EXHIBIT 99.1
Superscape Group plc
Index to Consolidated Financial Statements
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Report of Independent Auditors | | | 1 | |
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Consolidated Income Statement | | | 2 | |
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Consolidated Statement of Recognised Income and Expenditure | | | 2 | |
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Consolidated Balance Sheet | | | 3 | |
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Consolidated Statement of Cash Flows | | | 4 | |
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Notes to Consolidated Financial Statements | | | 5 | |
Report of Independent Auditors
The Board of Directors and Members of Superscape Group plc
We have audited the accompanying consolidated balance sheets of Superscape Group plc as of January 31, 2008 and 2007, and the related consolidated statements of income, statements of recognized income and expenditure, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Superscape Group plc at January 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board and International Financial Reporting Standards as adopted by the European Union.
/s/ Ernst & Young LLP
Southampton, England
May 21, 2008
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Superscape Group plc
CONSOLIDATED INCOME STATEMENT
For the year ended 31 January 2008
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Before | | | | | | | | | | Before | | | | |
| | | | | | exceptional | | Exceptional | | | | | | exceptional | | Exceptional | | |
| | | | | | items | | items | | Total | | items | | items | | Total |
| | | | | | 2008 | | 2008 | | 2008 | | 2007 | | 2007 | | 2007 |
| | Notes | | $000 | | $000 | | $000 | | $000 | | $000 | | $000 |
Revenue | | | 3 | | | | 14,494 | | | | — | | | | 14,494 | | | | 15,451 | | | | — | | | | 15,451 | |
Cost of sales | | | | | | | (2,993 | ) | | | — | | | | (2,993 | ) | | | (4,195 | ) | | | — | | | | (4,195 | ) |
|
Gross profit | | | | | | | 11,501 | | | | — | | | | 11,501 | | | | 11,256 | | | | — | | | | 11,256 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Research and development expenses | | | | | | | (7,907 | ) | | | — | | | | (7,907 | ) | | | (7,889 | ) | | | (717 | ) | | | (8,606 | ) |
Sales and marketing expenses | | | | | | | (2,417 | ) | | | — | | | | (2,417 | ) | | | (3,961 | ) | | | (3,753 | ) | | | (7,714 | ) |
Administrative expenses | | | | | | | (5,993 | ) | | | (678 | ) | | | (6,671 | ) | | | (6,052 | ) | | | (2,693 | ) | | | (8,745 | ) |
|
| | | | | | | (16,317 | ) | | | (678 | ) | | | (16,995 | ) | | | (17,902 | ) | | | (7,163 | ) | | | (25,065 | ) |
|
Operating loss | | | 5 | | | | (4,816 | ) | | | (678 | ) | | | (5,494 | ) | | | (6,647 | ) | | | (7,163 | ) | | | (13,809 | ) |
Finance revenue | | | 5 | | | | 538 | | | | — | | | | 538 | | | | 689 | | | | — | | | | 689 | |
|
Loss before tax | | | | | | | (4,278 | ) | | | (678 | ) | | | (4,956 | ) | | | (5,958 | ) | | | (7,163 | ) | | | (13,120 | ) |
Tax | | | 8 | | | | (197 | ) | | | — | | | | (197 | ) | | | (394 | ) | | | — | | | | (394 | ) |
|
Loss for the year | | | | | | | (4,475 | ) | | | (678 | ) | | | (5,153 | ) | | | (6,351 | ) | | | (7,163 | ) | | | (13,514 | ) |
|
Loss per share | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loss per share — basic | | | 9 | | | | | | | | | | | | (2.8) | ¢ | | | | | | | | | | | (8.1) | ¢ |
|
CONSOLIDATED STATEMENT OF RECOGNISED
INCOME AND EXPENDITURE
For the year ended 31 January 2008
| | | | | | | | |
| | 2008 | | | 2007 | |
|
| | $ | 000 | | | $ | 000 | |
|
Loss for the year | | | (5,153 | ) | | | (13,514 | ) |
Exchange differences on translation of foreign operations | | | 23 | | | | (1,044 | ) |
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Total recognised income and expense for the year | | | (5,130 | ) | | | (14,558 | ) |
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2
Superscape Group plc
CONSOLIDATED BALANCE SHEET
As at 31 January 2008
| | | | | | | | | | | | |
| | Notes | | | 2008 | | | 2007 | |
| | | | | | $ 000 | | | $ 000 | |
Non-current assets | | | | | | | | | | | | |
Property, plant and equipment | | | 10 | | | | 195 | | | | 303 | |
Intangible assets | | | 11 | | | | 4,658 | | | | 5,747 | |
| | | | | | |
| | | | | | | 4,853 | | | | 6,050 | |
| | | | | | |
| | | | | | | | | | | | |
Current assets | | | | | | | | | | | | |
Trade and other receivables | | | 14 | | | | 4,956 | | | | 6,303 | |
Cash and cash equivalents | | | 15 | | | | 10,902 | | | | 13,950 | |
| | | | | | |
| | | | | | | 15,858 | | | | 20,253 | |
| | | | | | |
| | | | | | | | | | | | |
Total assets | | | | | | | 20,711 | | | | 26,304 | |
| | | | | | |
Liabilities | | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | |
Provisions | | | 17 | | | | 498 | | | | 985 | |
| | | | | | |
| | | | | | | 498 | | | | 985 | |
| | | | | | |
| | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | |
Trade and other payables | | | 16 | | | | 3,746 | | | | 4,189 | |
Provisions | | | 17 | | | | 554 | | | | 622 | |
| | | | | | |
| | | | | | | 4,300 | | | | 4,811 | |
| | | | | | |
| | | | | | | | | | | | |
Total liabilities | | | | | | | 4,798 | | | | 5,796 | |
| | | | | | |
Equity | | | | | | | | | | | | |
Called up share capital | | | 20 | | | | 35,840 | | | | 35,820 | |
Share premium account | | | 21 | | | | 131,958 | | | | 131,958 | |
Other reserves | | | 21 | | | | 307 | | | | 307 | |
Translation reserve | | | 21 | | | | (13,727 | ) | | | (13,750 | ) |
Retained losses | | | 21 | | | | (138,465 | ) | | | (133,827 | ) |
| | | | | | |
Total equity shareholders’ funds | | | | | | | 15,913 | | | | 20,508 | |
| | | | | | |
Total equity and liabilities | | | | | | | 20,711 | | | | 26,304 | |
| | | | | | |
| | | | | | | | | | | | |
Approved by the Board of Directors on 24 April 2008, and signed on its behalf. | | | | | | | — | | | | | |
| | | | | | | | | | | | |
Albert Pimentel | | | | | | | | | | | | |
| | | | | | | | | | | | |
Company Secretary | | | | | | | | | | | | |
3
Superscape Group plc
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 January 2008
| | | | | | | | |
| | 2008 | | | 2007 | |
| | $ 000 | | | $ 000 | |
|
Cash flows from operating activities | | | | | | | | |
Loss before tax | | | (4,956 | ) | | | (13,120 | ) |
Adjustments for: | | | | | | | | |
Depreciation of property, plant and equipment | | | 152 | | | | 310 | |
Amortisation and impairment of intangible assets | | | 2,423 | | | | 1,742 | |
(Gain)/loss on disposal of property, plant and equipment | | | (1 | ) | | | 2 | |
Share based remuneration | | | 515 | | | | 401 | |
Finance revenue | | | (538 | ) | | | (689 | ) |
|
| | | | | | | | |
Operating cash flows before movements in working capital | | | (2,405 | ) | | | (11,354 | ) |
Decrease in receivables | | | 1,569 | | | | 1,805 | |
(Decrease)/Increase in payables | | | (1,571 | ) | | | 591 | |
|
| | | | | | | | |
Cash used by operations | | | (2,407 | ) | | | (8,958 | ) |
Income tax paid | | | (254 | ) | | | (364 | ) |
Income tax received | | | 239 | | | | 356 | |
| | | | | | | | |
Net cash used in operating activities | | | (2,422 | ) | | | (8,966 | ) |
|
| | | | | | | | |
Cash flows from investing activities | | | | | | | | |
Interest received | | | 508 | | | | 730 | |
Purchase of intangible assets | | | (1,322 | ) | | | (1,940 | ) |
Adjustment for change in deferred consideration | | | — | | | | 41 | |
Purchase of property, plant and equipment | | | (43 | ) | | | (223 | ) |
|
| | | | | | | | |
Net cash used in investing activities | | | (857 | ) | | | (1,392 | ) |
|
| | | | | | | | |
Cash flows from financing activities | | | | | | | | |
Gross proceeds from issue of share capital | | | 20 | | | | 202 | |
|
| | | | | | | | |
Net cash generated from financing activities | | | 20 | | | | 202 | |
|
| | | | | | | | |
Net decrease in cash and cash equivalents | | | (3,259 | ) | | | (10,156 | ) |
| | | | | | | | |
Effect of exchange rates on cash and cash equivalents | | | 211 | | | | 1,492 | |
| | | | | | | | |
Cash and cash equivalents at beginning of period | | | 13,950 | | | | 22,614 | |
|
| | | | | | | | |
Cash and cash equivalents at end of period | | | 10,902 | | | | 13,950 | |
|
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1. CORPORATE INFORMATION
The consolidated financial statements of Superscape Group PLC (the ‘Group’) for the year ended 31 January 2008 were authorised for issue in accordance with a resolution by the Board of Directors on 24 April 2008 and the balance sheet was signed on the Board’s behalf by A. Pimentel. Superscape Group PLC is a public limited company incorporated and domiciled in England & Wales and its ordinary shares are traded on the London Stock Exchange. Effective 6 April 2008, the Group’s shares were delisted.
The Group’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and IFRS as adopted by the European Union (EU). IFRS as adopted by the EU differs in certain respects from IFRS as issued by the IASB, however, the differences have no impact on the Group’s consolidated financial statements for the years presented. The principle accounting policies adopted by the Group are set out in note 2.
2. ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements are presented in US Dollars and have been prepared on a historical cost basis. The functional currency of the parent company is UK Sterling.
The preparation of financial statements in conformity with Adopted IFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expense. The measurement and impairment assessment of intangible assets and goodwill, the measurement and recoverability assessment of advanced royalties and the estimation of share based payment costs are the key areas that require management to make judgments, estimates and assumptions. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which form the basis for making the judgments about carrying value of assets and liabilities that are not readily apparent from 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 recognized in the period in which the estimate is revised if the revision only affects that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Presentation of financial information
As the Group’s principal assets and operations are based in the US and the majority of its operations are conducted in US Dollars, the Group changed its reporting currency from Pounds Sterling to US Dollars with effect from 1 February 2007. The Group redenominated its share capital into US Dollars on 1 February 2007 and will retain all reserves in US Dollars. Financial information for prior periods has been restated from Pounds Sterling into US Dollars in accordance with IAS 21.
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Changes in accounting policy
The accounting policies adopted are consistent with those of the previous year except as follows:
The Group has adopted the following new and amended IFRS and IFRIC interpretations during the year. Adoption of these revised standards and interpretations did not have any effect on the financial performance or position of the Group in the current or prior periods. In certain cases they did however give rise to additional disclosures. The principal effects of these changes are as follows:
IFRS 7 Financial Instruments: Disclosures
This standard requires disclosures that enable users of the financial statements to evaluate the significance of the Group’s financial instruments and the nature and extent of the risks arising from those financial instruments. The new disclosures are included throughout the financial statements. While there has been no effect on the financial position or results, comparative information has been revised where necessary.
IAS 1 Presentation of Financial Statements
This amendment requires the Group to make new disclosures to enable users of financial statements to evaluate the Group’s objectives, policies and processes for managing capital. These new disclosures are shown within the Directors report.
IFRIC 8 Scope of IFRS 2
This interpretation requires IFRS 2 to be applied to any arrangements in which the entity cannot identify specifically some or all of the goods received, in particular where equity instruments are issued for consideration which appear to be less than fair value. As equity instruments are only issued to employees in accordance with the employee share schemes, this interpretation has no impact on the financial position or performance of the Group.
IFRIC 9 Reassessment of Embedded Derivatives
IFRIC 9 states that the date to assess the existence of an embedded derivative is the date that an entity first becomes a party to a contract, with measurement only if there is a change to the contract that significantly modifies the cash flows. As the Group has no embedded derivatives, this interpretation has no impact on the financial position or performance of the Group.
IFRIC 10 Interim Financial Reporting and Impairment
The Group adopted IFRIC 10 as of 1 February 2007, which requires that an entity must not reverse an impairment loss recognised in a previous interim period in respect to goodwill or an investment in either an equity instrument or a financial asset carried at cost. As the Group had no impairment losses previously reversed, the interpretation had no impact on the financial position or performance of the Group.
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Basis of consolidation
The financial statements consolidate the accounts of Superscape Group plc and all its subsidiaries for the year ended 31 January 2008. Intra-group transactions and profits are eliminated fully on consolidation.
The consolidated financial statements include the results of the Company and all its subsidiaries for the full year or from the date of acquisition if later. Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Deferred consideration payable in shares is initially recorded at fair value. Upon subsequent issuance of the shares, the nominal value is recorded in share capital with the excess recorded in share premium. Identifiable assets and liabilities acquired and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.
Foreign currency translation
Transactions in foreign currencies are recorded at the rate of exchange prevailing on the date of the transaction. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rate prevailing on the balance sheet date.
Assets and liabilities of foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense of foreign operations are translated at the average rate of exchange for the period. Exchange differences arising are transferred to translation reserve. Cumulative translation differences are recognised within the income statement in the period in which operations are disposed of.
Revenue
Revenues are derived primarily by licensing software products in the form of mobile games. License arrangements with the end user can be on an outright purchase or subscription basis. An outright purchase gives an end user the right to use the licensed game on the registered handset for as long as they own the handset. A subscription license gives an end user the right to use the licensed game for a limited period of time, usually one month. The Group distributes its products through mobile telecommunications service providers (“carriers"), which then market the games to end users. License fees for outright purchase and subscription licenses are usually billed by the carrier upon download of the game by the end user. Subsequent billings for subscription licenses are generally billed monthly. Revenues are recognized when persuasive evidence of an arrangement exists, the game has been delivered, the fee is fixed or determinable, and the collection of the resulting receivable is probable.
The Group derives limited revenue under third party software development contracts. Revenue and associated costs under these arrangements are recognized as follows:
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• On long-term contracts, those with a duration of more than 12 months or those contracts that span more than one accounting period, using a percentage basis as the work is completed and any relevant milestones are met, using latest estimates to determine the expected duration and cost of the project
• On short-term contracts, when the completed project has been delivered to and accepted by, the customer.
Interest income is recognized as the interest accrues to the net carrying amount of the financial asset.
Rental income arising from the sublease of property accounted for as an operating lease is recognized on a straight line basis over the term of the lease and is offset against the rental cost of such property.
Advanced royalties
Royalty advances paid to Intellectual Property owners are deferred as a prepayment in order to be matched with the revenue generated following the release of the game. The royalties are charged to the income statement when the actual liability arises, which is when the sales are generated after the release of the game.
Management assesses the carrying value of the prepaid advance royalties on a semi annual basis. The assessment is based on the likely recoverability of the advance on a title by title basis in the context of up to date revenue projections for each title. Advances paid on games that are subsequently aborted are written off to sales and marketing expense on the date that the game is aborted. Reserves are provided and charged to sales and marketing expense where the projected revenues are not considered sufficient to cover the advances.
Research and development
Expenditure on research is written off in the period in which it is incurred.
Development expenditure is capitalised where it relates to a specific project where technical feasibility has been established, adequate technical, financial and other resources exist to complete the project, the expenditure attributable to the project can be measured reliably and overall project profitability is reasonably certain. In this case, it is recognised as an intangible asset and amortised over its useful economic life, typically being a maximum period of eighteen months from the date the product is first sold or licenced. All other development expenditure is recognised as an expense in the period in which it is incurred.
Property, plant and equipment
Property, plant and equipment is stated in the balance sheet at cost less accumulated depreciation. Depreciation is provided on assets at rates calculated to write-off the cost less residual values, estimated at each balance sheet date, of each asset over its expected useful life as follows:
| | |
Fixtures and fittings | | 10% — 20% straight line |
Computer equipment | | 33% — 50% straight line |
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.
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Goodwill
On the acquisition of a subsidiary or business, the purchase consideration is allocated between the identifiable assets and liabilities on a fair value basis, with any excess purchase consideration representing goodwill, which is not amortised.
Goodwill is recognised as an intangible asset and reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Any impairment is recognised immediately in the income statement and may not be subsequently reversed.
Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. As at the acquisition date, any goodwill acquired is allocated to each of the cash generating units expected to benefit from the combination’s synergies. A cash-generating unit is the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other assets. This is usually at business segment level or statutory company level as the case may be. Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount an impairment loss is recognised. On disposal of a subsidiary or business, the attributable goodwill is included in the determination of the profit or loss on disposal.
Intangible assets
Intangible assets acquired separately from a business are carried initially at cost. An intangible asset acquired as part of a business combination is recognised outside goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably. Intangible assets acquired as part of business combinations comprise: customer based assets (e.g. network operator lists, network operator relationships); software and systems (e.g. developed software games, application infrastructure, product delivery platforms, in-process research and development); contract-based assets (e.g publishing rights); and other intangible assets. Purchased intangible assets comprise patents.
Following initial recognition, the historic cost model is applied, with intangible assets being carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets with a finite life have no residual value and are amortised on a straight line basis over their expected useful lives with charges included in administrative expenses, as follows:
• | | purchased intangibles (e,g, patents and trademarks) — 5 years |
|
• | | acquired through business combinations — 4-5 years; |
The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. In addition, the carrying value of capitalised development expenditure is reviewed for impairment annually before being brought into use.
Research and development tax credits
Research and development tax credits are recognised in full in the income statement of the year in which the expense is incurred.
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Impairment
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses on continuing operations are recognised in the income statement in those expense categories consistent with the function of the impaired asset.
An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in income statement unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
Provisions
A provision is recognised when the Group has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, expected future cash flows are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability.
Where the Group expects some or all of a provision to be reimbursed, for example under an insurance policy, the reimbursement is recognised as a separate asset but only when recovery is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. Where discounting is used, the increase in the provision due to unwinding the discount is recognised as a finance cost.
Employee benefits
The Group contributes to defined contribution schemes for the benefit of its directors and employees. Contributions to these schemes are charged in the period in which they become payable.
Share-based payments
The fair value of share-based remuneration is determined at date of grant and recognised as an expense in the income statement on a straight-line basis over the vesting period, taking account of the estimated number of shares that will vest. The fair value is determined by use of a Black-Scholes pricing model. 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. All share-based remuneration is equity-settled.
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Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised over the remainder of the vesting period for any increase in the value of the transaction as a result of the modification, as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.
Deferred taxation
Deferred tax is the tax arising on differences between the carrying amounts of assets and liabilities in the financial statements and their corresponding tax bases used in the computation of taxable loss, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is not recognised on temporary differences arising in respect of goodwill that is not deductible for tax purposes.
No provision is made for deferred tax which would become payable on the distribution of retained profits by foreign subsidiaries, unless there is an intention to distribute such retained profits.
Deferred tax is calculated using tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Movements in deferred tax are charged or credited in the income statement, except when they relate to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Leases
Rentals payable under operating leases are charged to income on a straight line basis. The aggregate benefit of incentives are recognised as a reduction of rental expense over the lease term, on a straight-line basis unless another systematic basis is representative of the time pattern of the Group’s benefit from the use of the leased asset.
Trade and other receivables
Trade receivables are recognised at the lower of their original value and recoverable amount. Provision is made where there is objective evidence that the Group will not be able to recover balances in full. Where the probability of recovery is remote balances are written off.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and short term deposits with an original maturity of up to 3 months.
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New standards and interpretations not applied
During the year, the IASB and the IFRIC have issued the following standards and interpretations with an effective date after these financial statements:
The directors do not anticipate that the adoption of these standards will have a material impact on the Group’s financial statements in the period of initial application.
IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements:
| | | | |
International Accounting Standards (IAS / IFRSs) | | Effective Date |
IFRS 2 | | Amendment to IFRS 2 — Vesting Conditions and Cancellations | | 1 January 2009 |
IFRS 3 | | Business Combinations (revised January 2008) | | 1 July 2009 |
IFRS 8 | | Operating Segments | | 1 January 2009 |
IAS 1 | | Presentation of Financial Statements (revised September 2007) | | 1 January 2009 |
IAS 23 | | Borrowing Costs (revised March 2007) | | 1 January 2009 |
IAS 27 | | Consolidated and Separate Financial Statements (revised January 2008) | | 1 July 2009 |
| | | | |
International Financial Reporting Interpretations Committee (IFRIC) | | |
IFRIC 12 | | Service Concession Arrangements | | 1 January 2008 |
IFRIC 13 | | Customer Loyalty Programmes | | 1 July 2008 |
| | IAS 19 — The limit on a Defined Benefit Asset, | | |
IFRIC 14 | | Minimum Funding Requirements and their Interaction | | 1 January 2008 |
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3. REVENUE
Revenue disclosed in the income statement is analysed as follows.
| | | | | | | | |
| | 2008 | | | 2007 | |
| | $ 000 | | | $ 000 | |
|
Publishing royalties | | | 14,457 | | | | 13,113 | |
Development services | | | 3 | | | | 659 | |
Swerve technology and other licences | | | 34 | | | | 1,679 | |
|
Total Revenue | | | 14,494 | | | | 15,451 | |
|
No revenue was derived from exchanges of goods or services (2007: $nil)
4. SEGMENTAL REPORTING
The directors consider that the Group operates in only one business segment, being the provision of software and associated services. The operations are monitored by the three geographic regions of Europe, Americas and Asia. The segment information in respect of the regions is presented below.
For the year ending 31 January 2008
| | | | | | | | | | | | | | | | | | | | |
| | Europe | | | Americas | | | Asia | | | Elimination | | | Total | |
| | $000 | | | $000 | | | $000 | | | $000 | | | $000 | |
|
External revenue | | | 37 | | | | 14,403 | | | | 54 | | | | | | | | 14,494 | |
Intersegment revenue | | | 6,664 | | | | | | | | | | | | (6,664 | ) | | | — | |
Segment result | | | 2,475 | | | | 1,331 | | | | 43 | | | | | | | | 3,849 | |
Group research & development costs | | | | | | | | | | | | | | | | | | | (7,907 | ) |
Exceptional items | | | | | | | | | | | | | | | | | | | (678 | ) |
Central costs | | | | | | | | | | | | | | | | | | | (758 | ) |
|
Operating result | | | | | | | | | | | | | | | | | | | (5,494 | ) |
|
Assets and liabilities | | | | | | | | | | | | | | | | | | | | |
Segment assets | | | 1,271 | | | | 8,468 | | | | | | | | | | | | 9,739 | |
Unallocated assets | | | | | | | | | | | | | | | | | | | 10,972 | |
|
Total assets | | | | | | | | | | | | | | | | | | | 20,711 | |
|
Segment liabilities | | | (1,543 | ) | | | (2,555 | ) | | | | | | | | | | | (4,098 | ) |
Unallocated liabilities | | | | | | | | | | | | | | | | | | | (700 | ) |
|
Total liabilities | | | | | | | | | | | | | | | | | | | (4,798 | ) |
|
Other segment information | | | | | | | | | | | | | | | | | | | | |
Capital expenditure | | | 164 | | | | 1,201 | | | | | | | | | | | | 1,365 | |
Depreciation and amortisation | | | 390 | | | | 2,185 | | | | | | | | | | | | 2,575 | |
13
For the year ending 31 January 2007
| | | | | | | | | | | | | | | | | | | | |
| | Europe | | | Americas | | | Asia | | | Elimination | | | Total | |
| | $000 | | | $000 | | | $000 | | | $000 | | | $000 | |
|
External revenue | | | 1,640 | | | | 13,564 | | | | 247 | | | | | | | | 15,451 | |
Intersegment revenue | | | 4,996 | | | | | | | | | | | | (4,996 | ) | | | — | |
Segment result | | | 1,612 | | | | 983 | | | | 165 | | | | | | | | 2,760 | |
Group research & development costs | | | | | | | | | | | | | | | | | | | (7,889 | ) |
Exceptional items | | | | | | | | | | | | | | | | | | | (7,163 | ) |
Central costs | | | | | | | | | | | | | | | | | | | (1,517 | ) |
|
Operating result | | | | | | | | | | | | | | | | | | | (13,809 | ) |
|
Assets and liabilities | | | | | | | | | | | | | | | | | | | | |
Segment assets | | | 2,145 | | | | 10,096 | | | | 82 | | | | | | | | 12,323 | |
Unallocated assets | | | | | | | | | | | | | | | | | | | 13,981 | |
|
Total assets | | | | | | | | | | | | | | | | | | | 26,304 | |
|
Segment liabilities | | | (3,048 | ) | | | (2,601 | ) | | | (29 | ) | | | | | | | (5,678 | ) |
Unallocated liabilities | | | | | | | | | | | | | | | | | | | (118 | ) |
|
Total liabilities | | | | | | | | | | | | | | | | | | | (5,796 | ) |
|
Other segment information | | | | | | | | | | | | | | | | | | | | |
Capital expenditure | | | 251 | | | | 1,912 | | | | — | | | | | | | | 2,163 | |
Depreciation and amortisation | | | 592 | | | | 1,460 | | | | — | | | | | | | | 2,052 | |
Provisions — non cash | | | 1,607 | | | | — | | | | — | | | | | | | | 1,607 | |
5. OTHER REVENUE AND EXPENSES
Operating loss is stated after charging:
| | | | | | | | |
| | 2008 | | | 2007 | |
| | $000 | | | $000 | |
|
Research and development (2007: includes exceptional costs of $717,000) | | | 7,907 | | | | 8,606 | |
Amortisation and impairment of goodwill, patents and other intangibles | | | 2,423 | | | | 1,268 | |
Depreciation of tangible fixed assets | | | 152 | | | | 310 | |
Auditors’ remuneration — audit fees | | | 118 | | | | 134 | |
Operating lease rentals | | | | | | | | |
- plant and machinery | | | 12 | | | | 35 | |
- property (2007 includes exceptional costs of $1,374,300 related to onerous lease.) | | | 848 | | | | 2,177 | |
Loss/(gain) on movements in foreign exchange | | | (44 | ) | | | 56 | |
|
In 2008, Ernst & Young also earned non-audit fees of $10,000 in connection with the preparation of the offer document for the Company’s shares by Glu Mobile Inc.
Other revenue
| | | | | | | | |
| | 2008 | | | 2007 | |
| | $ 000 | | | $ 000 | |
|
Rental Income | | | | | | | | |
| | | | | | | | |
Rental Income | | | 616 | | | | 468 | |
|
Rental income arises from the sublease of property vacated by the Group. Rental expense, which is included in the Group’s administrative expenses, is presented net of this sublease income
| | | | | | | | |
| | 2008 | | | 2007 | |
| | $ 000 | | | $ 000 | |
|
Finance revenue | | | | | | | | |
| | | | | | | | |
Bank interest receivable | | | 538 | | | | 689 | |
|
14
6. EXCEPTIONAL ITEMS
| | | | | | | | |
| | 2008 | | | 2007 | |
| | $000 | | | $000 | |
|
Tender offer expenses | | | 678 | | | | | |
Restructuring and reorganisation costs: | | | | | | | | |
Vacant property costs | | | | | | | 1,423 | |
Redundancy costs | | | | | | | 2,366 | |
Restructuring and business reorganisation costs | | | | | | | 3,374 | |
|
| | | | | | | | |
Total exceptional items | | | 678 | | | | 7,163 | |
|
In the year ended 31 January 2008, exceptional costs associated with the tender offer for the Company’s shares were included in the operating expenses line of the income statement.
In the year ended 31 January 2007 the restructuring and reorganisation costs arose as a result of further restructuring and downsizing of the UK operations. These items have been included in the operating expenses line of the income statement.
7 .STAFF COSTS AND DIRECTORS’ EMOLUMENTS
Staff Costs (including directors):
Employee costs (including directors) during the period amounted to:
| | | | | | | | |
| | 2008 | | | 2007 | |
| | $000 | | | $000 | |
|
Wages and salaries | | | 7,759 | | | | 7,187 | |
| | | | | | | | |
Employee termination benefits | | | — | | | | 2,366 | |
Share based payments | | | 515 | | | | 401 | |
Social security | | | 552 | | | | 537 | |
Pension contributions | | | 323 | | | | 318 | |
|
| | | 9,149 | | | | 10,809 | |
|
The average monthly number of persons employed by the Group during the period by function was as follows:
| | | | | | | | |
Operations and development | | | 113 | | | | 106 | |
Sales and marketing | | | 10 | | | | 10 | |
Management and administration | | | 10 | | | | 10 | |
|
| | | 133 | | | | 126 | |
|
The number of persons employed by the Group at the period end by function were as follows:
| | | | | | | | |
Operations and development | | | 111 | | | | 108 | |
Sales and marketing | | | 10 | | | | 9 | |
Management and administration | | | 11 | | | | 10 | |
|
| | | 132 | | | | 127 | |
|
| | | | | | | | |
| | 2008 | | | 2007 | |
| | $ 000 | | | $ 000 | |
|
Directors’ emoluments | | | | | | | | |
Directors’ emoluments | | | 1,137 | | | | 1,124 | |
|
Directors’ pension contributions | | | 18 | | | | 21 | |
|
Number of directors accruing benefits under: | | | | | | | | |
Defined contribution schemes | | | 2 | | | | 3 | |
|
15
8. TAXATION
| | | | | | | | |
| | 2008 | | | 2007 | |
| | $000 | | | $000 | |
|
a) Tax charged in the income statement | | | | | | | | |
| | | | | | | | |
Tax on profit on ordinary activities | | | | | | | | |
Current tax | | | | | | | | |
Overseas corporation tax | | | 250 | | | | 346 | |
R&D tax credits in respect of current year | | | | | | | | |
|
R&D tax credits in respect of prior years | | | (53 | ) | | | 48 | |
|
| | | 197 | | | | 394 | |
|
b) Reconciliation of the total tax charge
The tax for the period is lower (2007: lower) than the standard rate of corporation tax in the UK (30%).
The differences are explained below:
| | | | | | | | |
Loss on ordinary activities before tax | | | (4,956 | ) | | | (13,120 | ) |
|
| | | | | | | | |
Tax on ordinary activities at 30% | | | (1,487 | ) | | | (3,936 | ) |
| | | | | | | | |
Effects of: | | | — | | | | — | |
Adjustments in respect of foreign tax rates | | | (118 | ) | | | (468 | ) |
Expenses not deductible for tax purposes | | | 314 | | | | 364 | |
Overseas tax | | | 250 | | | | 345 | |
Capital allowances and other temporary differences (no deferred tax provided) | | | 378 | | | | 98 | |
R&D tax credits in respect of prior years | | | (53 | ) | | | 48 | |
Losses arising in the current year | | | 920 | | | | 3,930 | |
Temporary differences in relation to share options (no deferred tax provided) | | | (7 | ) | | | 13 | |
|
| | | | | | | | |
Total taxation | | | 197 | | | | 394 | |
|
c) Deferred tax
| | | | | | | | | | | | | | | | |
| | Provided | | | Unprovided | | | Provided | | | Unprovided | |
| | 2008 | | | 2008 | | | 2007 | | | 2007 | |
| | $000 | | | $000 | | | $000 | | | $000 | |
| | |
Depreciation in excess of capital allowances | | | — | | | | 928 | | | | — | | | | 883 | |
Rolled over capital gain | | | (13 | ) | | | — | | | | (13 | ) | | | — | |
Tax losses carried forward | | | — | | | | 35,895 | | | | — | | | | 37,234 | |
Short term temporary differences in relation to share options | | | — | | | | 14 | | | | — | | | | 22 | |
Foreign tax credits | | | — | | | | 524 | | | | — | | | | — | |
|
| | | | | | | | | | | | | | | | |
| | | (13 | ) | | | 37,361 | | | | (13 | ) | | | 38,139 | |
|
Deferred tax liabilities have been recognised in respect of rolled over gains. Deferred tax assets of $12.126m (2007: $12.909m) in respect of trading losses in the US and deferred tax assets of $23.768m (2007: $24.325m) in respect of trading losses in the UK have not been recognised due to the uncertainty of the availability of future profits against which to utilise them. Net operating losses for US tax purposes expire over periods through 2028. UK net operating losses carry forward without limit of time. There is no potential deferred tax asset on the unremitted earnings of overseas subsidiaries.
From 1 April 2008, the UK corporation tax rate will reduce from 30% to 28%. This rate change will affect both the rate of future cash tax payments to be made by the group and also reduces the size of the deferred tax asset. Changes to the UK capital allowance regime have also been announced. The most significant of these changes for the group is the reduction in the rate of capital allowances for plant and machinery expenditure from 25% to 20% per annum on a reducing balance basis from 1 April 2008. The effects of all these changes will be fully reflected in the financial statements for the year ended 31 January 2009. However the effect of the tax rate change has already been reflected in these accounts in so far as it affects the calculation of the unrecognised deferred tax asset carried forward at 31 January 2008 as this would be the rate expected to apply when the assets are utilised.
16
9. LOSS PER SHARE
| | | | | | | | |
From continuing operations | | 2008 | | | 2007 | |
The calculation of the basic and diluted loss per share is based on the following data: | | $ | 000 | | | $ | 000 | |
|
| | | | | | | | |
Earnings for the purposes of basic loss per share being net loss attributable to equity holders of the parent | | | (5,153 | ) | | | (13,514 | ) |
|
| | | | | | | | |
| | 2008 | | | 2007 | |
|
Number of Shares | | | (000’s | ) | | | (000’s | ) |
Weighted average number of ordinary shares for the purposes of basic and diluted loss per share | | | 183,093 | | | | 166,433 | |
|
| | | | | | | | |
| | 2008 | | | 2007 | |
|
Per share amount | | | (2.8 | )¢ | | | (8.1 | )¢ |
|
Due to losses incurred from the operations, options outstanding throughout the year did not have any dilutive impact on the earnings per share calculation.
10. PROPERTY, PLANT AND EQUIPMENT
| | | | | | | | | | | | |
| | Fixtures | | | Computer | | | | |
| | and fittings | | | equipment | | | Total | |
| | $000 | | | $000 | | | $000 | |
|
Cost: | | | | | | | | | | | | |
At 31 January 2006 | | | 2,184 | | | | 1,331 | | | | 3,515 | |
Additions | | | 88 | | | | 133 | | | | 221 | |
Disposals | | | (2 | ) | | | (12 | ) | | | (14 | ) |
Foreign exchange movement | | | (73 | ) | | | (90 | ) | | | (163 | ) |
|
| | | | | | | | | | | | |
At 31 January 2007 | | | 2,197 | | | | 1,362 | | | | 3,559 | |
|
Additions | | | 9 | | | | 35 | | | | 44 | |
Disposals | | | (16 | ) | | | — | | | | (16 | ) |
Foreign exchange movement | | | 28 | | | | 14 | | | | 42 | |
|
| | | | | | | | | | | | |
At 31 January 2008 | | | 2,218 | | | | 1,411 | | | | 3,629 | |
|
| | | | | | | | | | | | |
Depreciation: | | | | | | | | | | | | |
At 31 January 2006 | | | 1,926 | | | | 1,151 | | | | 3,077 | |
Provided during the period | | | 169 | | | | 141 | | | | 310 | |
Disposals | | | (2 | ) | | | (11 | ) | | | (13 | ) |
Foreign exchange movement | | | (48 | ) | | | (70 | ) | | | (118 | ) |
|
| | | | | | | | | | | | |
At 31 January 2007 | | | 2,045 | | | | 1,211 | | | | 3,256 | |
|
Provided during the period | | | 56 | | | | 96 | | | | 152 | |
Disposals | | | (15 | ) | | | — | | | | (15 | ) |
Foreign exchange movement | | | 28 | | | | 13 | | | | 41 | |
|
| | | | | | | | | | | | |
At 31 January 2008 | | | 2,114 | | | | 1,320 | | | | 3,434 | |
|
| | | | | | | | | | | | |
Net Book Value at 31 January 2008 | | | 104 | | | | 91 | | | | 195 | |
|
| | | | | | | | | | | | |
Net Book Value at 31 January 2007 | | | 152 | | | | 151 | | | | 303 | |
|
| | | | | | | | | | | | |
Net Book Value at 31 January 2006 | | | 258 | | | | 180 | | | | 438 | |
|
17
11. INTANGIBLE FIXED ASSETS
| | | | | | | | | | | | | | | | |
| | | | | | Other | | | | | | | |
| | Goodwill | | | Intangibles | | | Patents | | | Total | |
| | $000 | | | $000 | | | $000 | | | $000 | |
|
Cost: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
At 31 January 2006 | | | 2,672 | | | | 3,220 | | | | 1,317 | | | | 7,209 | |
|
Additions — purchased | | | — | | | | 1,717 | | | | 223 | | | | 1,940 | |
Adjustment for change in deferred consideration | | | (42 | ) | | | — | | | | — | | | | (42 | ) |
Foreign exchange movement | | | (241 | ) | | | (384 | ) | | | — | | | | (625 | ) |
|
| | | | | | | | | | | | | | | | |
At 31 January 2007 | | | 2,389 | | | | 4,553 | | | | 1,540 | | | | 8,482 | |
|
Additions — purchased | | | — | | | | 1,177 | | | | 145 | | | | 1,322 | |
Foreign exchange movement | | | — | | | | — | | | | 25 | | | | 25 | |
|
| | | | | | | | | | | | | | | | |
At 31 January 2008 | | | 2,389 | | | | 5,730 | | | | 1,710 | | | | 9,829 | |
|
| | | | | | | | | | | | | | | | |
Amortisation: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
At 31 January 2006 | | | — | | | | 536 | | | | 485 | | | | 1,021 | |
Provided during the year | | | — | | | | 1,003 | | | | 266 | | | | 1,269 | |
Impairment Loss | | | — | | | | 332 | | | | 141 | | | | 473 | |
Foreign exchange movement | | | — | | | | (50 | ) | | | 22 | | | | (28 | ) |
|
| | | | | | | | | | | | | | | | |
At 31 January 2007 | | | — | | | | 1,821 | | | | 914 | | | | 2,735 | |
Provided during the year | | | — | | | | 1,796 | | | | 315 | | | | 2,111 | |
Impairment Loss | | | — | | | | 291 | | | | 21 | | | | 312 | |
Foreign exchange movement | | | — | | | | — | | | | 13 | | | | 13 | |
|
| | | | | | | | | | | | | | | | |
At 31 January 2008 | | | — | | | | 3,908 | | | | 1,263 | | | | 5,171 | |
|
| | | | | | | | | | | | | | | | |
Net Book Value at 31 January 2008 | | | 2,389 | | | | 1,822 | | | | 447 | | | | 4,658 | |
|
| | | | | | | | | | | | | | | | |
Net Book Value at 31 January 2007 | | | 2,389 | | | | 2,732 | | | | 626 | | | | 5,747 | |
|
| | | | | | | | | | | | | | | | |
Net Book Value at 31 January 2006 | | | 2,672 | | | | 2,684 | | | | 832 | | | | 6,187 | |
|
Patents are being amortised on a straight line basis over their expected economic life of 5 years.
An impairment loss of $291,000 (2007: $332,000) has been recorded to recognize the decreased value of the intangible asset recorded during 2007 in connection with the renegotiation of the Group’s licensing agreement with GWE. The decreased value is attributable to reduced sales of titles licensed from GWE. In addition, impairment losses of $21,000 (2007: $141,000) have been recorded for the write-down of capitalized patent costs where the Group has determined that the carrying value of such patents exceeds their net realizable value.
18
12. IMPAIRMENT TESTING OF GOODWILL
The Group has goodwill that has been acquired through business combinations but does not have any intangible assets that have indefinite lives. The goodwill has been allocated for impairment testing purposes to individual companies on the basis that these are the lowest level cash generating units at which the Group is able to monitor the resulting goodwill.
The recoverable amount for the cash generating units has been determined using cash flow projections (value in use method) based on financial budgets approved by the board for the year ending 31 January 2009. The cash flows beyond 31 January 2009 have been extrapolated based on internal sales forecasts of revenues, for a period of 3 to 5 years.
The discount rate applied to cash flow projections is 19%.
Carrying amount of goodwill allocated to cash generating units
| | | | | | | | |
| | 2008 | | | 2007 | |
| | $000 | | | $000 | |
|
Superscape Inc (3DWG) | | | 840 | | | | 840 | |
Penultimate Inc | | | 1,549 | | | | 1,549 | |
|
| | | 2,389 | | | | 2,389 | |
|
Key assumptions in value in use calculations
The calculation of value in use are most sensitive to the following:
Gross margins — these have been based on the projected gross margin from the 2008/09 budget which took into account gross margins in the immediately preceding period as adjusted for any operational changes.
Discount rates — these reflect management’s estimates of the cost of capital adjusted for the inherent risk associated with the forecasted royalty revenue stream.
Revenue projections — these have been based on the projected revenues by title from the 2008/09 budget which took into account revenue performance in the immediately preceding period as adjusted for operational and market changes. They also reflect management’s estimates of the shelf life of individual game titles based on a historic review of existing internal titles and the performance of similar titles across the market as a whole.
There has been no impairment of goodwill in 2008 (2007: nil)
Sensitivity to change in assumptions
Management believe that no reasonably possible change in any of the above key assumptions would cause the carrying value of the units to exceed the recoverable amount.
19
13. INVESTMENTS IN SUBSIDIARIES
Subsidiary undertakings
The Company owns 100% of the ordinary share capital of the following companies, which are registered in the countries indicated, and are held directly unless indicated.
| | | | | | | | |
| | | | | | Proportion |
| | | | | | of nominal |
| | | | | | value of |
| | Country of | | | | issued |
Name of undertaking | | Registration | | Principle activity | | shares held |
Superscape Limited | | UK | | Development and publishing of 2D and 3D mobile games | | | 100 | % |
Superscape Inc. | | USA | | Development and publishing of 2D and 3D mobile games | | | 100 | % |
Penultimate Inc.* | | USA | | Development and publishing of 2D and 3D mobile games | | | 100 | % |
3DWG Inc.* | | USA | | Development and publishing of 2D and 3D mobile games | | | 100 | % |
Superscape (Russia) Limited | | UK | | Development and publishing of 2D and 3D mobile games | | | 100 | % |
Superscape Technology Limited* | | UK | | Dormant | | | 100 | % |
| | |
* | | held by subsidiary undertaking. |
14. TRADE AND OTHER RECEIVABLES
| | | | | | | | |
| | 2008 | | | 2007 | |
| | $000 | | | $000 | |
|
Trade receivables | | | 2,324 | | | | 2,568 | |
R&D tax credits receivable | | | — | | | | 182 | |
Other debtors | | | 17 | | | | 39 | |
Other tax debtors | | | 45 | | | | 47 | |
Prepayments | | | 449 | | | | 343 | |
Advanced Royalties | | | 819 | | | | 1,789 | |
Accrued Revenue | | | 1,302 | | | | 1,335 | |
|
| | | | | | | | |
| | | 4,956 | | | | 6,303 | |
|
An amount of $169,000 (2007: $253,000) included within advance royalties is realisable within the entities’ normal operating cycle in more than one year.
Trade receivables are non interest bearing and in general, on 60-90 days’ terms and are shown net of a provision for impairment. As at 31 January 2008 trade receivables with nominal value of $65,000 (2007: $91,000) were impaired and fully provided for. Movements in the provision for impairment of receivables were as follows:
| | | | | | | | |
| | 2008 | | | 2007 | |
| | $000 | | | $000 | |
|
At 1 February | | | 91 | | | | — | |
|
Charge for the year | | | 13 | | | | 91 | |
Amounts written off | | | (13 | ) | | | — | |
Unused amounts reversed | | | (26 | ) | | | — | |
|
At 31 January | | | 65 | | | | 91 | |
|
20
As at 31 January, the analysis of trade receivables that were past due but not impaired is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | Past due but not impaired | |
| | | | | | <30 days | | | 31-60 days | | | 60-90 days | | | >90 days | | | >120 days | |
| | $000 | | | $000 | | | $000 | | | $000 | | | $000 | | | $000 | |
2008 | | | 2,324 | | | | 1,058 | | | | 963 | | | | 125 | | | | 101 | | | | 77 | |
2007 | | | 2,568 | | | | 1,359 | | | | 933 | | | | 117 | | | | 81 | | | | 78 | |
Trade receivables that are neither past due nor impaired are included with accrued revenue. The credit quality of these amounts is assessed based on historical information relating to counterparty default rates.
15. CASH AND CASH EQUIVALENTS
| | | | | | | | |
| | 2008 | | | 2007 | |
| | $000 | | | $000 | |
|
Cash at bank and in hand | | | 2,942 | | | | 3,306 | |
Short term deposits | | | 7,960 | | | | 10,644 | |
|
| | | | | | | | |
Total cash and cash equivalents | | | 10,902 | | | | 13,950 | |
|
Short term deposits are included within cash and cash equivalents in the balance sheet. They relate to cash on up to 3 months fixed deposit, with floating interest rates.
16. TRADE AND OTHER PAYABLES
| | | | | | | | |
| | 2008 | | | 2007 | |
| | $000 | | | $000 | |
|
| | | | | | | | |
Trade payables | | | 981 | | | | 830 | |
Other taxes and social security | | | 20 | | | | 233 | |
Deferred tax | | | 14 | | | | 14 | |
Accruals | | | 2,731 | | | | 3,112 | |
|
| | | | | | | | |
| | | 3,746 | | | | 4,189 | |
|
21
17. PROVISIONS
| | | | | | | | | | | | | | | | |
| | Onerous | | | Employee | | | Office | | | | |
| | lease | | | severance | | | closure | | | Total | |
| | $000 | | | $000 | | | $000 | | | $000 | |
|
At 31 January 2006 | | | | | | | | | | | | | | | — | |
Additions | | | 1,253 | | | | 150 | | | | 204 | | | | 1,607 | |
|
At 31 January 2007 | | | 1,253 | | | | 150 | | | | 204 | | | | 1,607 | |
|
Utilized | | | (201 | ) | | | (150 | ) | | | (204 | ) | | | (555 | ) |
|
At 31 January 2008 | | | 1,052 | | | | — | | | | — | | | | 1,052 | |
|
| | | | | | | | |
| | 2008 | | | 2007 | |
Provisions at the end of the period analyzed as: | | $000 | | | $000 | |
|
Current | | | 554 | | | | 622 | |
Non-current | | | 498 | | | | 985 | |
|
| | | 1,052 | | | | 1,607 | |
|
Amounts at 31 January 2008 comprise onerous lease obligations relating to the Group’s restructuring of its UK operations.
Amounts at 31 January 2007 predominantly comprise onerous lease obligations and employee severance related to the Group’s restructuring of its UK operations
Of the amounts included within non-current liabilities remaining at 31 January 2008, all are expected to be utilized by 31 January 2010.
18. OBLIGATIONS UNDER OPERATING LEASES
At each year end the Group had future minimum lease payments under non cancellable operating leases as follows:
| | | | | | | | |
| | 2008 | | | 2007 | |
| | $000 | | | $000 | |
|
Not later than one year | | | 1,381 | | | | 1,427 | |
After one year but not more than five years | | | 1,301 | | | | 2,055 | |
|
| | | 2,682 | | | | 3,482 | |
|
At each year end the Group had future minimum rental receivable under non cancellable operating leases as follows:
| | | | | | | | |
| | 2008 | | | 2007 | |
| | $000 | | | $000 | |
|
Not later than one year | | | 475 | | | | 622 | |
After one year but not more than five years | | | 317 | | | | 763 | |
|
| | | 792 | | | | 1,385 | |
|
22
19. FINANCIAL INSTRUMENTS
The disclosures required by IFRS 7 in relation to the nature of financial instruments used during the period to mitigate liquidity and foreign currency risk are disclosed below:
The Group’s financial instruments comprise cash and liquid resources as well as items such as trade debtors and trade creditors that arise directly from the Group’s operations. The main purpose of these financial instruments is to provide finance for the Group’s operations. It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments should be undertaken.
The main risks arising from the Group’s financial instruments are interest rate risk and foreign currency risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. These policies have remained unchanged throughout the period.
Interest Rate risk
As stated above, the Group’s only financial instruments comprise cash and liquid resources as well as items such as trade debtors and trade creditors that arise directly from the Group’s operations and its policy is to limit its exposure to interest rates by placing deposits on the money markets with a range of maturities of up to 12 months.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s profit before taxes (through the impact on floating rate deposits). There is no impact on the Group’s equity
| | | | | | | | |
| | | | | | Effect on profit before |
| | | | | | tax |
| | Increase/decrease in basis points | | $000 |
|
2008 | | | | | | | | |
Sterling | | | +50 | | | | 51 | |
US Dollar | | | 50 | | | | 12 | |
| | | | | | | | |
Sterling | | | -50 | | | | (51 | ) |
US Dollar | | | -50 | | | | (12 | ) |
| | | | | | | | |
2007 | | | | | | | | |
Sterling | | | +50 | | | | 81 | |
US Dollar | | | +50 | | | | — | |
| | | | | | | | |
Sterling | | | -50 | | | | (81 | ) |
US Dollar | | | -50 | | | | — | |
23
Foreign currency risk
Historically, the Group has not used derivative instruments to hedge against possible risks arising from fluctuations in foreign currency exchange rates as the exposure has been limited.
The Group has subsidiaries operating in the United Kingdom and Moscow which have assets and liabilities denominated in foreign currencies. With effect from 1 February 2007, the Group’s reporting currency was changed to the US Dollar. Upon conversion of the assets and liabilities of the companies operating in the UK and Russia into US Dollars an exposure results from exchange rate movements on the Group’s US Dollar balance sheet.
The following table demonstrates the sensitivity to a reasonably possible change in US Dollar against the Pound exchange rates, with all other variables held constant, of the Group’s profit before taxes (due to changes in the fair value of monetary assets and liabilities). There is no impact on the Group’s equity
| | | | | | | | |
| | | | | | Effect on profit before |
| | | | | | tax |
| | Increase/decrease in the Pound rate | | $000 |
2008 | | | | | | | | |
Pound | | | +6 | % | | | (139 | ) |
| | | -6 | % | | | 139 | |
| | | | | | | | |
2007 | | | | | | | | |
Pound | | | +6 | % | | | 398 | |
| | | -6 | % | | | (398 | ) |
24
Interest rate risk profile of financial instruments
The interest rate profile of the financial assets of the Group was as follows:
| | | | | | | | | | | | |
| | | | | | Financial | | |
| | Floating | | assets | | |
| | interest | | on which | | |
| | rate | | no | | |
| | financial | | interest | | |
| | assets | | is earned | | Total |
| | $000 | | $000 | | $000 |
|
31 January 2008 | | | | | | | | | | | | |
Sterling | | | 8,715 | | | | | | | | 8,715 | |
US Dollar | | | 2,162 | | | | | | | | 2,162 | |
Other currencies | | | | | | | 25 | | | | 25 | |
|
| | | 10,877 | | | | 25 | | | | 10,902 | |
|
31 January 2007 | | | | | | | | | | | | |
Sterling | | | 10,644 | | | | 354 | | | | 10,998 | |
US Dollar | | | — | | | | 2,748 | | | | 2,748 | |
Other currencies | | | — | | | | 204 | | | | 204 | |
|
| | | 10,644 | | | | 3,306 | | | | 13,950 | |
|
Floating interest rate financial assets comprise cash and short-term deposits on money market deposit at call which earn interest at floating rates by reference to Sterling LIBOR and the US Federal Funds rate
Fair values of financial assets and financial liabilities
The carrying value of all financial assets and liabilities approximates fair value due to the short term maturity of the instruments held.
The Group’s other foreign currency denomination assets and liabilities are not significant.
Credit risk
There are no significant concentrations of credit risk within the Group. The maximum credit risk exposure relating to financial assets is represented by carrying value as at the balance sheet date.
25
Liquidity risk
The following table summarises the maturity profile of the Group’s financial liabilities at 31 January 2008 and 2007 based on contractual undiscounted payments.
| | | | | | | | | | | | | | | | | | | | |
| | On | | less than | | 3 to 12 | | 1 - 5 | | |
| | demand | | 3 months | | months | | years | | Total |
| | $000 | | $000 | | $000 | | $000 | | $000 |
|
Year ended 31 January 2008 | | | | | | | | | | | | | | | | | | | | |
Trade and other payables | | | 1,736 | | | | 873 | | | | 1,104 | | | | 33 | | | | 3,746 | |
|
| | | | | | | | | | | | | | | | | | | | |
Year ended 31 January 2007 | | | | | | | | | | | | | | | | | | | | |
Trade and other payables | | | 2,047 | | | | 382 | | | | 1,727 | | | | 33 | | | | 4,189 | |
|
20. SHARE CAPITAL
| | | | | | | | | | | | | | | | |
| | | | | | | | | | 2008 | | | 2007 | |
| | | | | | | | | £000 | | | £000 | |
|
Authorised 300,000,000 Ordinary 10p shares (2007: 300,000,000) | | | | | | | | | | £ | 30,000 | | | £ | 30,000 | |
|
Allotted, called up and fully paid | | | | | | | | | | | | | | | | |
| | | 2008 | | | | 2007 | | | | 2007 | | | | 2007 | |
| | | 000 | | | | 000 | | | | $000 | | | | $000 | |
|
At 1 February | | | 182,999 | | | | 179,983 | | | | 35,820 | | | | 35,230 | |
Issued on exercise of share options | | | 100 | | | | 1,030 | | | | 20 | | | | 201 | |
Issued on acquisition of subsidiary | | | — | | | | 1,986 | | | | — | | | | 389 | |
|
| | | | | | | | | | | | | | | | |
At 31 January | | | 183,099 | | | | 182,999 | | | | 35,840 | | | | 35,820 | |
|
100,000 (2007: 1,030,000) new Ordinary 10p shares were issued for a cash consideration of $20,000 (2007: $201,000) as a result of the exercise of share options.
26
21. RECONCILIATION OF MOVEMENTS IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Share | | | Share | | | Other | | | Translation | | | Retained | | | | |
| | Capital | | | Premium | | | Reserves | | | Reserve | | | Losses | | | | |
| | $000 | | | $000 | | | $000 | | | $000 | | | $000 | | | Total | |
|
At 1 February 2006 | | | 35,230 | | | | 131,848 | | | | 847 | | | | (12,706 | ) | | | (120,714 | ) | | | 34,505 | |
Exchange differences on retranslation of net assets of subsidiary undertakings | | | — | | | | — | | | | — | | | | (1,044 | ) | | | | | | | (1,044 | ) |
Deferred consideration of acquisition | | | — | | | | — | | | | (540 | ) | | | — | | | | — | | | | (540 | ) |
Shares issued on acquisition of subsidiary | | | 389 | | | | 110 | | | | — | | | | — | | | | — | | | | 499 | |
Exercise of options | | | 201 | | | | — | | | | — | | | | — | | | | — | | | | 201 | |
Share based payments | | | — | | | | — | | | | — | | | | — | | | | 401 | | | | 401 | |
Loss for the period | | | — | | | | — | | | | — | | | | — | | | | (13,514 | ) | | | (13,514 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
At 31 January 2007 | | | 35,820 | | | | 131,958 | | | | 307 | | | | (13,750 | ) | | | (133,827 | ) | | | 20,508 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Share | | | Share | | | Other | | | Translation | | | Retained | | | | | |
| | Capital | | | Premium | | | Reserves | | | Reserve | | | Losses | | | | | |
| | $000 | | | $000 | | | $000 | | | $000 | | | $000 | | Total | |
|
At 1 February 2007 | | | 35,820 | | | | 131,958 | | | | 307 | | | | (13,750 | ) | | | (133,827 | ) | | | 20,508 | |
Exchange differences on retranslation of net assets of subsidiary undertakings | | | — | | | | — | | | | — | | | | 23 | | | | — | | | | 23 | |
Exercise of options | | | 20 | | | | — | | | | — | | | | — | | | | — | | | | 20 | |
Share based payments | | | — | | | | — | | | | — | | | | — | | | | 515 | | | | 515 | |
Retained loss for the period | | | — | | | | — | | | | — | | | | — | | | | (5,153 | ) | | | (5,153 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
At 31 January 2008 | | | 35,840 | | | | 131,958 | | | | 307 | | | | (13,727 | ) | | | (138,465 | ) | | | 15,913 | |
|
Translation reserve
The translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.
Other reserves
The balance in other reserves represents the premium on the shares issued on acquisition of 3DWG.
27
22. SHARE BASED PAYMENTS
Superscape has three schemes for which there are grants outstanding but not exercised. Since October 2003 two of the schemes are closed and options have only been granted under the remaining 1999 Performance Related Stock Incentive Plan. A description of the plan is included in the Directors’ Remuneration Report. The fair value of all options granted since 7th November 2002 and not vested as at 1st February 2006 is recognised as an expense with a corresponding increase in equity. The expense for the year ended 31 January 2008 was $515,000 (2007 $401,000). The fair value has been measured using the Black-Scholes model.
The material inputs into the model have been:
| | | | | | | | |
| | Granted in | | | Granted in | |
| | 2008 | | | 2007 | |
|
Share Options | | | | | | | | |
|
| | | | | | | | |
Weighted average fair value | | | 2.63p | | | | 8.27 | p |
Weighted average share price at grant | | | 10.01p | | | | 13.44 | p |
Weighted average remaining contractual | | 7.6 Years | | | 7.5 Years | |
Option life | | 10 Years | | | 10 Years | |
| | | | | | | | |
Risk free interest rate | | | 5.25 | % | | 4.73% to 5.25 | % |
Expected volatility | | | 72 | % | | 73% to 80 | % |
Expected dividends | | | — | | | | — | |
Expected life | | 3 years | | 3 years | |
|
The range of exercise prices for options outstanding at the year end was 10.0p to 244.0p (2007: 10.0p to 244.0p).
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movement in, share options during the year.
| | | | | | | | | | | | | | | | |
| | 2008 | | | | | | | 2007 | | | | |
| | No. | | | 2008 | | | No. | | | 2007 | |
| | ’000 | | | WAEP | | | ’000 | | | WAEP | |
|
Outstanding as at 1 February | | | 17,892 | | | | 28.09p | | | | 16,158 | | | | 36.39p | |
Granted during year | | | 5,150 | | | | 10.01p | | | | 7,315 | | | | 13.44p | |
Lapsed during year | | | 6,623 | | | | 33.45p | | | | 4,551 | | | | 21.35p | |
Exercised during year | | | 100 | | | | 10.00p | | | | 1,030 | | | | 11.28p | |
|
| | | | | | | | | | | | | | | | |
Outstanding at 31 January | | | 16,319 | | | | 24.27p | | | | 17,892 | | | | 28.09p | |
|
| | | | | | | | | | | | | | | | |
Exercisable at 31 January | | | 6,651 | | | | 42.28p | | | | 10,088 | | | | 38.15p | |
|
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumptions that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.
23. CONTINGENT LIABILITIES
The directors are not aware of any contingent liability concerning the business of the Group.
28
24. RELATED PARTY TRANSACTIONS
The directors’ beneficial interests in the ordinary shares of the company are described in the directors’ remuneration report.
Compensation of key management personnel of the Group.
| | | | | | | | |
| | 2008 | | | 2007 | |
| | $000 | | | $000 | |
|
Short term employee benefits | | | 978 | | | | 884 | |
Employee termination benefits | | | — | | | | 591 | |
Share based payments | | | 127 | | | | 61 | |
|
| | | | | | | | |
Total compensation paid to key management personnel | | | 1,105 | | | | 1,536 | |
|
25. POST BALANCE SHEET EVENT
On 7 March 2008, Glu Mobile Inc declared its tender offer for all the shares of the Company unconditional in all respects.
29