Tavistock Regulatory News (TAVI)

Interim Results

SocialGO Plc

 ("SocialGO" or the "Company")

Interim Results for the six months ended 30 June 2012

Overview

The Board of Directors of SocialGO plc ('SocialGO', the 'Company' or the 'Group'), the developer and provider of software and related services that allow customers to build their own customised on-line social website, is pleased to report today the Company's consolidated financial results for the six months ended 30 June 2012.

Highlights:

·; Release of SocialGO™ 2012 in March 2012;

·; Neil Goodall appointed CEO 1 May 2012;

·; Entered into a distribution agreement with Catalis SE in August 2012;

·; Loss before and after tax for the financial period was reduced to £512,000, against a loss of £611,000 for the period ended 30 June 2011.

SocialGO™ 2012, the Company's second generation platform, was successfully launched in March 2012 and saw the Company move its focus from one of development to that of sales and marketing.

Cost control has been a key focus in the first half of the year and the development team has been significantly reduced to reflect the change of emphasis to sales and marketing.

The Company appointed a Head of Marketing in May 2012 and there has been an extensive review of how the Company positions itself in the market. This has resulted in a new marketing strategy that will allow the Company to begin to exploit multiple channels to publicise the product. One such channel for the product is a white labelled solution that we are beginning to market to large telecommunications companies and cable broadcasters in the form of distribution arrangements.

In August 2012, the Company signed a distribution agreement with Catalis SE ('Catalis').

Catalis is a global media company with operations in the UK, Europe and the USA and more importantly has a client base that has most of the world's largest media names within it, many of whom are target clients for SocialGO's product. The Catalis agreement opens up opportunities both to increase sales and to decrease administrative costs. Over the coming months we will be working hard to utilise the opportunities that this agreement brings.

Neil Goodall, CEO

Enquiries

SocialGO Plc: Neil Goodall, +44 (0) 845 299 7289

Deloitte LLP Oliver Rigby/Jon Hinton +44 (0) 20 7936 3000

First Columbus Investments: Kelly Gardiner/Chris Crawford, +44 (0) 20 3002 2070

CEO's statement

Overview

The first half of 2012 has seen the launch of the new SocialGO™ 2012 product at a time when people have become even more discerning about their discretionary spending, owing to the continued difficulties and uncertainty in the global economy. This uncertainty along with even fiercer competition in an already competitive marketplace has resulted in a slower uptake of the new product than was anticipated. Although the interest in the new product has seen large numbers of people sign up for the free 14 day trial, the Company has struggled to convert the expected numbers to full paying customers. The below-target revenues from the 2012 product, along with a decline in the V1 numbers as support for this product is reduced, have meant that revenues have fallen below expectation for the first half of the year. This has created further pressure to reduce costs.

I implemented a cost reduction plan when I became the CEO and I now believe the business has its costs under control, with mechanisms in place to ensure better returns on our future spending.

With the new strategy to focus the company activities on sales and marketing, a new position of Head of Marketing was introduced in May 2012. Since this time there has been a review of the company approach to marketing and of how best to maximise the return on any money invested. There has been a range of activities undertaken; two things of note are improvements to customer communications, including consistency of message to customers and the frequency with which we speak to them and the introduction of a new service offering for the small business community which includes white labelling. This was added to our services in July this year, via its own dedicated website and early feedback has been encouraging, with a number of small businesses who had previously had no web presence signing up for the product.

A detailed marketing plan showing clear activities to be undertaken to grow the take up of the product has been produced but we are having to significantly throttle back on the plan until we see an improvement in our overall revenues.

Development work on the new 2012 product continues, albeit only from a refining perspective as we learn more from customers about what is working for them through daily use. Feedback from early discussions with some large cable companies has shown that there is a requirement for some significant development work around the ability of the product to be accessed via mobile technologies. This is being scheduled into the development plan for late 2012 or early 2013.

With a need to grow customer numbers via new channels, new development needs as a result of some potential large scale distribution deals and a requirement to increase our marketing presence, I was pleased to announce a distribution agreement with Catalis SE in August 2012, full details of which are below. The agreement will give us the ability to deliver this new development and marketing plan, as well as allow us to leverage the reach of Catalis as we look to secure agreements with larger companies in the coming months.

Distribution Agreement with Catalis SE

As announced on 24 August 2012, SocialGO has entered into a distribution agreement with Catalis SE. Catalis is well regarded in the media industry, employing 520 staff, with operations in the UK, Europe and the USA, and working with a prestigious client list, which includes Microsoft, Hewlett Packard, Nokia, Disney, Paramount, Warner Brothers and the BBC. The distribution agreement with Catalis is aligned with the previously disclosed strategy for SocialGO to move from pure product development to focus more on sales and marketing.

The distribution agreement will see Catalis acting as an agent for SocialGO, providing marketing, promotion and sales support, as well as financial and creative services to SocialGO. Catalis has valuable relationships with a range of customers, who may be potential partners for SocialGO. Catalis also has the ability to scale support and creative services rapidly to accommodate any contract wins. The location of Catalis' offices, in both London and Los Angeles, is of particular significance to potential SocialGO partners, as the majority of current users are US-based.

Under the terms of the distribution agreement, Catalis will pay SocialGO a fee ('Fee') of £50,000 per month, which will be sufficient to cover the current cost base of SocialGO. Catalis will receive the first £50,000 of revenue per month from the SocialGO platform, including existing revenues. Once total revenue for SocialGO products exceeds the Fee, additional gross revenues will be split 60:40 in favour of Catalis. The entire agreement can be terminated by either party on four months' notice. Under the terms of the distribution agreement, SocialGO will be able to continue to supply and/or license its products to third parties on a "white label" basis. 

The majority of costs associated with scaling up the business as revenues grow will be met by Catalis, out of its revenue share. The Board of SocialGO therefore believe that SocialGO will benefit from further revenue over and above the Fee with little additional cost to its operations.

The distribution agreement will enable SocialGO to improve its worldwide reach and satisfy potential large partners that it is able to scale and grow to meet any requirement to service significant numbers of social website customers.

Financial Review

The results disclosed in this report are for the six month period to 30 June 2012 and unless otherwise stated, the comparatives are for the six month period to 30 June 2011. 

Revenue for the period was £247,000 (2011 H1: £432,000) and relates entirely to SocialGO™. 

The Group reported a gross profit of £55,000 for the period (2011 H1: £201,000) with a loss from operations of £513,000 (2011 H1 loss: £612,000), with research & development costs at £52,000 (2011 H1: £76,000) this expense being mitigated by the recognition of R&D tax credits totalling £89,000 (2011 H1: Nil) and other administrative expenses at £605,000 (2011 H1: £737,000).

All overhead expenditure continues to be monitored closely in order to ensure that cash resources are effectively and efficiently managed, to maximise the benefit delivered to the business.

The Group had cash deposits of £126,000 (31 December 2011: £347,000) at the Balance Sheet date.

The Directors continually monitor the Group's financial position and have prepared the financial statements on a going concern basis having given consideration to forecast sales and the marketability of SocialGO™ for the foreseeable future, as highlighted in note 1 to the interim financial statements.

Financing

On 27 June 2012 the Group issued 5,833,333 shares to the vendors of Get On With It Limited as part of the acquisition terms. 5,219,298 of these shares went to non-executive directors of SocialGO plc.

SocialGO™

As reported in the Annual Report, the Version 2 platform delivered a big improvement in response times, uptime and scalability. SocialGO launched SocialGO™ 2012 in March 2012. This was a major update to the SocialGO™ Version 2 platform. The update focused the proposition from social website creation towards specifically larger, public groups. The offering gives groups a website and social network and the customer sign-up process aims to make customers more successful with less effort on their part. The Facebook and Twitter integration was reworked to improve functionality for groups, this further aligned the offering with the traffic that SocialGO.com receives.

The Company has also spent a lot of time researching and gathering feedback from the thousands of people who have already used the SocialGO product, or competitor equivalents, and the results showed that there was a need for a much wider choice of pricing plans to reflect the varying needs of customers. In August 2012 SocialGO introduced a new set of price plans that reflected what our customers were telling us and also better positioned our product to appeal to those customers who were asking for more help in setting up their social website/community.

Board Changes

There have been a number of board changes during and after the six months to 30 June 2012. These board changes are in line with the Company's strategy of moving its focus from product development to sales and marketing. 

As announced on 8 February 2012, Lord William Astor joined SocialGO plc as a non-executive director in February 2012. His experience across a number of industries in all aspects of growing a business is already proving beneficial and we welcome him to the team.

The Company also announced on 8 February 2012 that, as a result of his growing commitment to his external interests, Mr. Vikrant Bhargava had resigned from the Board of SocialGO plc. The holdings of Veddis Ventures remain unchanged and Mr. Bhargava will continue to take an interest in the Company.

At the AGM on 24 April 2012, the Board was pleased to announce that Neil Goodall would be appointed as Chief Executive Officer of SocialGO with effect from 1 May 2012. On 3 July 2012, SocialGO announced that Steve Hardman and Alex Halliday had stepped down as Executive Directors of the Company, remaining on the board as Non-Executive Directors.

As part of the Catalis agreement announcement on 24 August 2012, the Company announced that Dominic Wheatley would move from Executive to Non-Executive Chairman of SocialGO plc. This followed his recent appointment as the Chief Executive Officer of Catalis.

Post Balance Sheet Events

On 24 August 2012 the Group announced it had entered into a distribution agreement with Catalis SE. The agreement allows SocialGO to improve its worldwide reach and satisfy potential large partners that it is able to scale and grow to meet any requirement to service significant numbers of social website customers. The post balance sheet board changes are detailed above.

Summary

It has been a period of transition for the team in the first half of the year with the move from development to sales and marketing with the launch of SocialGO™ 2012. The rest of the year will be about exploiting new channels for the product as well as continuing to seek feedback from our customers and refining the product to meet their future needs.

Finally, I would like to thank all employees for their continuing hard work and dedication during the period.

Neil Goodall

CEO

13 September 2012

Operational and financial review

Unaudited interim results for the 6 months ended 30 June 2012 and future product portfolio

SocialGO™ 2012 - The Social Website Creator was released in March 2012.

Strategy for the future

We continue to retain the core management and technical skills in house.

Following the signing of the distribution agreement with Catalis SE, the Company is focusing on expanding the customer base using the new resources available to it with the aim of increasing sales.

Please refer to the CEO's statement for more details.

Revenue, £247,000 (2011 H1: £432,000) and cost of sales, £192,000 (2011 H1: £231,000)

Revenue for the year consists of sales from SocialGO™ and ancillary products, such as widgets and themes. 

Cost of sales includes £84,000 of SocialGO™ server costs (2011 H1: £90,000), £82,000 SocialGO™ sales and support staff (2011 H1: £95,000), £20,000 transaction costs (2011 H1: £30,000) and £6,000 third party and affiliate commission costs (2011 H1: £16,000).

Gross profit, £55,000 (2011 H1: £201,000)

The gross profit for the period relates entirely to SocialGO™.

Results from operations

The Group made loss from operations of £513,000 (2011 H1: loss of £612,000).

Administrative expenses were the main components of the loss on ordinary activities during the six months to 30 June 2012.

Administrative expenses

Administrative expenses for the six months ended 30 June 2012 are the main component of the loss on ordinary activities during the period. Administrative expenses are in line with expectation and are analysed into two categories:

Research & Development, £52,000 expenditure and £89,000 credit (2011 H1: £76,000 expenditure)

The Group received £279,000 R&D credits from HMRC during the period, following the submission of claims for period ended 31 December 2010 and year ended 31 December 2011. To match the receipts with the expense to which they relate £77,000 of these credits have been recognised in the period along with £12,000 relating to amounts received in the year ended 31 December 2011. The total amortised amount on all credits received to date of £160,000 is within the current and non-current liabilities shown on the face of the statement of financial position.

Research and development expenditure, £52,000 (2011 H1: £76,000) has been charged to the statement of comprehensive income. Research and development expenditure is expensed unless the required criteria for capitalisation are met in which case they are included within intangible fixed assets as capitalised development. Capitalised development costs for the six months ended 30 June 2012 total £147,000 (2011 H1: £198,000) and are not included in the above figure.

Group forecasts show how the capitalised development will generate future economic benefit and support this treatment allowing the cost of new development to be amortised over its expected useful life.

Other administrative expenditure, £605,000 (2011 H1: £737,000)

Other administrative expenses comprise all the costs of running the Group's operating and corporate functions. This includes the staff, contractors and agencies together with associated costs employed in sales, marketing, PR, design, project management, production, IT, quality assurance, finance and legal.

The main component of other administrative expenditure relates to human resources, with costs for the period totalling £203,000 (2011 H1: £228,000). This includes a share based payment charge of £32,000 (2011 H1: £80,000). £16,000 (2011 H1: £34,000) of this related to director share options, £6,000 (2011 H1: £25,000) related to employee share options, and £10,000 (2011 H1: £21,000) related to contractor share options.

Finance expenses totalled £46,000 (2011 H1: £78,000). This includes £25,000 for the nominal value of 2,500,000 new Ordinary 1p shares issued by the Group on 27 June 2012 to First Columbus LLP as consideration for brokers' fees.

Marketing costs were £21,000 (2011 H1: £113,000) in the period. These costs primarily relate to PPC spend for SocialGO™ which was significantly reduced in line with the focus on development. External agencies and contractors have been used to assist in marketing and PR roles.

Also included in other administrative expenses is depreciation and amortisation of £204,000 (2011 H1: £132,000), of this £41,000 (2011 H1: £41,000) related to the amortisation of IP and £161,000 (2011 H1: £85,000) related to the amortisation of capitalised development costs.

Taxation

No tax charge arises on the loss for the financial period (2011 H1: Nil). At 30 June 2012 the Group has approximately £15.9 million (31 December 2011: £15.4 million) of losses available to carry forward to set against future taxable profits, subject to agreement with the UK and USA tax authorities.

Loss per share

Basic and diluted loss per share of 0.11p (2011 H1 loss: 0.14p) has decreased due to the reduced loss from operations during the six months to 30 June 2012.

Working Capital

The Group's operational cash position has been reduced by the continued investment in research and development during the period together with operational overheads. At 30 June 2012, the Group had cash of £126,000 (31 December 2011: £347,000). Net assets have decreased from £1,796,000 at 31 December 2011 to £1,341,000 as at 30 June 2012 (2011 H1; £2,300,000).

The board continues to closely monitor the organisation's general overheads making savings and seeking cost efficiencies as appropriate.

Brett Morris

Finance Director

13 September 2012

Consolidated statement of comprehensive income for the six month period ended 30 June 2012

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The notes form part of these financial statements.

The notes form part of these financial statements.

Consolidated statement of financial position as at 30 June 2012

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The interim unaudited balance sheet was approved by the Board and authorised for issue on 13 September 2012.

Brett Morris

Director

The notes form part of these financial statements.

Consolidated statement of cash flows for the six month period ended 30 June 2012

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Notes forming part of the interim financial information for the period ended 30 June 2012

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1 Accounting Policies

The Company is a public company incorporated and domiciled in the United Kingdom. The principal accounting policies applied in the preparation of this interim financial information are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

Basis of preparation

The financial information in these interim results has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively Adopted IFRSs).

The financial information for the six months ended 30 June 2012 and the six months ended 30 June 2011 is unaudited and unreviewed. The comparative financial information for the year ended 31 December 2011 does not constitute the Group's statutory financial statements for that period although it has been derived from the statutory financial statement for the year then ended. A copy of those statutory financial statements has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

The principal accounting policies used in preparing the interim results are those the Group expects to apply in its financial statement for the year ending 31 December 2012 and are unchanged from those disclosed in the Group's Report and Financial Statements for the year ended 31 December 2011. 

Going concern

The Board continually monitors the financial position of the Group, taking into account the latest cash flow forecasts and the ability of the Group to generate cash. Subsequent to the period end, the Group has entered into a distribution agreement with Catalis SE, for further details please refer to the CEO's statement.

The Board has prepared the interim results and financial information on a going concern basis having given consideration to forecast sales and the marketability of SocialGO™ for the foreseeable future.

The Board have considered the various routes to market available, the Catalis monthly fee along with the deals currently in discussion and believe the forecast increase in revenue to be achievable, for further details please refer to the CEO's statement. The Board are confident that any shortfall in forecast growth in revenues, were this to happen, could be sufficiently mitigated by the recent reduction in the Group's cost base, which is now below existing revenue to ensure that the Group will have sufficient working capital to operate as a going concern for the foreseeable future.

The Board therefore believe that it is appropriate to draw up the interim results and financial information on a going concern basis.

2 Segmental information

The Group's operations are structured to focus on the development and sale of SocialGOTM networks. The Group's activities are operated through a common infrastructure and support functions and therefore, in the opinion of the Directors, its activities constitute one operating segment through which it provides services.

The Group operates in four main geographic areas:

Revenue

All the Group's assets are UK based.

3 Loss per share

Loss per share has been calculated using the following:

Loss per ordinary share has been calculated using the weighted average number of shares in issue during the relevant financial periods. The weighted average number of equity shares in issue, is 445,527,890 (2011 H1: 427,964,509) and the earnings, being loss after tax is £512,000 (2011 H1: £611,000 loss). There are no potentially dilutive shares in issue. Share options totalling 59,700,570 (31 December 2011: 60,493,903, 2011 H1: 62,593,835) have not been included in the calculation of diluted loss per share because they are anti-dilutive for the periods presented.

The Company has outstanding issued warrants to subscribe for 4,000,000 1p ordinary shares at 5p per share, 44,515,873 1p ordinary shares at 1.25p per share, 10,000,000 1p ordinary shares at 1.5p per share and 550,000 1p ordinary shares at 2.75p per share (2011 H1: 540,541 10p ordinary shares at £1.50 per share, 250,000 10p ordinary shares at £2.50 per share, 35,380,000 1p ordinary shares at 5p per share, 44,515,873 1p ordinary shares at 1.25p per share , 10,000,000 1p ordinary shares at 1.5p per share and 550,000 1p ordinary shares at 2.75p per share). These outstanding warrants are considered to be anti-dilutive.

4 Intangible assets

Cost

Amortisation and impairment

Net book value

The carrying value of goodwill has been supported by forecasts drawn-up after reviewing the various routes to market available to the Group, the Catalis monthly fee and the deals currently in discussion. The Board consider the forecast increase in revenue to be achievable (as referred to in note 1 to the financial statements), and based on reasonably achievable growth rates, suggest that the carrying value of these assets is not impaired. The group's forecasts are based on revenue growth.

The carrying value of intangible fixed assets is further supported by the total intangible asset carrying value being £1,544,000 with the market capitalisation at 13 September 2012 being £2,495,000.

5 Share capital

On 27 June 2012 the Group issued 5,833,333 shares to the vendors of Get On With It Limited as part of the acquisition terms. 5,219,298 of these shares went to non-executive directors of SocialGO plc.

On 27 June 2012, the Group issued 2,500,000 new Ordinary 1p shares to First Columbus LLP as consideration for brokers' fees.

The movement in share capital was as follows:

Ordinary shares of 1p each

Number £'000

In issue at 30 June 2011 445,195,407 4,452

1p Ordinary Shares issued for 1.25p each - 11 July 2011 149,333 1

__________ __________

In issue at 31 December 2011 445,344,740 4,453

1p Ordinary Shares issued for 1p each - 27 June 2012 5,833,333 58

1p Ordinary Shares issued as consideration - 27 June 2012 2,500,000 25

__________ __________

In issue at 30 June 2012 453,678,073 4,536

__________ __________

At 30 June 2012, options were outstanding over 59,700,570 shares, (31 December 2011: 60,493,903), including options held by directors. The 793,333 option movement is a lapse of employee options.

6 Related party transactions

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are described below.

During the year ended 31 March 2010 the Company entered into a consultancy agreement with Bentworth Holdings Ltd, the consideration for which is 15,000,000 share options, exercisable between 1 and 5 years. The share based payment charge relating to these options in the period to 30 June 2012 was £9,169 (2011 H1: £15,882). In a separate agreement, so long as it holds not less than 4 per cent of the issued share capital of the Company, Bentworth Holdings Ltd is entitled to appoint a non-executive director to the Board of SocialGO™, subject to approval by the Board and the Company's nominated adviser. The non-executive director appointed was Vikrant Bhargava. Vikrant Bhargava is the founder of and holds an indirect beneficial interest in Veddis Ventures, which is the trading name of Bentworth Holdings Ltd. At 30 June 2012 Veddis Ventures held 8,252,873 warrants, 16,400,000 share options and 77,448,000 shares (2011 H1:- 8,252,873 warrants, 16,400,000 share options and 77,448,000 shares). Vikrant Bhargava resigned as a director of SocialGO plc on 8 February 2012.

Warrants, including those that are deferred, held by Directors at 30 June 2012, totalled 38,743,421 (2011 H1: 54,112,368), with Alex Halliday holding 19,817,105 (2011 H1: 22,659,841); Dominic Wheatley 700,000 (2011 H1: 8,700,000); Ian Livingstone 500,000 (2011 H1: 2,500,000); and Steve Hardman 17,726,316 (2011 H1: 20,252,527).

Share Options, held by Directors at 30 June 2012, totalled 27,259,211 (2011 H1: 27,259,211), with Alex Halliday holding 8,546,053 (2011 H1: 8,546,053); Brett Morris 10,000,000 (2011 H1: 10,000,000); Ian Livingstone 950,000 (2011 H1: 950,000); and Steve Hardman 7,763,158 (2011 H1: 7,763,158).

7 Events after the balance sheet date

After the balance sheet date, the Company announced on 24 August that it had entered into a distribution agreement with Catalis SE, please refer to the CEO's statement for further details.