NETD.L Regulatory News (NETD)

17 Mar 2008 07:01

NetDimensions (Holdings) Limited17 March 2008 NetDimensions (Holdings) Limited ("NetDimensions"or the "Company") Preliminary Results for the year ended 31 December 2007 NetDimensions is a software publisher that provides companies, governmentagencies and other organizations with enterprise-class learning, knowledge andperformance management related software and services, enabling its clients tomanage the delivery and administration of their training, compliance and talentdevelopment programs. Financial Highlights • Sales for the 12 months to 31 December 2007 increased by 23% to US$4.34 million (2006: US$3.51 million) • Profit before exceptional items is US$146,303 • The Company has continued to generate cash from operations and had cash at bank of US$5.7 million Operational Highlights • Added over 100 new clients in this period • Expanded sales and marketing teams in North America, Europe Middle East and Africa (EMEA) and Asia Pacific and added new sales partners in Vietnam and South Africa • Established new hosting and service capabilities in Europe and North America. • Introduced two new products, EAP and ECP, building a higher value product offering • Launched EKP 5.0 which was designed with major input from our customers Roger Durn, Chairman, commented: "NetDimensions has won over 100 new clients anddelivered excellent revenue growth during this period. 2007 has been a year ofexpansion for NetDimensions and we have built a strong foundation from which tocontinue to grow in our chosen markets. Our business model remains sound and weare a cash generative business. Our focus this year will be to aggressivelypursue our target markets and continue to offer a superior product to ourclients." Enquiries: NetDimensions Jay Shaw +852 2122 4500www.netdimensions.com/investor Jeffery Cheung Allana EdwardsLandsbanki Securities (UK) Jeff Keating +44 (0) 20 7426 9000LimitedNominated Adviser & Broker Fred Walsh Simon BrownCardew Group Tim Robertson +44 (0) 20 7930 0777 Shan Shan Willenbrock Catherine Maitland Chairman's Statement IntroductionI am pleased to present the first preliminary results of NetDimensions(Holdings) Limited as a listed company for the year ended 31 December 2007,following the Company's successful admission to the London Stock Exchange AIM on2 May 2007. The admission to AIM was an important step forward forNetDimensions. Together with raising £3.0 million to support the development ofthe business, the listing has created a new platform to grow through theenhancement of its production capabilities and the expansion of its geographicreach. Financial ReviewIn 2007 NetDimensions increased annual revenue by 23% to US$4.34 million (2006:US$3.51 million). We have made good progress in driving sales of softwarelicenses which increased by 24% from the same period last year. In addition, wehave been successful in growing our revenues in the EMEA region, an area whichwe have placed great emphasis in our sales and marketing strategy. EMEAgenerated 34.7% of total revenues compared to 26.2% in the same period. Revenuesfor the year would have been higher had not a number of important contracts beendelayed into the current financial year. Gross profit margin remains at 96% (2006: 95%). Administration expenses were inline with the Group's increase in the development and expansion of products,sales and marketing capability. The Company made a loss at pretax level ofUS$0.95 million (2006 profit: US$0.57 million) which is a result of a one offexceptional cost of the Company's listing on AIM. As at 31 December 2007, the Company had cash at bank of US$5.71 million (2006:US$0.52 million) which included cash from trading activities as well as the netfundraising from the Company's listing on AIM on 2 May 2007. It is the Board's intention to pay dividends in the future, however the Board donot intend, at this stage in the company's development, to recommend payment ofa dividend. Surplus funds will be used to further grow the business. Operational ReviewThe Company has made substantial progress in key areas during this period andhas continued to deliver on the strategy set out at the time of the IPO,including: • The introduction of two new product offerings: o the Enterprise Assessment Platform (EAP), for staff testing and certification; and o the Enterprise Content Platform (ECP), a single-source publishing application, which enables content to be customized to our clients' requirements, and set up on-demand through any channel to reduce time-to-market and improve the training experience • The expansion of the Company's sales and marketing operations, and • The introduction of new hosting and service capabilities in Europe and North America. The Company added over 100 new clients in 2007 and further rationalized itschannel sales program in order to drive growth. We continue to target industrieswhich are highly regulated such as financial services, aviation, energy andhealthcare. Our new clients wins in 2007 include Endsleigh, Shanghai Airlines,Progress Software, ABB (China) Limited, The United States Department of VeteransAffairs and Midwest Airlines. We have focused in 2007 on strengthening our European, Middle East and African(EMEA) team through the appointment of Mike Higgins, Director of EMEA region.Mike brings with him a wealth of experience from SkillSoft plc, where he managedSkillSoft's EMEA channel partners. NetDimensions has also appointed senior salesagents in Europe, North America and new consulting and reseller partners inAsia, which has expanded our global reach and further penetrated our targetmarkets. The introduction of EAP and ECP demonstrates the continual development ofNetDimensions' product offerings and its ability to offer "best of breed"solutions. These product offerings enable us to offer our clients powerfuladditions and enhancements which are of higher value. EAP offers organizations aplatform for testing and certification. This is used by airlines which requireflight operations testing for pilot certification and for other staff compliancelicensing. EAP is focused on highly regulated industries such as financialservices, transportation, public utilities, government agencies and otherservices focused sectors. ECP has been designed jointly with Xyleme Inc. and announced on 11 July 2007.ECP is a single-source-publishing solution that represents an importantevolution of NetDimensions' product offerings beyond the learning environment.The combination of EKP and ECP technologies allows NetDimensions to offer itsclients a powerful, integrated platform for knowledge management, performancetracking and content distribution, which is of interest to large organizationswith complicated online and print format publishing and performance supportrequirements. The release of the 5.0 version of our flagship product, EKP, was designed inpartnership with our customers in regard to their requirements. EKP 5.0 includesenhancements and improvements in accessibility, resource management andusability. The new technology will be sold as part of the Company's high-end EKPGold offering and in the new EAP, a stand alone system. Outlook NetDimensions has a sound business model and, as a rapidly expanding and cashgenerative business, remains in a good position to grow. The Company willcontinue to seek to take advantage of demand for its services, particularly fromclients in highly regulated and compliance driven industries. We will focus muchmore on industry verticals and are putting more time and effort into creatingfunctionality that will help us expand usage within client accounts. Whilemarket conditions are likely to be more challenging reflecting the broadermacro-economic conditions, the first two months of trading results in 2008 weregenerally in line with management expectations. NETDIMENSIONS (HOLDINGS) LIMITED CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2007 Notes 2007 2006 US$ US$ Revenue 5&12 4,336,659 3,514,780 Cost of sales (170,057) (159,530) ---------- ---------- Gross profit 4,166,602 3,355,250 Administrative expenses (5,270,945) (2,810,434)Analysed as: ---------- ----------Administration expenses before exceptionalitems (4,175,978) (2,810,434)Exceptional costs of Placing and Admission toAIM (1,094,967) - ---------- ---------- Other operating income 6 - 6,532 ---------- ---------- Operating (loss)/profit (1,104,343) 551,348 Finance income 7 156,012 16,110Finance costs 8 (333) (334) ---------- ---------- (Loss)/profit on ordinary activities beforetaxation 9 (948,664) 567,124 Taxation 10 - - ---------- ---------- (Loss)/profit for the year 21 (948,664) 567,124 ========== ========== Attributable to:Equity shareholders of the Company 21 (948,664) 567,124 ========== ========== Earnings per share:Basic 11 US$(0.04) US$0.03Diluted 11 US$(0.04) US$0.03 ========== ========== NETDIMENSIONS (HOLDINGS) LIMITED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFOR THE YEAR ENDED 31 DECEMBER 2007 Notes 2007 2006 US$ US$ Exchange differences on translation offoreign operations 21 (3,631) (2,557) ---------- ---------- Income and expense recognised directly inequity (3,631) (2,557) (Loss)/profit for the year (948,664) 567,124 ---------- ---------- Total income and expense recognised in the year (952,295) 564,567 ========== ========== Attributable to: Equity shareholders of the Company (952,295) 564,567 ========== ========== NETDIMENSIONS (HOLDINGS) LIMITED CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2007 Notes 2007 2006 US$ US$ASSETSNon-current assets Property, plant and equipment 14 202,980 58,617Intangible assets 15 40,503 15,585 ---------- ---------- 243,483 74,202 ---------- ---------- Current assetsInventories 17 10,584 12,954Trade and other receivables 18 2,737,537 2,403,486Cash and cash equivalents 19 5,711,745 521,332 ---------- ---------- 8,459,866 2,937,772 ---------- ---------- TOTAL ASSETS 8,703,349 3,011,974 ========== ========== EQUITY AND LIABILITIES Equity attributable to equity holders of theCompany Share capital 20 24,864 19,707Reserves 21 6,239,190 1,232,968 ---------- ---------- Total equity 6,264,054 1,252,675 ---------- ---------- Non-current liabilities Obligations under finance leases 23 2,378 3,748 ---------- ---------- Current liabilities Trade and other payables 24 2,435,558 1,754,188Obligations under finance leases 23 1,359 1,363 ---------- ---------- 2,436,917 1,755,551 ---------- ---------- Total liabilities 2,439,295 1,759,299 ---------- ---------- TOTAL EQUITY AND LIABILITIES 8,703,349 3,011,974 ========== ========== NETDIMENSIONS (HOLDINGS) LIMITED COMPANY BALANCE SHEET AS AT 31 DECEMBER 2007 Notes 2007 2006 US$ US$ASSETSNon-current assets Investments in subsidiaries 16 901,737 901,737 ---------- ---------- Current assets Other receivables 18 4,088,214 4,260,442Cash and cash equivalents 19 4,896,721 79,150 ---------- ---------- 8,984,935 4,339,592 ---------- ---------- TOTAL ASSETS 9,886,672 5,241,329 ========== ========== EQUITY AND LIABILITIES Equity attributable to equity holders ofthe Company Share capital 20 24,864 19,707Reserves 21 9,809,773 5,166,850 ---------- ---------- Total equity 9,834,637 5,186,557 Current liabilities Other payables 24 52,035 54,772 ---------- ---------- Total liabilities 52,035 54,772 ---------- ---------- TOTAL EQUITY AND LIABILITIES 9,886,672 5,241,329 ========== ========== NETDIMENSIONS (HOLDINGS) LIMITED CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2007 Notes 2007 2006 US$ US$ Cash flows from operating activities 25 563,738 (241,128) ---------- ---------- Cash flow used in investing activities Proceeds on disposal of property, plant andequipment - 659Purchase of intangible assets (43,344) (23,510)Purchase of property, plant and equipment (216,391) (47,329)Interest received 156,012 16,110 ---------- ---------- Net cash used in investing activities (103,723) (54,070) Cash flow from financing activities Interest and finance charges paid (333) (334)Repayments of borrowings and finance leases (1,359) (1,363)Net proceeds from issue of shares 4,735,613 127,891 ---------- ----------Net cash from financing activities 4,733,921 126,194 ---------- ---------- Net increase/(decrease) in cash and cashequivalents 5,193,936 (169,004) Cash and cash equivalents at beginning of the 521,332 692,452yearEffect of foreign exchange rate changes (3,523) (2,116) ---------- ---------- Cash and cash equivalents at end of the year 5,711,745 521,332 ========== ========== NETDIMENSIONS (HOLDINGS) LIMITED NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL INFORMATION The Company was incorporated in the Cayman Islands as a limited liabilitycompany under the Companies Law (2000) Revision on 10 July 2000. The registeredoffice of the Company is located at P.O. Box 309, Ugland House, South ChurchStreet, George Town, Grand Cayman, Cayman Islands, British West Indies. Itsprincipal place of business is located at 17/F., Siu On Centre, 188 LockhartRoad, Wan Chai, Hong Kong. The principal activities of the Company and its subsidiaries (hereinaftercollectively referred to as the "Group") are licensing of computer software andthe provision of related services. The principal activity of the Company isinvestment holding. The principal activities of its subsidiaries are set out innote 16 to the financial statements. On 2 May 2007, the Company was admitted to trading on the Alternative InvestmentMarket ("AIM") of the London Stock Exchange. 2. SIGNIFICANT ACCOUNTING POLICIES (a) Statement of compliance These financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRSs). (b) Basis of preparation The measurement basis used in the preparation of the financial statements is thehistorical cost basis except for the valuation of certain financial assets andliabilities which are stated at their fair value as explained in the accountingpolicies set out below. The preparation of financial statements in conformity with IFRSs requiresmanagement to make judgements, estimates and assumptions that affect theapplication of policies and reported amounts of assets, liabilities, income andexpenses. The estimates and associated assumptions are based on historicalexperience and various other factors that are believed to be reasonable underthe circumstances, the results of which form the basis of making the judgementsabout carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the period in which theestimate is revised if the revision affects only that period, or in the periodof the revision and future periods if the revision affects both current andfuture periods. Judgements made by management in the application of IFRSs that have significanteffect on the financial statements and estimates with a significant risk ofmaterial adjustment in the next year are discussed in note 3. In the current year, the Group has adopted the following new and revised IFRSsthat are relevant to its operations and effective for accounting periodsbeginning on or after 1 January 2007: • IFRS 7 - Financial Instruments: Disclosures (effective as of periods commencing on or after 1 January 2007)• IFRS 1 (amended) - Presentation of Financial Statements: Capital Disclosures (effective as of periods commencing after 1 January 2007)• IFRIC Interpretation 9 - Reassessment of Embedded Derivatives (effective as of periods commencing after 1 June 2006)• IFRIC Interpretation 10 - Interim reporting and impairments (effective as of periods commencing after 1 November 2006) There have been no significant changes to the accounting policies applied inthese financial statements for the years presented as a result of the adoption.However, as a result of the adoption of IFRS 7, Financial instruments:Disclosures and the amendment to IFRS 1, Presentation of financial statements:Capital disclosures, there have been some additional disclosures provided asfollows: As a result of the adoption of IFRS 7, the financial statements include expandeddisclosure about the significance of the Group's financial instruments and thenature and extent of risks arising from those instruments. These disclosures areprovided throughout these financial statements, in particular in note 4. The amendment to IFRS 1 introduces additional disclosure requirements to provideinformation about the level of capital and the Group's and the Company'sobjectives, policies and processes for managing capital. These new disclosuresare set out in note 20. Both IFRS 7 and the amendment to IFRS 1 do not have any material impact on theclassification, recognition and measurement of the amounts recognised in thefinancial instruments. At the date of authorisation of these financial statements, the IASB and IFRIChave issued the following standards and interpretations which are effective forannual accounting periods beginning on or after the stated effective date. Thesestandards and interpretations are not effective for and have not been applied inthe preparation of these financial statements: • IAS 27: Consolidated and Separate Financial Statements (Amended) (effective as of 1 July 2009) • IFRS 3: Business Combinations (Revised) (effective as of 1 July 2009) • IFRS 8: Operating Segments (effective as of 1 January 2009 - not yet endorsed by the EU) • IAS 23: Borrowing Costs (amended) (effective as of 1 January 2009 - not yet endorsed by the EU) • IFRIC Interpretation 12: Service Concession Arrangements (effective as of 1 January 2008 - not yet endorsed by the EU) • IFRIC Interpretation 13: Customer Loyalty Programmes (effective as of 1 July 2008 - not yet endorsed by the EU) • IFRIC Interpretation 14: IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective as of 1 January 2008) The directors do not anticipate that the adoption of these Standards andInterpretations will have a material impact on the Group's financial position. (c) Basis of consolidation The consolidated financial statements comprise the financial information of theCompany and its subsidiary undertakings drawn up to 31 December 2007 and 31December 2006. (d) Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Grouphas the power to govern the financial and operating policies of an entity so asto obtain benefits from its activities. In assessing control, potential votingrights that presently are exercisable are taken into account. An investment in a subsidiary is consolidated into the consolidated financialstatements from the date that control commences until the date that controlceases. Intra-group balances and transactions and any unrealised profits arisingfrom intra-group transactions are eliminated in full in preparing theconsolidated financial statements. Unrealised losses resulting from intra-grouptransactions are eliminated in the same way as unrealised gains but only to theextent that there is no evidence of impairment. In the Company's balance sheet, an investment in a subsidiary is stated at costless impairment losses. (e) Research and development Research and development costs are expensed as incurred, except for developmentcosts where the technical feasibility of the product under development has beendemonstrated. Such development costs are recognised as an asset and amortised ona straight-line basis over the period in which the related economic benefits areto be recognised. No development costs have been recognised by the Group todate. (f) Property, plant and equipment Property, plant and equipment are stated at cost less depreciation less anyrecognised impairment losses. Cost includes expenditure that is directlyattributable to the acquisition or construction of these items. Subsequent costsare included in the asset's carrying amount only when it is probable that futureeconomic benefits associated with the item will flow to the Group and the costscan be measured reliably. All other costs, including repairs and maintenancecosts are charged to the income statement in the period in which they areincurred. Depreciation is provided on all tangible fixed assets and is calculated on astraight-line basis to allocate cost, other than assets in the course ofconstruction, less their residual value, if any, over the estimated usefullives, as follows: Plant and machinery - 20% - 25%Leasehold improvements - over the term of the lease The gain or loss arising on disposal or scrapping of an asset is determined asthe difference between the sales proceeds, net of selling costs, and thecarrying amount of the asset and is recognised in the income statement. (g) Intangible assets Intangible assets comprise computer software, which is amortised over its usefuleconomic life of two years. (h) Impairment of assets At each balance sheet date, the Group reviews the carrying amounts of itstangible and intangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss (if any). Where the asset does not generate cashflows that are independent from other assets, the Group estimates therecoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value inuse. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to theasset, for which the estimates of future cash flow have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated tobe less than its carrying amount, the carrying amount of the asset(cash-generating unit) is reduced to its recoverable amount. An impairment lossis recognised as an expense immediately, unless the relevant asset is carried ata revalued amount, in which case the impairment loss is treated as a revaluationdecrease. Where an impairment loss subsequently reverses, the carrying amount of the asset(cash-generating unit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognisedfor the asset (cash-generating unit) in prior periods. A reversal of animpairment loss is recognised in the income statement immediately, unless therelevant asset is carried at a revalued amount, in which case the reversal ofthe impairment loss is treated as a revaluation increase. (i) Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for goods and services provided inthe normal course of business, net of discounts and sales related taxes. Revenue from the provision of software licensing, software customisation andimplementation and support and maintenance services is recognised when theservices are rendered. Revenue from hosting services is recognised on a straight line basis over thesubscription period. Revenue from sale of goods is recognised on the transfer of risks and rewards ofownership, which generally coincides with the time the goods are delivered ortitle to the goods passes to the customers. Interest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable, which is the ratethat exactly discounts estimated future cash receipts through the expected lifeof the financial asset to that asset's net carrying amount. (j) Foreign currencies Foreign currency transactions are translated into US dollars, the functionalcurrency of the Group, using the exchange rates prevailing on the dates of thetransactions. Exchange differences arising on the settlement of monetary items,and on the retranslation of monetary items, are included in the income statementfor the period. Exchange differences arising on the retranslation ofnon-monetary items carried at fair value are included in the income statementfor the period except for differences arising on the retranslation ofnon-monetary items in respect of which gains and losses are recognised directlyin equity. For such non-monetary items, any exchange component of that gain orloss is also recognised directly in equity. On consolidation, the assets and liabilities of foreign operations which have afunctional currency other than US dollars are translated into US dollars atforeign exchange rates ruling at the balance sheet date. The revenues andexpenses of these subsidiary undertakings are translated at average ratesapplicable in the period. All resulting exchange differences are recognised as aseparate component of equity.In accordance with the exemption in IFRS 1, consolidated exchange differencesarising prior to 31 December 2004 have not been identified and transferred to aseparate component of equity and will not be recognised in the income statementif the foreign operation is sold. (k) Inventories Inventories are valued at lower of cost and net realisable value. Cost includesthe purchase price of the manufactured products, materials and transport costs.No interest is capitalised in inventories. Cost is calculated using the FIFO(first in, first out) method. Net realisable value is based on the estimatedselling price less all estimated costs to be incurred in marketing, selling anddistribution. Provision is made for obsolete, slow moving or defective itemswhere appropriate. (l) Trade and other receivables Trade and other receivables are recognised initially at fair value andsubsequently measured at initial fair value less provision for impairment.Provision for impairment is established when there is objective evidence thatthe Group will not be able to collect all amounts due according to the originalterms of the receivable. The amount of the impairment is the difference betweenthe asset's carrying amount and the present value of the estimated future cashflows, discounted at the effective interest rate. (m) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and on hand, demand depositswith banks and other financial institutions, and short-term, highly liquidinvestments that are readily convertible into known amounts of cash and whichare subject to an insignificant risk of changes in value, having been withinthree months of maturity at acquisition. Bank overdrafts that are repayable ondemand and form an integral part of the Group's cash management are alsoincluded as a component of cash and cash equivalents for the purpose of theconsolidated cash flow statement. (n) Trade and other payables Trade payables are initially measured at fair value, and are subsequentlymeasured at amortised cost, using the effective interest rate method. (o) Taxation Current tax is provided at amounts expected to be paid (or recovered) using thetax rates and laws that have been enacted or substantially enacted by thebalance sheet date. Deferred taxation is provided in full, using the liability method, on temporarydifferences arising between the tax bases of assets and liabilities and theircarrying amounts in the consolidated financial statements. However, if thedeferred tax arises from the initial recognition of an asset or liability in atransaction other than a business combination that at the time of thetransaction affects neither accounting nor taxable profit or loss, it is notaccounted for. Deferred tax is determined using tax rates and laws that havebeen enacted (or substantially enacted) by the balance sheet date and areexpected to apply when the related deferred tax asset is realised or thedeferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that futuretaxable profit will be available against which the temporary differences can beutilised. (p) Employee benefits (i) Pensions The Group has arranged for its Hong Kong resident employees to join theMandatory Provident Fund Scheme ("the MPF Scheme") established under theMandatory Provident Fund Ordinance. Under the MPF Scheme, each of the employerand its employees makes monthly contributions to the Scheme at 5% of theemployees' earnings as defined under the Mandatory Provident Fund Ordinance. Thecontributions from the employer and each of the employees respectively aresubject to a cap of HK$1,000 per month and thereafter contributions arevoluntary. The assets of the MPF Scheme are held separately from those of theGroup and managed by an independent trustee. (ii) Equity settled share-based payments The Group has applied the requirements of IFRS 2 Share-based Payment. Inaccordance with the transitional provisions, IFRS 2 has been applied to allgrants of equity instruments after 7 November 2002 that were unvested at 1January 2005. The Group issues equity-settled share-based payments to certain employees andsales agents. Equity-settled share-based payments are measured at fair value(excluding the effect of non market-based vesting conditions) at the date ofgrant. The fair value determined at the grant date of the equity-settledshare-based payments is expensed on a straight-line basis over the vestingperiod, based on the Group's estimate of shares that will eventually vest andadjusted for the effect of non market-based vesting conditions. Fair value is measured by use of the Black-Scholes model. The expected life usedin the model has been adjusted, based on management's best estimate, for theeffects of non-transferability and exercise restrictions. (q) Borrowings and borrowing costs Borrowings are recognised initially at fair value, net of transaction costsincurred, and subsequently at amortised cost. Any difference between theproceeds (net of transaction costs) and the redemption value is recognised inthe income statement over the period of the borrowings using the effectiveinterest method. Borrowings are classified as current liabilities unless the Group has anunconditional right to defer settlement of the liability for at least twelvemonths from the balance sheet date. Borrowing costs, being interest and other costs incurred in connection with theservicing of borrowings are recognised as an expense when incurred. (r) Deferred income Deferred income represented consulting and hosting service fees received inadvance. Revenue is recognised and deferred income is released to the incomestatement when the corresponding services are rendered. (s) Leases Leases of property, plant and equipment where the Group has substantially allthe risks and rewards of ownership are classified as finance leases. Financeleases are capitalised at the lease's inception at the lower of the fair valueof the leased asset and the present value of the minimum lease payments. Eachlease payment is allocated between the liability and finance charges so as toachieve a constant rate on the finance balance outstanding. The asset subject tothe finance lease is depreciated over the shorter of its useful life and thelease term. The corresponding rental obligations, net of finance charges, areincluded as a liability. Leases of property, plant and equipment where the Group does not havesubstantially all the risks and rewards of ownership are classified as operatingleases. Payments made under operating leases are charged to the income statementon a straight-line basis over the lease term. Incentives provided by the lessorare credited to the income statement on a straight-line basis over the minimumlease term. (t) Equity instruments An equity instrument is any contract that evidences a residual interest in theassets of the Group after deducting all of its liabilities. Equity instrumentsissued by the Group are recorded at the proceeds received, net of any directissue costs. (u) Segment reporting A segment is a distinguishable component of the Group that is engaged either inproviding products or services (business segment), or in providing products orservices within a particular economic environment (geographical segment), whichis subject to risks and rewards that are different from those of other segments. In accordance with the Group's internal financial reporting system, the Grouphas chosen geographical segment information as the primary reporting format andbusiness segment information as the secondary reporting format for the purposesof these financial statements. Segment revenue, expenses, results, assets and liabilities include itemsdirectly attributable to a segment as well as those that can be allocated on areasonable basis to that segment. Segment revenue, expenses, assets, andliabilities are determined before intra-group balances and intra-grouptransactions are eliminated as part of the consolidation process, except to theextent that such intra-group balances and transactions are between Groupentities within a single segment. Inter-segment pricing is based on similarterms as those available to other external parties. Segment capital expenditure is the total cost incurred during the period toacquire segment assets (both tangible and intangible) that are expected to beused for more than one period. Unallocated items mainly comprise financial and corporate assets,interest-bearing loans, borrowings, tax balances, corporate and financingexpenses. 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (a) Critical accounting estimates The Directors consider that the Group has no critical accounting estimates. (b) Critical judgements Estimates and judgments are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that arebelieved to be reasonable under the circumstances. 4. FINANCIAL RISK MANAGEMENT The Group's current activities result in the following financial risks andmanagement's responses to those risks in order to minimise any resulting adverseeffects on the Group's financial performance. (a) Foreign exchange risk The Group's reporting currency is US dollars. Its principal activities arelicensing of computer software and the provision of related services in variouscurrencies, in particular US dollars and Hong Kong dollars. Since the Hong Kongdollar is currently pegged to the US dollar no significant exposure is expectedon Hong Kong dollar transactions and balances. The following table indicates the approximate change in the Group's profit aftertax (and retained profits) and other components of consolidated equity inresponse to reasonably possible changes in the foreign exchange rates to whichthe Group has significant exposure at the balance sheet date. The analysisincludes balances between Group companies where the denomination of the balancesis in a currency other than the functional currencies. 2007 2007 2006 2006The Group Increase/ Effect on Increase/ Effect on (decrease) in profit after (decrease) profit after foreign tax and in tax and exchange rates retained foreign retained profits exchange rates profits $'000 $'000 Hong Kong Dollars 1% 21 1% 21 (1)% (21) (1)% (21) Pounds Sterling 5% 148 1% - (5)% (148) (1)% - Euros 2% 53 1% 2 (2)% (53) (1)% (2) The sensitivity analysis has been determined assuming that the change in foreignexchange rates had occurred at the balance sheet date and had been applied toeach of the Group entities' exposure to currency risk for both derivative andnon-derivative financial instruments in existence at that date, and that allother variables, in particular interest rates, remain constant. The stated changes represent management's assessment of reasonably possiblechanges in foreign exchange rates over the period until the next annual balancesheet date. In this respect, it is assumed that the pegged rate between the HongKong dollar and the US dollar would not be materially affected by any changes inmovement in value of the United States dollar against other currencies. Resultsof the analysis as presented in the above table represent an aggregation of theeffects on each of the Group entities' profit after tax and equity measured inthe respective functional currencies, translated into US dollars at the exchangerate ruling at the balance sheet date for presentation purposes. The analysis isperformed on the same basis for 2006. (b) Interest rate risk Interest rate risk arises from debt borrowing and cash held on deposit. TheGroup has no significant external borrowings therefore the Group currently haveno interest rate risk exposure. The Group's cash balances are kept in interestbearing current accounts and on short-term deposit, so as to maximise the levelof return while maintaining an adequate level of liquidity. (c) Credit risk The Group's credit risk is primarily attributable to trade and otherreceivables. Management has a credit policy in place and the exposure to creditrisk is monitored on an ongoing basis. Credit evaluations are performed on allcustomers requiring credit over a certain amount. The Group does not requirecollateral in respect of financial assets. At the balance sheet date, there were no significant concentrations of creditrisk. The maximum exposure to credit risk is represented by the carrying amountof each financial asset in the balance sheet. (d) Liquidity risk The availability of adequate cash resources is managed by the Group throughmanaging its funds conservatively thereby ensuring it meets its continualoperational requirements. 5. REVENUE Revenue represents the aggregate of income from support and maintenanceservices, hosting services, software customisation and implementation servicesand software licensing during the year and is analysed as follows: - 2007 2006 US$ US$ Support and maintenance 575,108 312,420Hosting 1,383,146 1,311,737Software customisation and implementation 268,058 193,543Software licensing 2,110,347 1,697,080 ---------- ---------- 4,336,659 3,514,780 ========== ========== 6. OTHER OPERATING INCOME 2007 2006 US$ US$ Other operating income - 6,532 ========== ========== 7. FINANCE INCOME 2007 2006 US$ US$ Bank interest receivable 156,012 16,110 ========== ========== 8. FINANCE COSTS 2007 2006 US$ US$ Finance lease charges 333 334 ========== ========== 9. (LOSS)/PROFIT BEFORE TAXATION (Loss)/profit before taxation is arrived after charging/(crediting):- 2007 2006 US$ US$ Depreciation of property, plant and equipment 70,417 23,968Amortisation of computer software 18,351 18,001Loss/(gain) on disposal of property, plant and equipment 1,563 (372)Statutory audit services 47,433 15,700Taxation services 4,340 3,500Operating lease rentals - land and buildings 126,849 64,026Research and development - current year expenditure 995,946 801,310Foreign exchange loss/(gain) 23,776 (1,107) ========== ========== 10. TAXATION There was no taxation charge or credit for the year ended 31 December 2007 (2006: US$nil) due to the utilisation of historical trading losses. 2007 2006 US$ US$Tax reconciliation (Loss)/profit on ordinary activities before tax (948,664) 567,124 ---------- ---------- (Loss)/profit on ordinary activities multiplied by the - -standard rate of corporation tax in the Cayman Islands of 0% Tax effects of:Rate adjustment relating to overseas losses 123,101 117,205Income not subject to taxation (2,026) (2,441)Expenses not deductible for tax purposes 2,854 9,038Capital allowances in excess of depreciation (10,418) (4,760)Utilisation of previously unrecognised overseas tax losses (113,511) (119,042) ---------- ---------- - - ========== ========== The Group's unrecognised deferred tax asset can be analysed as follows: Accelerated depreciation charges (21,800) (18,378)Tax losses 577,988 693,564 ---------- ---------- 556,188 675,186 ========== ========== A deferred tax asset has not been recognised in respect of tax losses availableto carry forward against suitable future trading profits and timing differencesrelating to capital allowances in excess of depreciation as the directorsconsider there is insufficient evidence that the assets will be recovered. Theseassets can be recovered against suitable future trading profits. 11. EARNINGS PER SHARE The calculation of the basic and diluted earnings per share is based on thefollowing data: 2007 2006 US$ US$Earnings used for the 'Earnings per share' Earnings for the purpose of basic earnings per sharebeing net profit attributable to equity shareholders ofthe parent (948,664) 567,124 ========== ========== Earnings for the purpose of diluted earnings per share (948,664) 567,124 ========== ========== 2007 2006 US$ US$Earnings used for the 'Earnings per share beforeexceptional costs' Earnings for the purpose of basic earnings beforeexceptional costs per share being net profitattributable to equity shareholders of the parent lessexceptional costs of US$1,094,967 related to theadmission on AIM. (146,303) 567,124 ========== ========== Earnings before exceptional costs for the purpose ofdiluted earnings per share (146,303) 567,124 ========== ========== 2007 2006 Number of shares Weighted average number of ordinary and preferredshares for the purposes of basic earnings pershare 23,089,650 19,658,352 Effect of dilutive potential ordinary and preferredshares:Share options 1,453,451 963,928 -------- ---------- Weighted average number of ordinary and preferredshares for the purposes of dilutive earnings pershare 24,543,101 20,622,280 ========= ========== 2007 2006 US$ US$Earnings per share:Basic (0.04) 0.03Diluted (0.04) 0.03 ========== ========== Earnings per share before exceptional costs:Basic 0.006 0.03Diluted 0.006 0.03 ========== ========== 12. SEGMENTAL ANALYSIS Primary reporting format - geographic segments The Group operates in three geographic segments, North America, EMEA and Rest ofthe World. These geographic segments are the basis on which the Group reportsits primary segment information, as presented below: Segmental information for the year ended 31 December 2007: Rest of North the America EMEA World Total US$ US$ US$ US$ Revenue from external 2,017,356 1,505,697 813,606 4,336,659customers -------- -------- --------- --------Revenue 2,017,356 1,505,697 813,606 4,336,659 ======== ======== ========= ======== Operating loss (1,104,343)Finance income 156,012Finance costs (333) -------- Loss before taxation (948,664)Taxation - -------- Loss for the year (948,664) ======== Other segment items included in the income statement for the year ended 31December 2007: North Rest of the America EMEA World Total US$ US$ US$ US$ Depreciation 15,030 2,062 53,325 70,417Amortisation 253 - 18,098 18,351Bad Debt 63,949 - 2,287 66,236 Information regarding segment assets and liabilities as at 31 December 2007 andcapital expenditure in the year then ended, based on the locations of customers: Rest of North the America EMEA World Unallocated Total US$ US$ US$ US$ US$ Total assets 184,896 6,718 8,511,735 - 8,703,349 ======== ======== ======== ======== ========= Total liabilities 107,772 2,331,523 2,439,295 ======== ======== ======== ======== =========Tangible asset additions 63,279 7,928 145,184 - 216,391Intangible asset additions 2,022 - 41,322 - 43,344 -------- -------- -------- -------- --------- Total capital expenditure 65,301 7,928 186,506 - 259,735 ======== ======== ======== ======== ========= It is considered that there is no material difference in the informationregarding segment assets and liabilities as at 31 December 2007 and capitalexpenditure in the year then ended, either based on the locations of customersor the locations of assets, no further disclosure is presented. Segmental information for the year ended 31 December 2006: North Rest of the America EMEA World Total US$ US$ US$ US$ Revenue from external customers 1,706,604 921,083 887,093 3,514,780 -------- -------- --------- -------- Revenue 1,706,604 921,083 887,093 3,514,780 ======== ======== ========= ======== Operating profit 267,707 119,607 164,034 551,348Finance income 16,110Finance costs (334) -------- Profit before taxation 567,124Taxation - -------- Profit for the year 567,124 ======== Other segment items included in the income statement for the year ended 31December 2006: North Rest of the America EMEA World Total US$ US$ US$ US$ Depreciation 128 - 23,840 23,968Amortisation - - 18,001 18,001Bad debt charge 50,000 - 1,647 51,647 ======== ======== ========= ======== Information regarding segment assets and liabilities as at 31 December 2006 andcapital expenditure in the year then ended, based on the location of customers: North Rest of the America EMEA World Unallocated Total US$ US$ US$ US$ US$ Total assets 22,868 - 2,989,106 - 3,011,974 ======== ======== ======== ======== ======== Total liabilities 157 - 1,754,031 5,111 1,759,299 ======== ======== ======== ======== ======== Tangible asset additions 7,747 - 39,727 - 47,474 Intangible asset additions - - 23,510 - 23,510 -------- -------- -------- -------- -------- Total capital expenditure 7,747 - 63,093 - 70,839 ======== ======== ======== ======== ======== It is considered that there is no material difference in the informationregarding segment assets and liabilities as at 31 December 2006 and capitalexpenditure in the year then ended, either based on the locations of customersor the locations of assets, no further disclosure is presented. Secondary reporting format - business segments The Group's business segments are support and maintenance, hosting, softwarecustomisation and implementation and software licensing. These business segmentsare the basis on which the Group reports its secondary segment information, aspresented below: Segmental information for the year ended 31 December 2007: Software customisation Support and and Software maintenance Hosting implementation licensing Total US$ US$ US$ US$ US$ Segmentrevenuefrom external 575,108 1,383,146 268,058 2,110,347 4,336,659customers ======== ======= ========== ======== ======== Total capitalexpenditure 34,445 82,841 16,055 126,394 259,735 ======== ======= ========== ======== ======== Total carryingamount of segment assets 1,154,199 2,775,871 537,972 4,235,307 8,703,349 ======== ======= ========== ======== ======== Segmental information for the year ended 31 December 2006: Software customisation Support and and Software maintenance Hosting implementation licensing Total US$ US$ US$ US$ US$ Segmentrevenuefrom external customers 312,420 1,311,737 193,543 1,697,080 3,514,780 ======== ======= ========== ======== ======== Total capitalexpenditure 26,423 70,839 6,305 3,896 34,215 ======== ======= ========== ======== ======== Total carryingamount of segment assets 268,074 1,123,503 165,664 1,454,732 3,011,974 ======== ======= ========== ======== ======== 13. STAFF COSTS The average monthly number of persons, including directors, employed by theGroup during the years was: 2007 2006 Sales and marketing 14 4Technical and client service 17 18Finance and administration 6 6 ---------- ---------- 37 28 ========== ========== Staff costs for the above persons were: 2007 2006 US$ US$ Wages and salaries 1,749,173 1,187,275Pension contributions 35,925 27,632Equity-settled share-based payments 133,094 50,966 ---------- ---------- 1,918,192 1,265,873 ========== ========== Directors' emoluments Included within the total staff costs above is the remuneration of the Directorsas detailed below: 2007 2006 US$ US$ Aggregate directors' emoluments 551,075 452,764 ========== ========== Share Fees and based salaries Benefits Bonuses payments Total US$ US$ US$ US$ US$Year ended 31 December 2007 J Shaw 140,379 - 24,518 - 164,897R Ruff 133,713 3,461 24,518 - 161,692J Cheung 133,969 - 24,518 23,445 181,932S Vaze 7,692 - - 6,335 14,027W Leong - - - 6,335 6,335R Durn 10,256 - - 4,244 14,500G Higgins 7,692 - - - 7,692 -------- -------- -------- -------- -------- 433,701 3,461 73,554 40,359 551,075 ======== ======== ======== ======== ======== Share Fees and based salaries Benefits Bonuses payments Total US$ US$ US$ US$ US$Year ended 31 December 2006 J Shaw 129,226 1,929 12,023 - 143,178R Ruff 117,268 13,887 12,023 - 143,178J Cheung 131,155 - 12,023 - 143,178S Vaze - - - 6,335 6,335W Leong - - - 6,335 6,335R Durn - - - 4,224 4,224Noel Sanborn - - - 6,336 6,336G Higgins - - - - - -------- -------- -------- -------- -------- 377,649 15,816 36,069 23,230 452,764 ======== ======== ======== ======== ======== 14. PROPERTY, PLANT AND EQUIPMENT Leasehold Plant and improvements equipment Total US$ US$ US$Group CostAt 1 January 2006 13,252 373,883 387,135Exchange differences (39) (1,034) (1,073)Additions - 47,474 47,474Disposals - (21,566) (21,566) ---------- ---------- ---------- At 31 December 2006 and 13,213 398,757 411,9701 January 2007Exchange differences - (1,061) (1,061)Additions 73,321 143,070 216,391Disposals (13,213) (4,582) (17,795) ---------- ---------- ---------- At 31 December 2007 73,321 536,184 609,505 ---------- ---------- ---------- DepreciationAt 1 January 2006 12,859 337,587 350,446Exchange differences 5 147 152Charge for the year 349 23,619 23,968Disposals - (21,213) (21,213) ---------- ---------- ---------- At 31 December 2006 and 13,213 340,140 353,3531 January 2007Exchange differences - (1,013) (1,013)Charge for the year 19,814 50,603 70,417Disposals (13,213) (3,019) (16,232) ---------- ---------- ---------- At 31 December 2007 19,814 386,711 406,525 ---------- ---------- ---------- Net book value At 31 December 2007 53,507 149,473 202,980 ========== ========== ========== At 31 December 2006 - 58,617 58,617 ========== ========== ========== Finance lease assets included in the above net book amounts: At 31 December 2007 - 3,388 3,388 ========== ========== ========== At 31 December 2006 - 5,295 5,295 ========== ========== ========== 15. INTANGIBLE ASSETS Software costs US$CostAt 1 January 2006 24,478Exchange differences (72)Additions 23,510 ---------- At 31 December 2006 and 1 January 2007 47,916Exchange differences (171)Additions 43,344 ---------- At 31 December 2007 91,089 ---------- DepreciationAt 1 January 2006 14,385Exchange differences (55)Charge for the year 18,001 ---------- At 31 December 2006 and 1 January 2007 32,331Exchange differences (96)Charge for the year 18,351 ---------- At 31 December 2007 50,586 ---------- Net book value At 31 December 2007 40,503 ========== At 31 December 2006 15,585 ========== 16. INVESTMENTS IN SUBSIDIARIES 2007 2006 US$ US$ Unlisted shares, at cost 901,737 901,737 ========== ========== Particulars of the subsidiaries as at 31 December 2007 are as follows: Percentage of equity Place of attributable incorporation to Name of Company and operation the Company Principal activities----------------- --------------- ------------- ---------------------- NetDimensionsLtd. Hong Kong 100%* Licensing of computer software and provision of related services ND Services,Inc. USA 100%* Licensing of computer software and provision of related services * Shares held directly by the Company. 17. INVENTORIES 2007 2006 US$ US$ Goods for resale 10,584 12,954 ========== ========== Inventory included within cost of sales is as follows: US$ US$ Inventory within cost of sales 68,884 51,529 ========== ========== There are no inventory write downs included within cost of sales (2006: US$nil). 18. TRADE AND OTHER RECEIVABLES Note The Group The Company ------------------------ ------------------------ 2007 2006 2007 2006 US$ US$ US$ US$ Trade 2,135,308 2,180,980 - -receivablesLess: Allowancefor bad anddoubtful charge (b) (16,236) (1,647) - - -------- -------- -------- --------Trade receivables -net 2,119,072 2,179,333 - - -------- -------- -------- -------- Other debtors 171,442 169,360 - 86,454Less: Allowancefor bad anddoubtful charge (b) (50,000) (50,000) - - -------- -------- -------- --------Other debtors - -net 121,442 119,360 86,454 -------- -------- -------- --------Prepayments andaccrued income 497,023 104,793 15,893 -Amounts due from subsidiaries - - 4,072,321 4,173,988 -------- -------- -------- -------- 2,737,537 2,403,486 4,088,214 4,260,442 ======== ======== ======== ======== The Group has a concentration of credit risk, with exposure spread over alimited number of blue chip customers. This provision has been determined byreference to past default experience and knowledge of the individualcircumstances of certain receivables. (a) Ageing analysis Included in trade and other receivables are trade receivables and other debtors(net of allowance for doubtful debts) with the following ageing analysis as ofthe balance sheet date:(i) Trade receivables The Group The Company ---------------- ------------- 2007 2006 2007 2006 US$ US$ US$ US$Current 159,339 459,646 - - Less than 1 month past due 1,536,669 1,323,545 - -1 to 3 months past due 284,646 71,256 - -More than 3 months but less than 12 months past due 138,418 324,886 - - -------- -------- ------- ------- 2,119,072 2,179,333 - - ======== ======== ======= ======= (ii) Other debtors The Group The Company ---------------- ---------------- 2007 2006 2007 2006 US$ US$ US$ US$ Current 61,068 58,986 - - Less than 1 month past due - - - -1 to 3 months past due - - - -More than 3 months past due 60,374 60,374 - - ======== ======== ======== ======== 121,442 119,360 - - ======== ======== ======== ======== Trade receivables and other debtors are due within 30 days from the date ofbilling. Further details on the Group's credit policy are set out in note 4(c). (b) Impairment of trade receivables and other debtors Impairment losses in respect of trade receivables and other debtors are recordedusing an allowance account unless the Group is satisfied that recovery of theamount is remote, in which case the impairment loss is written off against tradedebtors directly (see note 1(m)). The movement in the allowance for doubtful debts during the year, including bothspecific and collective loss components, is as follows: The Group The Company ---------------- ---------------- 2007 2006 2007 2006 US$ US$ US$ US$ At 1 January 51,647 - - -Impairment loss recognised 14,589 51,647 - -More than 3 months but less than 12 months past due - - - - -------- -------- -------- -------- At 31 December 66,236 51,647 - - ======== ======== ======== ======== (b) Impairment of trade receivables and other debtors At 31 December 2007, the Group's and the Company's trade receivables and otherdebtors of US$16,236 (2006: US$1,647) and US$108,773 (2006: US$108,773)respectively were individually determined to be impaired. The individuallyimpaired receivable related to customers that were in financial difficulties andmanagement assessed that only a portion of the receivables is expected to berecovered. Consequently, specific allowances for doubtful debts of US$66,236(2006:US$51,647) were recognised. The Group does not hold any collateral overthese balances. (c) Trade receivables that are not impaired The ageing analysis of trade receivables and other debtors that are neitherindividually nor collectively considered to be impaired are as follows: The Group The Company ---------------- ---------------- 2007 2006 2007 2006 US$ US$ US$ US$(i) Trade receivables Neither past due nor impaired 159,339 459,646 - -Less than 1 month past due 1,536.669 1,323,545 - -1 to 3 months past due 284,646 71,256 - -Over 3 months past due 138,418 324,886 - - -------- -------- -------- -------- 2,119,072 2,179,333 - - ======== ======== ======== ======== The Group The Company ---------------- ---------------- 2007 2006 2007 2006 US$ US$ US$ US$(ii) Other debtorsNeither past due nor impaired 61,068 58,986 - - Less than 1 month past due - - -1 to 3 months past due - - - -Over 3 months past due 60,374 60,374 - - -------- -------- -------- -------- 121,442 119,360 - - ======== ======== ======== ======== Receivables that were neither past due nor impaired relate to a wide range ofcustomers for whom there was no recent history of default. Receivables that were past due but not impaired relate to a number ofindependent customers that have a good track record with the Group. Based onpast experience, management believes that no impairment provision is necessaryin respect of these balances as there has not been a significant change incredit quality and the balances are still considered fully recoverable. TheGroup does not hold any collateral over these balances. 19. CASH AND CASH EQUIVALENTS The Group The Company ---------------- ---------------- 2007 2006 2007 2006 US$ US$ US$ US$Cash at bank and in hand -US dollars 21,042 3,783 285 285Sterling pounds 461 - - -Euro 156 - - -Hong Kong dollars 35,242 25,682 - -Other currencies - 7,838 - -Short term bank deposits -US dollars 422,108 347,899 16,376 15,244Sterling pounds 2,471,592 - 2,249,561 -Euro 2,533,537 - 2,533,511 -Hong Kong dollars 227,039 136,130 96,988 63,621Other currencies 568 - - - -------- -------- -------- -------- 5,711,745 521,332 4,896,721 79,150 ======== ======== ======== ======== Short term deposits are made for varying periods depending on the cashrequirements of the Group, and earn interest at market short-term deposit ratesof between 1% and 5%. 20. SHARE CAPITAL Note 2007 2006 --------------- --------------- No. of No. of shares shares US$ US$Authorised:Ordinary shares atUS$0.001 each 100,000,000 100,000 50,000,000 50,000Preferred shares atUS$0.001 each (a)&(b) - - 50,000,000 50,000 -------- -------- -------- -------- 100,000,000 100,000 100,000,000 100,000 ======== ======== ======== ========Allotted, called upand fully paid:Ordinary shares 24,863,576 24,864 8,788,881 8,789Preferred shares - - 10,917,985 10,918 -------- -------- -------- -------- 24,863,576 24,864 19,706,866 19,707 ======== ======== ======== ========Movements inordinary sharesAt 1 January 8,788,881 8,789 8,681,381 8,681Shares issued undershare option scheme 318,000 318 107,500 108Conversion ofpreferred sharesinto ordinary shares 10,917,985 10,918 - - Shares issued uponAdmission 4,838,710 4,839 - - -------- -------- -------- --------At 31 December 24,863,576 24,864 8,788,881 8,789 ======== ======== ======== ========Movements inpreferred sharesAt 1 January 10,917,985 10,918 8,850,685 8,851Shares issued underwarrant scheme - - 2,067,300 2,067Conversion ofpreferred sharesinto ordinary shares (10,917,985) (10,918) - - -------- -------- -------- --------At 31 December - - 10,917,985 10,918 ======== ======== ======== ======== Note: (a) By a special resolution of the Company passed on 4 April 2007, the issued and unissued preferred shares were automatically converted to ordinary shares at a conversion rate of one to one. (b) By an ordinary resolution of the Company passed on 4 April 2007, all of the authorised but unissued preferred shares of the Company with a nominal or par value of US$0.001 each were re-designated as Ordinary Shares. Share options outstanding during the years ended 31 December 2007 and 31December 2006 are as follows: 2007 2006 Number of Number of Exercise price shares under shares underExercise period lapse per share US$ option option 19.09.2010 0.045 20,000 40,000 27.03.2011 0.100 20,000 40,000 14.09.2011 0.160 7,000 7,000 31.08.2012 0.164 - 33,000 11.05.2013 0.165 152,000 237,000 11.08.2013 0.165 10,000 30,000 19.04.2015 0.165 50,000 50,000 30.12.2015 0.300 100,000 160,000 24.05.2016 0.300 385,000 490,000 11.06.2016 0.300 5,000 5,000 28.12.2016 0.300 511,500 549,500 ---------- ---------- 1,260,500 1,641,500 ========== ========== The Group's primary objectives when managing capital are to safeguard the Group's ability to continue as a going concern, so that it can continue to providereturns for shareholders and benefits for other stakeholders, by pricingproducts and services commensurately with the level of risk and by securingaccess to finance at a reasonable cost. The Group actively and regularly reviews and manages its capital structure tomaintain a balance between the higher shareholder returns that might be possiblewith higher levels of borrowings and the advantages and security afforded by asound capital position, and makes adjustments to the capital structure in lightof changes in economic conditions. The Group monitors its capital structure on the basis of a net debt-to-adjustedcapital ratio. For this purpose the Group defines net debt as total debt (whichincludes trade and other payables and obligations under finance leases less cashand cash equivalents. Adjusted capital comprises all components of equity. The net debt-to-adjusted capital ratio at 31 December 2007 and 2006 was asfollows: Note The Group The Company ---------------- ---------------- 2007 2006 2007 2006 US$ US$ US$ US$Currentliabilities:Trade and otherpayables 24 2,435,558 1,754,188 52,035 54,772Obligationsunder financeleases 23 1,359 1,363 - - -------- -------- -------- -------- 2,436,917 1,755,551 52,035 54,772Non-currentliabilities:Obligationsunder financeleases 29 2,378 3,748 - - -------- -------- -------- -------- Total debt 2,439,295 1,759,299 52,035 54,772Less: Cash andcash equivalents 19 5,711,745 521,332 4,896,721 79,150 -------- -------- -------- -------- Net (cash)/debt (3,272,450) 1,237,967 (4,844,686) (24,378) -------- -------- -------- -------- Total equity 20&21 6,264,054 1,252,675 9,834,637 5,186,557 -------- -------- -------- -------- Adjusted capital 6,264,054 1,252,675 9,834,637 5,186,557 ======== ======== ======== ======== Net debt-to-adjustedcapital ratio N/A 98.8% N/A N/A ======== ======== ======== ======== Neither the Company nor any of its subsidiaries are subject to externallyimposed capital requirements. 21. RESERVES Group Foreign currency Share translation Accumulated premium reserve losses Total US$ US$ US$ US$ At 1 January 2006 5,165,739 977 (4,679,197) 487,519Issue of new shares 125,709 - 125,709Profit for the year - - 567,124 567,124Currency translationdifferences - (2,557) - (2,557)Equity-settled share-basedpayments - - 55,173 55,173 -------- -------- --------- -------- At 31 December 2006 and 5,291,448 (1,580) (4,056,900) 1,232,9681 January 2007Issue of new shares 6,065,538 - - 6,065,538Share issue cost (240,115) - - (240,115)Loss for the year - - (948,664) (948,664)Currency translationdifferences - (3,631) - (3,631)Equity-settled share-basedpayments - - 133,094 133,094 -------- -------- --------- -------- At 31 December 2007 11,116,871 (5,211) (4,872,470) 6,239,190 ======== ======== ========= ======== Company Share Accumulated premium losses Total US$ US$ US$ At 1 January 2006 5,165,739 (90,546) 5,075,193Issue of new shares 125,709 - 125,709Loss for the year - (89,225) (89,225)Equity-settled share-based payments - 55,173 55,173 -------- --------- -------- At 31 December 2006 and 5,291,448 (124,598) 5,166,8501 January 2007Issue of new shares 6,065,538 - 6,065,538Share issue cost (240,115) - (240,115)Loss for the year - (1,302,827) (1,302,827)Currency translation differences - (12,767) (12,767)Equity-settled share-based payments - 133,094 133,094 -------- --------- -------- At 31 December 2007 11,116,871 (1,307,098) 9,809,773 ======== ========= ======== 22. EQUITY-SETTLED SHARE-BASED PAYMENTS The Company has a share option scheme for certain employees and sales agents.Options are exercisable at a price equal to the average market price of theCompany's shares on the date of grant. The vesting period is spread equally overeither a 12 month or 36 month period. If the options remain unexercised after aperiod of 10 years after the date of grant, the options expire. Options areforfeited if the employee or sales agent leaves the Group before the optionsvest. Details of the share options outstanding during the years ended 31 December 2006and 31 December 2007 are as follows: 2007 2006 ---------------- ---------------- Weighted Weighted Number of average Number of average share exercise share exercise options price options price US$ US$ Outstanding at 1 January 1,641,500 0.260 717,000 0.152Granted during the year - - 1,084,500 0.300Forfeited during the year (63,000) 0.300 - -Exercised during the year (318,000) 0.213 (107,500) 0.174Expired during the year - - (52,500) 0.300 -------- -------- Outstanding at 31 December 1,260,500 0.269 1,641,500 0.260 -------- -------- Exercisable at 31 December 892,824 0.259 747,832 0.217 -------- -------- The weighted average market value per share at the date of exercise for shareoptions exercised during the years ended 31 December 2006 and 31 December 2007was US$0.403 and US$0.403 respectively. The options outstanding at 31 December2006 and 31 December 2007 had a weighted average exercise price of US$0.244 andUS$0.249 respectively and a weighted average remaining contractual life of threeyears. For the year ended 31 December 2006, options were granted on 25 May 2006and 29 December 2006. The aggregate of the estimated fair value of the optionsgranted on those dates is US$320,448. There were no options granted for the yearended 31 December 2007. The inputs into the Black-Scholes model are as follows: 2007 2006 Weighted average market value per share (US$) 0.403 0.403Weighted average exercise price (US$) 0.258 0.258Expected volatility 36%-38% 36%-38%Expected life 3 years 3 yearsRisk free rate 4.0%-4.4% 4.0%-4.4%Expected dividend yield 0% 0% ======== ======== Expected volatility of the Group was determined by calculating the averagehistorical volatilities of the share prices of comparable listed companies overthe same period of time. The expected life used in the model has been adjusted,based on management's best estimate, for the effects of non-transferability,exercise restrictions and behavioural considerations. The Group recognised total expenses of US$55,173 and US$133,094 related toequity-settled share-based payment transactions in the years ended 31 December2006 and 31 December 2007 respectively. 23. OBLIGATIONS UNDER FINANCE LEASES Finance lease liabilities - minimum lease payments: 2007 2006 US$ US$ Within one year 1,692 1,697Between two and five years 2,962 4,668 -------- -------- 4,654 6,365Future finance charges (917) (1,254) -------- -------- 3,737 5,111 ======== ======== Finance lease liabilities - present value of minimum lease payments: US$ US$ Within one year 1,359 1,363Between two and five years 2,378 3,748 -------- -------- 3,737 5,111 ======== ======== The weighted average fixed interest rate on the outstanding finance leaseliabilities as at 31 December 2006 was 8.42% and 31 December 2007 was 8.42%. All the lease obligations are denominated in Hong Kong dollars. The fair value of the Group's lease obligations approximates to their carryingvalue. The Group's obligations under finance leases are secured by the lessors' rightsover the leased assets. 24. TRADE AND OTHER PAYABLES The Group The Company ---------------- ---------------- 2007 2006 2007 2006 US$ US$ US$ US$ Trade payables 139,021 71,080 4,999 -Other payables - 4,368 - -Accruals and deferred income 2,296,537 1,678,740 47,036 54,772 -------- -------- -------- -------- 2,435,558 1,754,188 52,035 54,772 ======== ======== ======== ======== 25. CASH FLOWS FROM OPERATING ACTIVITIES 2007 2006 US$ US$ (Loss)/profit before tax (948,664) 567,124Exceptional costs of Placing and Admission to trading onthe AIM Market 1,094,967 -Equity-settled share-based payments 133,094 55,173Depreciation 70,417 23,968Amortisation 18,351 18,001Gain on disposal of property, plant and equipment 1,563 372Finance lease charges 333 334Interest income (156,012) (16,110) -------- -------- Operating cash flow before changes in working capital 214,049 648,118 Increase in inventories 2,370 (833)Increase in receivables (334,051) (478,700)Increase/(decrease) in payables 681,370 (409,713) -------- -------- Cash flows from operating activities 563,738 (241,128) ======== ======== 26. OPERATING LEASE COMMITMENTS At the balance sheet dates, the Group had outstanding commitments for futureminimum lease payments under non-cancellable operating leases, which fall due asfollows: 2007 2006 US$ US$Land and buildings: Within one year 164,906 50,320In the second to fifth year inclusive 68,479 27,460 -------- -------- 233,385 77,780 ======== ======== 27. CAPITAL COMMITMENTS At 31 December 2007, there were no capital commitments that had not beenprovided for (2006: US$nil). 28. CONTINGENT LIABILITIES There were no contingent liabilities at 31 December 2007 (2006: US$nil). 29. RELATED PARTY TRANSACTIONS Key management Compensation paid to key management of the Group is detailed in note 13. There was no option granted or any other benefits awarded to the managementduring the year. 30. ULTIMATE CONTROLLING PARTY The Group has no ultimate controlling party. 31. POST BALANCE SHEET EVENTSThere were no post balance sheet events which will or may have a material effecton the financial statements as presented. This information is provided by RNS The company news service from the London Stock Exchange