornado InternationalLimited has bought services totalling £44,000 (2005; £nil) from YooMedia plc inthe year. As at 30 June 2006, Mobile Tornado International Limited owed £11,000(2005; £nil) to YooMedia plc. John Swingewood and Jeremy Fenn are shareholders and Directors of EescapeHoldings Limited. Mobile Tornado International Limited has bought servicestotalling £4,000 (2005; £17,000) from Eescape Holdings Limited in the year. Asat 30 June 2006, Mobile Tornado International Limited owed £11,000 (2005;£17,000) to Eescape Holdings Limited. This information is provided by RNS The company news service from the London Stock Exchange