Vela Technologies Regulatory News (VELA)



Asia Digital Holdings Plc

("ADH" or the "Company")

Disposal of DGM India Internet Marketing Limited

The Board of ADH announces that it has today entered into a sale and purchase agreement (the "Agreement") for the disposal of one of its principal trading subsidiaries, DGM India Internet Marketing Limited ("DGM India") to Tyroo Media Private.Limited and to Inflection Digital Holdings Private Limited, (both of which are private companies incorporated and registered in India and together are referred to as the "Purchasers"), for a total consideration of Rupees 33,500,000 (approximately £ 412,760) of which Rupees 23,625,000 (approximately £290,855) will be paid on or before 16 May 2012 or on the tenth day following completion of the conditions precedent to the Agreement, whichever date is earlier (the "Closing Date"). After expenses and withholding tax the net proceeds are expected to be Rupees 28,921,095 (approximately £356,540).

DGM India

DGM India is one of the Company's main operating subsidiaries which deliver leads and sales for advertisers. DGM India's delivery channels include an affiliate network and search engine marketing.

In an affiliate channel participant website, owners are paid on results delivered for advertisers from digital promotion of the advertisers' offering, which typically entails consumers actually buying products and services. Results are tracked by DGM India's technology environment and account management teams that service both advertisers and participating web site owners.

Search engine marketing involves management of an advertiser's purchase of traffic/clicks through sponsored links on major search engines such as Google or Yahoo and/or web site optimisation for better positioning on search engines unpaid or natural listings.

Background to and reasons for the Disposal

Whilst it has continued to manage Group costs due to the ongoing constraints of limited working capital, the Board undertook a strategic review of each of the Company's business units in December 2011 and January this year and at the same time considered alternative financing options for the Group.

ADH's technology environment is being maintained at a fraction of the historic costs and with no investment having been made over the last two years. To compete effectively in a market that increasingly values the ability to track the impact of digital advertising to take the Group's business forward, ADH must invest to maintain a defendable offering.

The overall assessment by the Board was that the Group's trading operations, generally, are materially constrained by an inability to grow the businesses by investing in technology, the operating teams and the marketing of ADH's business offerings. Whilst DGM India has operated effectively in the last year and in recent months, without further investment there is little prospect of material growth and sustainable profitability.

In the absence of the required funding to finance the growth of the Group's operations, the Board has considered the options available and has concluded that the sale of its more established operations in India and Singapore would be in the best interests of shareholders.

The Disposal

Under the Agreement between ADH and the Purchasers, ADH has agreed to sell the issued shares in DGM India held by it to the Purchasers in the proportions and for the considerations set out below.

In addition, ADH has agreed to seek to procure the sale of the remaining 5.44 per cent of the issued shares to the Purchasers.

As a condition precedent to the Agreement, ADH has also entered into an Intellectual property (IP) transfer agreement (the "IP Agreement") with DGM India to transfer all IP rights relating to the DGM business in India to DGM India. ADH will have up to 30 days following the execution of the IP Agreement to satisfy DGM India that all relevant IP, including source codes, servers, databases and documentation, has been transferred. Within 60 days following the execution of the IP Agreement ADH shall confirm to DGM India the successful transfer of the IP, and, within 7 days following receipt of such confirmation, DGM India will pay ADH in cash Rupees 7,875,000 (approximately £ 155,377). Under a related arrangement, DGM India has agreed to pay ADH a fee in cash of Rupees 2.000,000 (approximately £39,460) for the provision of technical support to DGM India for a period of 60 days following the transfer by ADH of the IP to DGM India or 30 June 2012 whichever is the sooner.

Under the Agreement, ADH has given to the Purchasers standard warranties in relation to the DGM India business and certain non-compete and non-solicitation covenants.

During the year to 31 December 2011, DGM India's unaudited results show that the operation generated turnover of £1,977,000, a gross profit of £660,000 and delivered a positive EBITDA of £221,000 (2010: £21,000). As at 31 December 2011, the unaudited results for DGM India show that this operation had a net asset value of £224,000.

The net proceeds of the disposal will make a material improvement to the Company's balance sheet and will be utilised for working capital purposes. Following the disposal, ADH will have net liabilities of £744,000 and cash resources of £ 368,000.

Aside from the disposal of DGM India, ADH is also in discussions at present with a potential purchaser of DGM Singapore. ADH is also engaged in the liquidation of certain non-trading subsidiaries and is considering the possibility of closing ADH's Chinese operation. These actions are expected to further improve the Company's balance sheet.

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