| One Horizon Group plc |
| Consolidated Statements of Comprehensive Income |
| For the Three Months Ended September 30, 2012 and 2011 |
| (unaudited - prepared by management) |
| 2012 | 2011 | |||||||
| $ '000 | $ '000 | |||||||
| Revenue | ||||||||
| Continuing Operations | 3,141 | 17 | ||||||
| Cost of Sales | (322 | ) | (15 | ) | ||||
| Gross Profit | 2,819 | 2 | ||||||
| Administration expenses | (915 | ) | (667 | ) | ||||
| Operating Profit | ||||||||
| Continuning Operations | 1,904 | (665 | ) | |||||
| Finance costs | (36 | ) | (15 | ) | ||||
| Profit on continuing operations before taxation | 1,868 | (680 | ) | |||||
| Taxation | (223 | ) | - | |||||
| Profit after taxation from continuing operations | 1,645 | (680 | ) | |||||
| Discontinued Operations | ||||||||
| (Loss) profit after taxation from discontinued operations | (2,960 | ) | 659 | |||||
| Loss for the period and total comprehensive income | (1,315 | ) | (21 | ) | ||||
the accompanying notes form part of these financial statements
| F-1 |
| One Horizon Group plc |
| Consolidated Statements of Financial Position |
| September 30, 2012 and June 30, 2012 |
| (unaudited - prepared by management) |
| September 30, 2012 | June 30, 2012 | |||||||
| $ '000 | $ '000 | |||||||
| Non-current assets | ||||||||
| Intangible fixed assets | 15,084 | 15,148 | ||||||
| Property, plant and equipment | 552 | 419 | ||||||
| Interest in jointly controlled entity | - | 55 | ||||||
| 15,636 | 15,622 | |||||||
| Current assets | ||||||||
| Cash | 1,116 | - | ||||||
| Other | 753 | 47 | ||||||
| Trade and other receivables | 22,481 | 23,035 | ||||||
| 24,350 | 23,082 | |||||||
| Assets of Satcom Global held for sale | 18,818 | 21,883 | ||||||
| Total assets | 58,804 | 60,587 | ||||||
| Non-current liabilities | ||||||||
| Obligations under finance leases | - | 60 | ||||||
| Deferred taxation | 445 | 445 | ||||||
| 445 | 505 | |||||||
| Current liabilities | ||||||||
| Financial liabilities | 2,020 | 2,020 | ||||||
| Trade and other payables | 1,539 | 2,194 | ||||||
| Current tax | 1,454 | 1,530 | ||||||
| Bank balances and cash | - | 39 | ||||||
| Obligations under finance leases | - | 33 | ||||||
| 5,013 | 5,816 | |||||||
| Liabilities of Satcom Global held for sale | 24,778 | 24,883 | ||||||
| Total Liabilities | 30,236 | 31,204 | ||||||
| Net Assets | 28,568 | 29,383 | ||||||
| Shareholders' Equity | ||||||||
| Share capital | 8,535 | 8,468 | ||||||
| Share premium account | 11,250 | 10,817 | ||||||
| Retained Profits | 8,783 | 10,098 | ||||||
| Total shareholders' funds | 28,568 | 29,383 | ||||||
the accompanying notes form part of these financial statements
| F-2 |
| One Horizon Group plc | ||||||||
| Consolidated Cash Flow Statements | ||||||||
| For the Three Months Ended September 30, 2012 and 2011 | ||||||||
| (unaudited - prepared by management) | ||||||||
| 2012 | 2011 | |||||||
| $ '000 | $ '000 | |||||||
| Cash flows from operating activities | ||||||||
| Loss for the period | (1,315 | ) | (21 | ) | ||||
| Impairment of discontinued assets | 2,543 | - | ||||||
| Amortisation and depreciation | 1,120 | 584 | ||||||
| Operating cash flows before movement in working capital | 2,348 | 563 | ||||||
| (Increase) in inventories | (480 | ) | (279 | ) | ||||
| (Increase) in receivables | (114 | ) | (3,471 | ) | ||||
| (Decrease) in taxes payable | (17 | ) | - | |||||
| Increase in payables | 143 | 2,672 | ||||||
| Net cash generated by operation activities | 1,880 | (515 | ) | |||||
| Cash flows from investing activities | ||||||||
| Purchase of property, plant and equipment | (170 | ) | (1,525 | ) | ||||
| Net cash used in investing activities | (170 | ) | (1,525 | ) | ||||
| Cash flows from financing activities | ||||||||
| Net decrease in long term borrowings | (937 | ) | (342 | ) | ||||
| Capital element of finance lease rental payments | (118 | ) | (128 | ) | ||||
| Proceeds from issuance of share capital | 500 | 3,000 | ||||||
| Net cash (used) generated by financing activities | (555 | ) | 2,530 | |||||
| Net increase in cash and cash equivalents | 1,155 | 490 | ||||||
| Cash and cash equivalents at beginning of period | (39 | ) | (606 | ) | ||||
| Cash and cash equivalents at end of period | 1,116 | (116 | ) | |||||
the accompanying notes form part of these financial statements
| F-3 |
One Horizon Group plc
Notes to the financial statements
For the three months ended September 30, 2012
| 1. | Nature of business and corporate information |
One Horizon Group plc (the “Group” or “Company”) is a company incorporated in the United Kingdom.
Horizon is the world’s most bandwidth-efficient Voice over IP (VoIP) platform. Enabled by the Company’s SmartPacket™ technology, it offers VoIP from only 2kbps compared to around 8kbps from other VoIP platforms.
Horizon enables greater bandwidth efficiency by reducing IP overhead and optimising packet flow, delivery and playback. It is also extremely efficient in the way it handles silence. Traditional VoIP calls send the same amount of data in both directions, regardless of whether someone is speaking or not. Horizon detects silence and sends “heartbeats” so it doesn’t sound like the line has been dropped. These heartbeats get sent at only 0.25kbps compared to around 8kbps on other VoIP platforms. From low-bandwidth VoIP, Horizon extends into a range of optimised data applications – email, web browsing and instant messaging – which give the user total visibility and control over how much data they consume.
The solution has been totally developed in-house and is fully compatible with digital telecommunications standards. It is capable of interconnecting any phone system over IP – on mobile, fixed and satellite networks.
The Horizon Globex solution was initially developed for the mobile satellite market, to make best use of the limited bandwidth available, minimise the amount of data consumed and ultimately save costs for the end-user.
The Company then realised the potential for the solution in the broader telecommunications market, particularly within the mobile sector. With the explosive growth in smartphone sales and increased usage of mobile data services, mobile operators face the challenge of dealing with increasingly congested networks, more dropped calls and rising levels of churn. Wireless spectrum is a finite resource and it is not always possible to increase network capacity. The demand for solutions which optimise the use of IP bandwidth will inevitably grow.
The Company has therefore developed a mobile application which enables highly bandwidth-efficient VoIP calls over a smartphone using an EDGE, 3G, 4G/LTE, WiFi or WiMax connection. The Horizon Call app is currently available for the iPhone and a version for Android is in development.
Unlike other mobile VoIP apps, Horizon Call has positioned a business-to-business solution for mobile operators. It is a solution that they own and deploy. They decide how to integrate it within their portfolio, how to offer it commercially and it can be customised according to their own branding. It helps them to manage rising traffic volumes while also combating the competitive threat to their voice telephony revenues from other mobile VoIP apps.
Asia represents a key opportunity for the Horizon Call app because there are significant markets with high population density, high penetration of mobile phones and high growth in the adoption of smartphones. These factors will put increased pressure on mobile operators to manage their network availability.
In this context, Horizon Globex is forming a number of joint ventures with local partners in the region to exploit this opportunity. To date, the Company has formed joint ventures, in India, Russia and China.
| 2. | Basis of preparation |
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with International Financial Reporting and Accounting Standards as adopted by the European Union (“IFRSs”). The financial statements have been prepared on the historical cost basis, except where IFRSs requires an alternative treatment. The principal variations from historical cost relate to financial instruments (IAS 39).
These unaudited interim consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report for the year ended June 30, 2012 as they do not include all the information and footnotes required by IFRSs for complete financial statements.
The financial statements are presented in US dollars since this is the currency in which the majority of the Group’s transactions are denominated.
| F-4 |
One Horizon Group plc
Notes to the financial statements
For the three months ended September 30, 2012
| 3. | Summary of significant accounting policies |
Basis of consolidation
The unaudited interim consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (“its subsidiaries”). Control is achieved where the Company has the power to govern the financial and operating policies of a subsidiary. Adjustments are made if required to align the accounting policies of the subsidiaries with the group.
The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
All inter-company transactions and balances between group enterprises are eliminated on consolidation.
Revenue recognition
Revenue is recognised on sale of software, upon transfer of the intellectual property rights, when title passes to the customer.
Revenue is stated net of discounts, VAT and other sales related taxes.
Interest income is accrued on a time basis, by reference to the principal outstanding and the interest rate applicable.
Estimates
The preparation of financial statements in conformity with general accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although the estimates are based on management’s best knowledge of the amount, even or actions, actual results ultimately may differ from those estimates.
| 4. | Discontinued operations and assets held for sale |
Subsequent to September 30, 2012 the Group concluded the sale of Satcom Global.
For the three months ended September 30, 2012 and 2011 the Satcom Global operations have been accounted for as discontinued operations.
The assets and liabilities of the discontinued operations are presented separately under the captions “Assets of Satcom Global held for sale” and “Liabilities of Satcom Global held for sale,” respectively in the balance sheets as at September 30, 2012 and June 30, 2012.
Assets of Satcom Global held for sale
| September 30, 2012 | June 30, 2012 | |||||||
| $ ‘000 | $ ‘000 | |||||||
| Non-current assets | ||||||||
| Goodwill | - | 3,441 | ||||||
| Other intangible assets | 198 | 213 | ||||||
| Property, plant and equipment | 4,083 | 4,046 | ||||||
| 4,281 | 7,700 | |||||||
| Current assets | ||||||||
| Inventories | 4,201 | 4,427 | ||||||
| Trade and other receivables | 10,336 | 9,668 | ||||||
| Cash and cash equivalents | - | 88 | ||||||
| 14,537 | 14,183 | |||||||
| Total assets | 18,818 | 21,883 | ||||||
| F-5 |
One Horizon Group plc
Notes to the financial statements
For the three months ended September 30, 2012
Liabilities of Satcom Global held for sale
| September 30, 2012 | June 30, 2012 | |||||||
| $ ‘000 | $ ‘000 | |||||||
| Non-current liabilities | ||||||||
| Obligations under finance leases | 80 | 88 | ||||||
| Current liabilities | ||||||||
| Trade and other payables | 24,460 | 23,662 | ||||||
| Financial liabilities | - | 937 | ||||||
| Obligations under finance leases | 70 | 87 | ||||||
| Current tax | 168 | 109 | ||||||
| 24,698 | 24,795 | |||||||
| Total liabilities | 24,778 | 24,883 | ||||||
The following table summarizes results of the Group’s Satcom Global business classified as discontinued operations in the accompanying consolidated statements of operations for the three months ended September 30, 2012 and 2011:
| September 30 | ||||||||
| 2012 | 2011 | |||||||
| $ ‘000 | $ ‘000 | |||||||
| Revenue | 15,302 | 27,774 | ||||||
| Cost of sales | (12,528 | ) | (23,573 | ) | ||||
| Gross profit | 2,774 | 4,201 | ||||||
| Administrative expenses | (2,839 | ) | (3,419 | ) | ||||
| Asset impairment | (2,543 | ) | ||||||
| Operating (loss) profit | (2,658 | ) | 782 | |||||
| Finance costs | (302 | ) | (309 | ) | ||||
| (Loss) profit before taxation | (2,960 | ) | 473 | |||||
| Taxation (recovery) | - | 186 | ||||||
| (Loss)profit from discontinued operations | (2,960 | ) | 659 | |||||
| 5. | Intangible fixed assets |
Intangible fixed assets comprise contractual relationships and Horizon software consisting of voice and messaging over IP together with web services and billing systems.
| September 30, 2012 | June 30, 2012 | |||||||
| $ ‘000 | $ ‘000 | |||||||
| Contractual relationships | 885 | 885 | ||||||
| Horizon software | 15,378 | 15,378 | ||||||
| 16,263 | 16,263 | |||||||
| Less: Accumulated amortization | 1,179 | 1,115 | ||||||
| Intangible fixed assets, net | 15,084 | 15,148 | ||||||
| F-6 |
One Horizon Group plc
Notes to the financial statements
For the three months ended September 30, 2012
| 6. | Property, plant and equipment |
Property, plant and equipment consist of the following:
| September 30, 2012 | June 30, 2012 | |||||||
| $ ‘000 | $ ‘000 | |||||||
| Leasehold property improvements | 433 | 265 | ||||||
| Motor vehicles | 120 | 120 | ||||||
| Equipment | 169 | 173 | ||||||
| 722 | 558 | |||||||
| Less: Accumulated depreciation | 171 | 139 | ||||||
| Property, plant and equipment | 551 | 419 | ||||||
| 7. | Share capital |
| September 30, 2012 | June 30, 2012 | |||||||||||||||
| $ ‘000 | ‘000 | $ ‘000 | ‘000 | |||||||||||||
| Authorised | ||||||||||||||||
| Ordinary shares of $0.10 each | 50,000 | 500,000 | 50,000 | 500,000 | ||||||||||||
| Deferred shares of £1 each | 90 | 50 | 90 | 50 | ||||||||||||
| 50,090 | 500,050 | 50,090 | 500,050 | |||||||||||||
| Called up, allotted and fully paid: | ||||||||||||||||
| Ordinary shares of $0.10 each | 8,445 | 84,444 | 8,378 | 83,777 | ||||||||||||
| Deferred shares of £1 each | 90 | 50 | 90 | 50 | ||||||||||||
| 8,535 | 84,494 | 8,468 | 83,827 | |||||||||||||
Deferred shares of £1 each carry no voting or dividend rights and are redeemable at par.
.
| 8. | Share options |
The Group has the following options to purchase shares outstanding as at September 30, 2012:
| June 2012 | Issued/ (Lapsed) | September 2012 | Exercisable at 30/09/12 GBP | Exercise price GBP | Exercise dates | |||||||||||||||
| EMI approved (UK) | 19,690 | - | 19,690 | 1,890 | 9.6 p | Apr 2008 – 2015 | ||||||||||||||
| EMI approved (UK) | 2,920 | - | 2,920 | 993 | 34.0 p | Oct 2008 – 2015 | ||||||||||||||
| Unapproved (Overseas) | 98,904 | - | 98,904 | 33,627 | 34.0 p | Oct 2008 – 2015 | ||||||||||||||
| EMI approved (UK) | 10,940 | - | 10,940 | 3,993 | 36.5 p | Dec 2009 – 2016 | ||||||||||||||
| Unapproved (Overseas) | 101,601 | - | 101,601 | 37,084 | 36.5 p | Dec 2009 – 2016 | ||||||||||||||
| Unapproved (Overseas) | 1,000,000 | - | 1,000,000 | 100,000 | 10.0 p | Dec 2013 - 2020 | ||||||||||||||
| Total | 1,234,055 | - | 1,234,055 | 177,587 | ||||||||||||||||
The unapproved options vest after three years of service and can be excercised within 10 years of grant. The other options have similar vesting conditions.
| F-7 |