PHRM.L Regulatory News (PHRM)

28 Sep 2007 08:02

Phorm Inc28 September 2007 28 September 2007 Phorm, Inc. ('Phorm' or 'the Company') Interim results for the six month period ended 30 June 2007 Phorm (AIM: PHRM and PHRX), an innovative technology company specialising inbehavioural and contextual online advertising, announces its unaudited interimresults for the six-month period ended 30 June 2007. Executive Chairman's statement I have outlined below our results for the six month period ended 30 June 2007.During this period we have diligently executed our Internet Service Provider(ISP) relationship strategy, underpinned by significant corporate developmentand fund-raising activity to support the development of our business. Results and financials Advertising revenue ceased in the first half of 2007 as the Company committedall of its efforts to implementing its strategy of building relationships withleading ISPs (2006 Revenue: $1.17 million). Operating losses were $16.36 million (2006 loss: $4.68 million), as a result of building our businessinfrastructure and investing in our core technology, people and systems. Theoperating loss includes a noncash share based payment charge of $4.6m, and acharge of $1.86m in respect of UK National Insurance contributions on shareoptions. Losses after taxation were $16.30 million (2006 loss: $4.64 million).Losses per share were $1.43 (2006: $0.49). These are the first results Phorm has reported under International FinancialReporting Standards (IFRS), as is required by the AIM Rules. Previously theGroup reported under UK Generally Accepted Accounting Principles (UK GAAP). TheGroup's date of transition to IFRS is 1 January 2006 which is the beginning ofthe comparative period for the 2006 financial year. Key accounting policychanges and a full set of IFRS accounting policies are documented later in thisreport, together with disclosure of certain restatements relating to the prioryear. Strategy and Business update In June we announced that the Company had entered into Heads of Agreement with anumber of ISPs. These Heads of Agreement, which represent substantialopportunities, set forth the basis under which these ISPs intend to deploy Phorm's technology platform. In anticipation of these deployments, we have beenbringing on board leading participants within the industry, putting into placetechnology and processes which will allow us to scale accordingly and contacting key market participants to secure their support. We believe that thelengthy preparation, which has been ongoing, has positioned us to begin rollingout with one or more of our ISP partners in the near term. We are working diligently to realise this objective. In carrying out this preparation work, we have benefited from considerablesupport from our investors. An investment of $5 million by Morgan StanleyPrincipal Investments in February, and a further institutional share placing inJune, which raised approximately $30 million (before expenses) will facilitatethe Company's continued global development. The first six months of the year have seen significant changes to our corporatestructure as the business has continued to mature. We completed areorganisation of the Company in May and as a result 121Media, Inc. (now knownas Phorm UK, Inc.) became a wholly owned subsidiary of Phorm, Inc., a newlyformed company. We welcomed David Dorman, Christopher Lawrence and VirasbVahidi to the Board. I have assumed the responsibilities of Chairman alongsidethe role of Chief Executive. We are also delighted to announce that we have appointed leading globalprofessional services firm Deloitte & Touche LLP as auditor to Phorm. Deloitte& Touche's international presence and experience of dealing with successful, fast-growth companies will be of great value to Phorm. We thank H.W. Fisher fortheir work in the past. Prospects We have made considerable progress during the period under review and I amgrateful to our Phorm team, investors and advisers for their commitment andcontribution. As a result we are able to look to the future with anticipationand optimism. Kent ErtugrulChairman and Chief Executive 6 months 6 months Year ended ended ended 30 30 31 June June December 2007 2006 2006 $ $ $Continuing operations Revenue - 1,173,803 1,272,254 Cost of sales (108,658) (255,137) (403,306) Gross profit (108,658) 918,666 868,948 Administrativeexpenses (16,254,000) (5,596,168) (12,470,422) Operating loss (16,362,658) (4,677,502) (11,601,474) Investmentrevenues 71,111 44,885 82,312Finance costs (5,289) (9,248) (16,186) Loss beforetaxation (16,296,836) (4,641,865) (11,535,348) Tax on loss - (2,513) (12,705) Loss for theyearattributable toequityshareholders (16,296,836) (4,644,378) (11,548,053) Basic anddiluted loss pershare (1.43) (0.49) (1.13) Six months ended 30 June 2007 (Unaudited) Share Share Translation Retained capital premium Warrants reserve earnings Total $ $ $ $ $ $ 1 January 11,217 18,706,233 300,300 (280,896) (15,512,365) 3,224,4892007 Loss forthe (16,296,836) (16,296,836)period Share-basedpaymentscharge 4,604,307 4,604,307 Issue ofnew 637 34,205,092 34,205,729shares Exchangedifferencesontranslationof (21,871) (21,871)overseasoperations Transfer onexercise ofwarrants 300,300 (300,300) - 30 June 11,854 53,211,625 - (302,767) (27,204,894) 25,715,8182007 Six months ended 30 June 2006 (Unaudited) Share Share Translation Retained capital premium Warrants reserve earnings Total $ $ $ $ $ $ 1 January 8,190 6,734,601 584,572 (174,221) (5,497,445) 1,655,6972006 Loss forthe (4,644,378) (4,644,378)period Share-basedpaymentscharge 537,203 537,203 Issue ofnew 1,688 4,346,419 4,348,107shares Exchangedifferencesontranslationof (20,138) (20,138)overseasoperations Transfer onexercise ofwarrants 83,554 (83,554) - 30 June 9,878 11,164,574 501,018 (194,359) (9,604,620) 1,876,4912006 Year ended 31 December 2006 (Unaudited) Share Share Translation Retained capital premium Warrants reserve earnings Total $ $ $ $ $ $ 1 January 8,190 6,734,601 584,572 (174,221) (5,497,445) 1,655,6972006 Loss forthe (11,548,053) (11,548,053)period Share-basedpaymentscharge 1,533,133 1,533,133 Issue ofnew 3,027 11,687,360 11,690,387shares Exchangedifferencesontranslationof (106,675) (106,675)overseasoperations Transfer onexercise ofwarrants 284,272 (284,272) 31 December2006 11,217 18,706,233 300,300 (280,896) (15,512,365) 3,224,489 30 June 30 June 31 December 2007 2006 2006 $ $ $ Non-current assetsProperty, plant and equipment 184,476 165,246 128,614 Total non-current assets 184,476 165,246 128,614 Current assetsTrade receivables - 236,625 -Other receivables 694,588 365,496 594,063Outstanding proceeds due on issueof shares 24,028,467 - -Cash and cash equivalents 5,143,740 3,011,070 3,804,771 Total current assets 29,866,795 3,613,191 4,398,834 Total assets 30,051,271 3,778,437 4,527,448 Current liabilitiesTrade payables (639,313) (540,752) (156,736)Other payables (3,652,844) (1,291,743) (1,095,843)Obligations under finance leases (31,993) (58,148) (39,077) Total current liabilities (4,324,150) (1,890,643) (1,291,656) Non-current liabilitiesObligations under finance leases (11,303) (11,303) (11,303) Total non-current liabilities (11,303) (11,303) (11,303) Total liabilities (4,335,453) (1,901,946) (1,302,959) Net assets 25,715,818 1,876,491 3,224,489 EquityShare capital 11,854 9,878 11,217Share premium account 53,211,625 11,164,574 18,706,233Other reserves (302,767) 306,659 19,404Retained earnings (27,204,894) (9,604,620) (15,512,365) Equity attributable to equityholders of the parent 25,715,818 1,876,491 3,224,489 Note 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 $ $ $Net cash used in operating activitiesNet cash used inoperations 3 (8,789,871) (1,891,604) (8,290,238)Income tax paid - (2,513) (12,705) Net cash used inoperatingactivities (8,789,871) (1,894,117) (8,302,943) Cash flows used in investing activitiesInterestreceived 71,111 44,885 82,312Purchase ofproperty, plantand equipment (107,160) (23,399) (174,572) Net cash used ininvestingactivities (36,049) 21,486 (92,260) Cash flows from financing activitiesInterest paid (5,289) (9,248) (16,186)Proceeds fromissue of shares,net of expenses 10,177,262 4,348,105 11,690,387Repayment ofobligationsunder financeleases (7,084) (25,689) (44,760) Net cash fromfinancingactivities 10,164,889 4,313,168 11,629,441 Net increase incash and cashequivalents 1,338,969 2,440,537 3,234,238 Cash and cashequivalentsbrought forward 3,804,771 570,533 570,533 Cash and cashequivalentscarried forward 5,143,740 3,011,070 3,804,771 Represented by: Positive cashbalances 5,143,740 3,011,070 3,804,771 1. Basis of preparation The interim financial statements include the results of operations and thefinancial position of the Company and its subsidiaries (together "the Group") asat and for the six months ended 30 June 2007. They have been prepared inaccordance with the disclosure requirements of the Listing Rules using therecognition and measurement criteria of International Financial ReportingStandards ("IFRS"). Phorm Inc's transition date to IFRS was 1 January 2006.Comparative figures for the year ended 31 December 2006 and 30 June 2006, whichwere previously reported in accordance with accounting principles generallyaccepted in the United Kingdom ("UK GAAP"), have been restated to comply withIFRS. Details of this restatement are included in Note 8. The financialinformation has been prepared in accordance with those accounting policiespresented in Note 7.The interim financial statements have not been audited or reviewed.The financial statements have been prepared in US dollars as the majority of theGroup's trade occurs in this currency. 2. Loss per share The calculation of the basic earnings per share and diluted earnings per shareis based on the loss attributable to equity shareholders of $ 16,296,836 (31December 2006: $ 11,548,053; 30 June 2006: $ 4,590,887) divided by the weightedaverage number of shares in issue during the period. The weighted average number of shares used in the calculations are set outbelow: 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 Number of Number of Number of shares shares shares 11,357,452 9,546,380 10,257,408 3. Reconciliation of operating loss to net cash used in operating activities 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 $ $ $ Operating loss (16,362,658) (4,677,502) (11,601,474)Depreciation and amortization 51,298 37,863 225,871Share based payment expense 4,604,307 537,203 1,533,133Movements in working capital 2,917,182 2,210,832 1,552,232 Net cash used inoperating activities (8,789,871) (1,891,604) (8,290,238) 4. Share based payments The Group issues equity-settled share-based payments to certain employees andconsultants. The cost of share-based compensation awards is recognised as an expense.Equity-settled share-based payments are measured at fair value, excluding theimpact of non-market vesting conditions at the date of grant. The fair valuedetermined at the date of grant is expensed on a straight-line basis over thevesting period, based on the Group's estimate of shares that will eventuallyvest and adjusted for the effect of non-market based vesting conditions. For equity-settled share-based payments with market-based vesting conditions,the fair value is determined at the date of grant, having regard to the expectedachievement of such performance conditions. Once determined, the expectedachievement is not adjusted, even where the market-based vesting conditions arenot subsequently met. The charges arising under IFRS 2 included in the income statement are: 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 $ $ $Share-based payment expense (4,604,307) (537,203) (1,533,133) As per the transitional provisions, the Group has applied IFRS 2 only to thoseoptions granted after 7 November 2002 and that had not yet vested at 1 January2006. Employer's taxes on the share options, comprising employers' national insurancecontributions in the UK, are calculated using the market value of the company'sshares at the reporting date, and pro-rated over the vesting period of theoptions. The charges arising in respect to UK Employers National Insurance included inthe income statement are: 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 $ $ $UK Employers National Insurance (1,857,911) (575,089) (497,290) 5. Incorporation of Phorm, Inc Phorm, Inc (the "Company") was incorporated on 18 April 2007 and on 3 May 2007acquired the entire share capital of 121Media, Inc. (now known as Phorm UK,Inc.) Each outstanding share of capital stock of 121Media, Inc. wasautomatically converted into a share of the Company and the common stock of theCompany was admitted to trading on the AIM market of the London Stock Exchangeon 4 May 2007. The reorganisation was accomplished by a merger of a wholly owned subsidiary ofthe Company with and into 121Media, Inc. pursuant to Section 251(g) of theDelaware General Corporation Law. In accordance with IFRS 3 "Business Combinations", the acquisition of 121Media,Inc. by the Company has been accounted for as a reverse acquisition. The keyfeatures of this basis of consolidation are: • The consolidated IFRS financial statements are a continuation of the financial statements of 121Media, Inc. and its subsidiaries and the retained earnings recognised are a continuation of those of 121Media, Inc immediately before the business combination. • The consolidated income statement for the six months ended 30 June 2007 includes the results of 121Media, Inc. for the six months ended 30 June 2007 and of Phorm, Inc from 3 May 2007, the date of the reverse acquisition. • The assets and liabilities of 121Media, Inc. and its subsidiaries are measured based on their pre-combination carrying amounts. • The equity structure appearing in these consolidated financial statements reflects the equity structure of the legal parent, Phorm, Inc. • Phorm, Inc. has been consolidated from the date of the reverse acquisition using the fair value of its assets and liabilities at that date. The cost of the acquisition was £nil and no goodwill arose on the acquisition. At 3 May 2007 prior to the merger, Phorm, Inc. held $0.1 of cash and had issued100 common shares of $0.001 each to 121Media, Inc. No other assets orliabilities existed on acquisition. 6. Dividend The Directors do not propose to pay an interim dividend. 7. IFRS Accounting Policies These interim financial statements have been prepared under IFRS in accordancewith the accounting policies set out below. Use of estimates The preparation of the financial statements in conformity with IFRS requiresmanagement to make estimates and assumptions that affect the reporting amountsof assets and liabilities at the date of the financial statements and thereported amount of revenue and expenses during the reporting period. Theestimates and assumptions are reviewed on an ongoing basis. Revisions toaccounting estimates are recognised in the period in which the estimate isrevised if the revision affects only that period or in the period of therevision and future periods if the revision affects both current and futureperiods. Although these results are based on management's best knowledge of theamounts, events or actions, actual results ultimately may differ from thoseestimates. Basis of consolidation The consolidated financial statements comprise the financial statements of theCompany and its subsidiaries. Subsidiaries are all entities over which theCompany has the power to govern the financial and operating policies, generallyaccompanying a shareholding of more than one half of the voting rights. Theexistence and effect of potential voting rights that are currently exercisableor convertible are considered when assessing whether the Group controls anotherentity. The financial statements of the subsidiaries are prepared for the same reportingperiod as the parent company using consistent accounting policies.In preparing the consolidated financial statements, all inter-company balancesand transactions, income and expenses and profit and losses resulting fromintra-group transactions have been eliminated in full. Subsidiaries are fully consolidated from the date on which control istransferred to the Group and cease to be consolidated from the date on whichcontrol is transferred out of the Group. Foreign currency (i) Functional and presentation currency Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates ("the functional currency"). The consolidated financialstatements are presented in US dollars, which is the Company's functional andpresentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at year-end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement, exceptwhen deferred in equity as qualifying cash flow hedges and qualifying netinvestment hedges. (iii) Group companies On consolidation, the results and financial position of all the group entitiesthat have a functional currency different from the Company are translated intoUS Dollars as follows: • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; • income and expenses for each income statement are translated at average exchange rates because they are considered to be an approximation to translating each transaction at the ruling rate; and • all resulting exchange differences are recognised as a separate component of equity. Such translation differences are recognized as income or as expense in the financial period in which the related operations are disposed of. Intangible assets An intangible asset arising from software development expenditure is recognisedonly when the Group can demonstrate the technical feasibility of completing theintangible asset so that it will be available for sale, its intention tocomplete and its ability to use or sell the asset, how the asset will generatefuture economic benefits, the availability of resources to complete thedevelopment and the ability to measure reliably the expenditure attributable tothe intangible asset during its development. Costs that are directly associated with the development of identifiable andunique software products controlled by the Group, and that will probablygenerate economic benefits exceeding costs beyond one year, are recognised asintangible assets. Costs include the employee costs incurred as a result ofdeveloping software and an appropriate portion of relevant overheads. Expenditure on research activities is recognized as an expense in the period inwhich it is incurred. Impairment The Group assesses at each reporting date whether there is an indication that anasset may be impaired. Assets that are not available for use are not subject toamortisation and are tested annually for impairment. Assets that are subject toamortisation or depreciation are reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by which the asset's carryingamount exceeds its recoverable amount. The recoverable amount is the higher ofan asset's fair value less costs to sell and value in use. In assessing value inuse, the estimated future cash flows are discounted to their present value usinga pre-tax discount rate that reflects current market assessments of the timevalue of money and the risk specific to the asset for which the estimates offuture cash flows have not been adjusted. For the purposes of assessingimpairment, assets are grouped at the lowest levels for which there areseparately identifiable cash flows (cash-generating units). Non-financial assets that suffered impairment are reviewed for possible reversalof the impairment at each reporting date. Property, plant and equipment Items of property, plant and equipment are stated at historical cost lessaccumulated depreciation and impairment losses. Historical cost includesexpenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying amount or recognised as aseparate asset, as appropriate, only when it is probable that future economicbenefits associated with the item will flow to the Group and the cost of theitem can be measured reliably. The carrying amount of the replaced part isderecognised. All other repairs and maintenance are charged to the incomestatement during the financial period in which they are incurred. Property, plant and equipment are depreciated on a straight-line basis over theestimated useful life of the item, as follows: % MethodComputer hardware & machinery 50 Straight lineFurniture & fixtures 33 Straight line Assets held under finance leases are depreciated over their expected usefullives on the same basis as owned assets or, where shorter, the term of therelevant lease. The assets' residual values and useful lives are reviewed, and adjusted ifappropriate, at each balance sheet date. An asset's carrying amount is writtendown immediately to its recoverable amount if the asset's carrying amount isgreater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with thecarrying amount and are recognised within the income statement. Trade and other receivables Trade receivables are recognised initially at transaction value. The directorsconsider that there is no significant difference between the transaction valueand fair value of trade and other receivables. A provision for impairment of trade receivables is established when there isobjective evidence that the Group will not be able to collect all amounts dueaccording to the original terms of the receivables. Bad debts are written offwhen identified. Cash and cash equivalents Cash and cash equivalents include cash at bank and in hand. Trade and other payables Trade payables are recognised initially at transaction value. The directorsconsider that there is no significant difference between the nominal value andfair value of trade and other payables. Leases Leases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and benefits incidental to ownership of the leaseditem to the Group. Assets held under finance leases are recognised as assets of the Group at theirfair value or, if lower, at the present value of the minimum lease payments,each determined at the inception of the lease. The corresponding liability isincluded in the balance sheet as a finance lease obligation. Lease payments areapportioned between the finance charges and reduction of the lease liability soas to achieve a constant rate of interest on the remaining balance of theliability. Finance charges are recognised as an expense in profit or loss. Capitalised leased assets are depreciated over the shorter of the estimateduseful life of the asset and the lease term if there is no reasonable certaintythat the Group will obtain ownership by the end of the lease term. Operating lease payments are recognised as an expense in the income statement ona straight-line basis over the lease term. Benefits received and receivable asan incentive to enter into an operating lease are also spread on a straight linebasis over the lease term. Share based payments The Group has applied the requirements of IFRS 2 Share-based Payment. As per thetransitional provisions, the Group has applied IFRS 2 only to those optionsgranted after 7 November 2002 and that had not yet vested at 1 January 2006. The Group issues equity-settled share-based payments to certain employees andconsultants. The cost of share-based compensation awards is recognised as an expense.Equity-settled share-based payments are measured at fair value, excluding theimpact of non-market vesting conditions at the date of grant. The fair valuedetermined at the date of grant is expensed on a straight-line basis over thevesting period, based on the Group's estimate of shares that will eventuallyvest and adjusted for the effect of non-market based vesting conditions. For equity-settled share-based payments with market-based vesting conditions,the fair value is determined at the date of grant, having regard to the expectedachievement of such performance conditions. Once determined, the expectedachievement is not adjusted, even where the market-based vesting conditions arenot subsequently met. Non-market vesting conditions are included in assumptions about the number ofoptions that are expected to vest. At each balance sheet date, the entity revises its estimates of the number ofoptions that are expected to vest. It recognises the impact of the revision tooriginal estimates, if any, in the income statement, with a correspondingadjustment to equity. The proceeds received net of any directly attributable transaction costs arecredited to share capital (nominal value) and share premium when the options areexercised. Employer's National Insurance on share options Certain share options result in employers' national insurance contributions(NIC) in the UK. Provision for such costs is made on outstanding share optionsthat are expected to be exercised, calculated at the latest enacted NIC rateapplied to the difference between the market value of the underlying shares atthe balance sheet date and the option exercise price. This charge is allocatedover the period from the date of grant to the end of the performance or serviceperiod. From that date to the actual date of exercise, the provision is adjustedby using the current market value of the shares. Where there is no performanceperiod, full provision is made immediately. Equity instruments Equity instruments issued by the Group are recorded at proceeds, net of directissue costs. Post employment benefits The Group operates a defined contribution pension scheme. Contributions payablefor the year are charged to the income statement as they fall due. Revenue recognition Revenue is recognised to the extent that it is probable that the economicbenefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for net of discounts, VAT and othersales-related taxes. Taxation The tax expense represents the sum of the tax currently payable and deferredtax. Current tax, including UK corporation tax and Delaware income tax, is based ontaxable profits for the year. Taxable profits differ from net profits asreported in the income statement because it excludes items of income or expensethat are taxable or deductible in other years and it further excludes items thatare never taxable or deductible. Current tax is provided at amounts expected tobe paid (or recovered) using the tax rates and laws that have been enacted orsubstantially enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from the initial recognition of goodwill or from the initialrecognition (other than in a business combination) of other assets andliabilities in a transaction that affects neither the tax profit nor theaccounting profit. Deferred tax liabilities are offset against deferred tax assets when there is alegally enforceable right to set off current tax assets against current taxliabilities and when they relate to income taxes levied by the same taxationauthority and the Group intends to settle its current tax assets and liabilitieson a net basis. Any remaining deferred tax asset is recognised only when, on thebasis of all available evidence, it can be regarded as probable that there willbe suitable taxable profits, within the same jurisdiction, in the foreseeablefuture against which the deductible temporary difference can be utilised. Deferred tax is determined using tax rates that are expected to apply in theperiods in which the asset is realised or liability settled, based on tax ratesand laws that have been enacted or substantially enacted by the balance sheetdate. Current and deferred tax is recognised in the income statement, except when thetax relates to items charged or credited directly in equity, in which case thetax is also recognised in equity. 8. Transition to IFRS For all periods up to and including the year ended 31 December 2006, the Groupprepared its financial statements in accordance with UK generally acceptedaccounting practice (UK GAAP). The financial statements for the year ending 31December 2007 are the first the Group is required to prepare in accordance withInternational Financial Reporting Standards (IFRS) as adopted by the EuropeanUnion. Accordingly, the Group has prepared financial statements that comply with IFRSapplicable for the period beginning 1 January 2007. In preparing the financialstatements, the Group has applied IFRS from 1 January 2006, the Group's date oftransition to IFRS, and made those changes in accounting policies and otherrestatements required by IFRS 1 "First time adoption of IFRS". This note explains the principal adjustments made by the Group in restating itsUK GAAP balance sheet as at1 January 2006 and its previously published UK GAAP financial statements for thesix months ended 30 June 2006 and year ended 31 December 2006. Transition to IFRS (continued) IFRS 1 "First Time Adoption of International Financial Reporting Standards"IFRS 1 sets out the procedures that the Group must follow when it adopts IFRSfor the first time as the basis for preparing its consolidated financialstatements. The Group is required to establish its accounting policies for theyear ending 31 December 2007 and, in general, apply these retrospectively todetermine the IFRS opening balance sheet at its date of transition, 1 January2006. The standard provides a number of optional exemptions to this general principle.The exemptions adopted by the Group are set out below: Share-based payment In accordance with the transitional provisions of IFRS 2 "Share-based Payment"and as permitted by IFRS 1, the expense recognised in the income statement onlyrelates to grants made during the financial period and grants made after 7November 2002 that had not fully vested at 1 January 2006. Restatement of financial information under IFRS An explanation of how the transition from superseded policies to IFRS hasaffected the Group financial position and financial performance is set out inthe following tables and the notes that accompany the tables. Transition to IFRS (continued) Income Statement 6 months ended 30 June 2006 Year ended 31 December 2006 Adjustment Adjustment due due to error to error Effect of identified identified transition under Effect of under to previous transition previous UK GAAP IFRS GAAP IFRS UK GAAP to IFRS GAAP IFRS $ $ $ $ $ $ $ $ Continuingoperations Revenue 1,173,803 - - 1,173,803 1,272,254 - - 1,272,254Cost of (255,137) - - (255,137) (403,306) - - (403,306)sales Gross profit 918,666 - - 918,666 868,948 - - 868,948 Administrativeexpenses (5,292,409) - (303,759) (5,596,168) (12,405,587) - (64,835) (12,470,422) Operating loss (4,373,743) - (303,759) (4,677,502) (11,536,639) - (64,835) (11,601,474) Investmentrevenue 44,885 - - 44,885 82,312 - - 82,312Finance (9,248) - - (9,248) (16,186) - - (16,186)costs Loss beforetaxation (4,338,106) - (303,759) (4,641,865) (11,470,513) - (64,835) (11,535,348) Taxation onloss onordinaryactivities (2,513) - - (2,513) (12,705) - - (12,705) Loss onordinaryactivitiesafter taxation (4,340,619) - (303,759) (4,644,378) (11,483,218) - (64,835)(11,548,053) Transition to IFRS (continued) Balance Sheet At 30 June 2006 Year ended 31 December 2006 Adjustment Adjustment to error to error Effect of identified identified transition under Effect of under to previous transition previous UK GAAP IFRS GAAP IFRS UK GAAP to IFRS GAAP IFRS $ $ $ $ $ $ $ $ Non-currentassetsProperty,plant andequipment 419,798 - (254,552) 165,246 384,857 - (256,243) 128,614Intangibleassets - - - - 48,827 - (48,827) - Totalnon-currentassets 419,798 - (254,552) 165,246 433,684 - (305,070) 128,614 CurrentassetsTradereceivables 236,625 - - 236,625 - - - -Otherreceivables 365,496 - - 365,496 594,063 - - 594,063Cash and cashequivalents 3,011,070 - - 3,011,070 3,804,771 - - 3,804,771 Total currentassets 3,613,191 - - 3,613,191 4,398,834 - - 4,398,834 Total 4,032,989 - (254,552) 3,778,437 4,832,518 - (305,070) 4,527,448assets CurrentliabilitiesTrade 540,752 - - 540,752 156,736 - - 156,736payablesOther 1,177,467 - 114,276 1,291,743 1,299,607 - (203,764) 1,095,843payablesObligationsunder financeleases 18,426 - 39,722 58,148 39,077 - - 39,077 Total currentliabilities 1,736,645 - 153,998 1,890,643 1,495,420 - (203,764) 1,291,656 Non-currentliabilitiesObligationsunder financeleases 51,025 - (39,722) 11,303 11,303 - - 11,303 Totalnon-currentliabilities 51,025 - (39,722) 11,303 11,303 - - 11,303 Totalliabilities 1,787,670 - 114,276 1,901,946 1,506,723 - (203,764) 1,302,959 Net assets 2,245,319 - (368,828) 1,876,491 3,325,795 - (101,306) 3,224,489 EquityShare 9,878 - - 9,878 11,217 - - 11,217capitalShare premiumaccount 11,164,574 - - 11,164,574 18,706,233 - - 18,706,233Other 306,659 - - 306,659 19,404 - - 19,404reservesRetainedearnings (9,235,792) - (368,828) (9,604,620) (15,411,059) - (101,306) (15,512,365) Equityattributableto equityholders ofthe 2,245,319 - (368,828) 1,876,491 3,325,795 - (101,306) 3,224,489parent Transition to IFRS (continued) Reconciliation of equity At 1 January At 30 June At 31 December 2006 2006 2006 $ $ $ Shareholders' equity underprevious GAAP 1,971,236 2,245,319 3,325,795Adjustments; correction of errorsidentified under previousGAAP:Website development costs (note (i)) - - (48,827)Software development costs (note (ii) (324,889) (254,552) (256,243) Share options NI (note (iii)) 9,350 (114,276) 203,764 Shareholders' equity under IFRS 1,655,697 1,876,491 3,224,489 Notes: Errors identified under previous GAAP In accordance with the requirements of IFRS 1 "First-time adoption of IFRS"paragraph 41, the Company has separately identified in the reconciliations aboveerrors made relating to the application of UK GAAP in previous periods. Furtherinformation is provided below in respect of these items: i) As at 31 December 2006, the Group had recorded an intangible fixedasset for capitalised website costs with a net book value of $48,827 (30 June2006 - $nil; 1 January 2006 - $nil). Such costs are capitalisable under UK GAAPwhere the conditions set out in UITF Abstract 29 "Website Development Costs" aremet. This requires, amongst other conditions, that the website will generatesales or other revenues directly. As the Company's website did not have thecapacity to generate revenue, management has reversed this amount as an errorand expensed the costs in the period in which they arose, being the six monthsended 31 December 2006. ii) As at 31 December 2006, the Group had recorded an intangible fixedasset for capitalised software development costs with a net book value of$256,243 (30 June 2006 - $254,552; 1 January 2006 - $324,889). Such costs werecapitalisable under UK GAAP where the conditions set out in SSAP 13 "Accountingfor Research and Development" are met. This requires, amongst other conditions,that technological feasibility and commercial viability has been established forthe products under development and that recovery of costs is reasonably assured.Management have not been able to satisfy themselves that all of these conditionshad been achieved by the historic reporting dates. Consequently, amountspreviously capitalised have been expensed in the period in which they wereincurred as an error. iii) As required, under UK GAAP, the Company adopted FRS 20 "Share-basedpayment" in the year ended 31 December 2006, resulting in the recognition of thecost of share options at fair value. Management, having taken independent expertadvice, have subsequently determined that the assumptions applied in determiningthe fair value of the options contained errors, relating to the expected lifeassumption, where the contractual term had been applied rather than the expectedoption term, and with respect to the expected volatility. Management haverevised the fair value of options granted, and have adjusted the share optionexpense to reflect these revised fair values. As a consequence the fair valuecharge on options has been understated by $250,470 in the six months ended 30June 2006 and $279,068 in the year ended 31 December 2006 and the accrual foremployers NIC was overstated by $203,764 at 31 December 2006, as a result of theinclusion in error of National Insurance on options held by non UK employees andan under-accrual due to incorrect vesting assumptions (30 June 2006 - $114,276understatement; 1 January 2006 - $9,350 overstatement). Adjustments arising on adoption of IFRS No adjustments affecting the income statement or balance sheet have beenidentified as a result of the adoption of the accounting policies set out innote 7. Cash flow statement Other than reclassification between captions, there are no material differencesbetween the cash flow statement presented under IFRS and the cash flow statementpresented under previous UKGAAP. 9. Copies of this statement will be sent to shareholders and will be availablefrom the Company's UK principal office at Golden Cross House, 8 DuncannonStreet, London WC2N 4JF. This information is provided by RNS The company news service from the London Stock Exchange