RNS Number:5062S
Earthport PLC
26 November 2003
Press Release 26 November 2003
earthport plc
Preliminary Results for the year ended 30 June 2003
earthport plc, the electronic payment services company, reports its Preliminary
Results for the year ended 30 June 2003.
For further information, please contact:
Earthport plc
Rob Cunningham Tel: +44 90)20 7907 1100
info@earthport.com www.earthport.com
Media enquiries:
Bankside Consultants Tel: +44 (0)207 444 4140
Ariane Vacher / Julian Bosdet www.bankside.com
ariane.vacher@bankside.com
Statement by the Chairman and the Chief Executive
This statement covers the period from 1 July 2002 to 30 June 2003, during which
your Company addressed and resolved legacy debt, contingent liability, asset
write down and other trading related historical issues. Your Board has taken
this opportunity to deal with all the remaining consequences of previous years'
trading, which could potentially have a negative effect on your Company's
ongoing profitability and on shareholder value, in preparation for a prosperous
future.
At first sight this statement makes grim reading but in taking the decision to
write down intangible assets and stocks and to acknowledge the #1.2m liability
of its 101010 Limited subsidiary (See Note) in the Group Consolidation, your
Board has impaired the Company's Balance Sheet by a further sum of #5.4m.
Therefore in recording a #12m loss for the year to June 2003 and in finishing
the period with a #8.2m negative asset Balance Sheet, your Board is confident
that these results mark the end of the salvage and reconstruction period of your
Company.
As a result of these accounting measures your Company starts the 2003-04
financial year with the prospect of writing back #1.2m following the expected
liquidation of 101010 Limited and of including at least #0.5m in other
exceptional gains, of which #0.4m is attributable to a contract with Egg Banking
plc (formerly Prudential Banking). In addition the Company has prepared a claim
against Egg for a substantial sum under the November 2001 contract and for
related work and intends to pursue this vigorously in the first quarter of 2004.
While these items in isolation are good news for the 2004 accounts, they will
not form the basis of how the Company's performance will be judged or how
shareholder value will be determined. In this our second statement to
shareholders we are very pleased to report that the Company has followed the
strategy outlined in this report last year. Your Company is well on the way to
achieving significant commercial development of the business and its twin goals
of becoming cash flow positive and profitable in the current financial year.
Your Company has established a suite of products and applications in six market
sectors based on the unique earthport Universal Payment Network (UPN) as the
industry standard payment solution in each sector. Your Company is also for the
first time delivering to customers a fully functional earthport Stored Value
product in three of the target sectors.
The combination of the UPN and Stored Value has enabled your Company to launch
the ensurePay, mediaPay, mobilePay and cashPay branded and white labelled
products in 2002-3. These products have been complemented by the launch of
travelPay at the World Travel Market Exhibition at ExCeL, London on 10 November
2003.
In the following months your Company will launch products into the government,
P2P, retail and insurance sectors. This adds two more sectors to those reported
as being targeted for business in last year's statement.
In this reconstruction period, your Company has invested further in building the
means to deliver these products and applications to market. earthport plc moved
from Chiswick to Chandos Street in London's West End in March 2003 vastly
improving communications with Clients and the City. earthport Solutions Ltd,
the core operating subsidiary, will relocate in November from Colchester to
Liverpool Street in the City of London, enabling the Company to combine banking
and IT operations, saving costs and creating a more cohesive unit and
relationship with earthport plc which is some ten minutes away.
At the same time your Company extended its global banking network to cover over
20 territories and payment execution in over 70 territories. The Company also
added credit and debit card processing services and increased its forex and
ledger management service capabilities.
Your Company has recruited an able and committed professional team to complement
those who have served the Company through the last period to ensure the Company
achieves its objectives. We would like to express our grateful thanks to both
current and former staff for their assistance in the achievement of rebuilding
your Company.
Between July and September 2003 your Company successfully completed the first
phase of a two part fund raising exercise, as the Company seeks to capitalise on
customer interest and take-up of its market leading products and applications.
The initial fund raising exercise of #3.6m was successfully completed on 29
September 2003.
The Company is undertaking final fund raising to reach break even which it
expects to complete by January 2004. Underwriting the Company's approach to
investors is the fact that 13 customers are in the process of going live and
another 11 are in the final stages of contractual documentation.
Your Board believes that with the support of further investment, earthport's
powerful combination of products and applications, global banking coverage,
operational development and service capability and professional management
provide a viable business framework and conditions which should enable the
Company to achieve the much vaunted "potential" of earthport of which its long
standing shareholders are all too familiar.
Funding
During the year to 30 June 2003 104,870,004 shares were issued for a value of
#2,816,468.
Of this #1,082,152 was from the issue of new equity at 2.5p, #681,514 from the
conversion of convertible loan notes, all at 3.5p, and #1,052,802 from the
conversion of loans at 2.5p.
Note re 101010 Limited
At the half year we noted in the interim results that we had withdrawn financial
support for our subsidiary 101010 Limited. On the basis this would lead to its
liquidation we showed the release of the #1.2m of net liabilities as an
exceptional profit. However, the company had not yet gone into liquidation by
the year end and therefore the net liabilities of 101010 Limited remain as part
of our consolidated balance sheet. If 101010 Limited goes into liquidation in
future it would be removed from our control and we would then expect to show
again the release of its net liabilities from our consolidated balance sheet as
a gain. It should be specifically noted that earthport continues not to provide
financial support for 101010 Limited.
Andrew Ripley Rob Cunningham
Chairman Chief Executive
26 November 2003
Consolidated profit & loss account
for the year ended 30 June 2003
2003 2002
Notes # #
Turnover 3 512,881 247,780
Administrative expenses - exceptional 4 3,744,792 1,151,632
Administrative expenses - other 8,546,897 11,866,194
Total administrative expenses (12,291,689) (13,017,826)
Other operating income - exceptional 4 - 2,000,000
--------------- ---------------
Operating loss 5 (11,778,808) (10,770,046)
Loss on disposal of fixed assets 4 (426,926) (1,416,296)
--------------- ---------------
Loss on ordinary activities before interest and tax (12,205,734) (12,186,342)
Interest receivable and similar income 8 33,605 52,938
Interest payable and similar charges 9 (760,130) (344,994)
--------------- ---------------
Loss on ordinary activities before taxation (12,932,259) (12,478,398)
Taxation 10 654,245 -
--------------- ---------------
Loss on ordinary activities for the year 25 (12,278,014) (12,478,398)
--------------- ---------------
Loss per share - basic and diluted 11 (6.4p) (11.4p)
--------------- ---------------
Consolidated statement of total recognised gains and losses
for the year ended 30 June 2003
There are no recognised gains and losses other than the loss of #12,278,014
attributable to the shareholders for the year ended 30 June 2003 (2002 - loss of
#12,478,398).
Consolidated balance sheet
at 30 June 2003
2003 2002
Notes # #
Fixed assets
Intangible assets 13 - 3,854,446
Tangible assets 14 1,556,163 4,555,030
-------------- --------------
1,556,163 8,409,476
-------------- --------------
Current assets
Stock 16 - 1,405,454
Debtors 17 442,760 82,162
Cash at bank and in hand (including restricted cash) 18 275,219 473,706
-------------- --------------
717,979 1,961,322
Creditors: amounts falling due within one year
Convertible loan notes 19 - (381,514)
Other creditors 20 (8,245,198) (6,731,912)
-------------- --------------
Net current liabilities (7,527,219) (5,152,104)
-------------- --------------
Total assets less net current liabilities (5,971,056) 3,257,372
Creditors: amounts falling due after more than one year 21 (2,235,724) (2,002,606)
-------------- --------------
Net (liabilities)/assets (8,206,780) 1,254,766
-------------- --------------
Capital and reserves
Called up share capital 24 13,654,500 11,032,750
Share premium account 25 29,815,396 29,620,678
Other reserve 25 9,200,000 9,200,000
Profit and loss account 25 (60,876,676) (48,598,662)
-------------- --------------
Equity shareholders' funds 26 (8,206,780) 1,254,766
-------------- --------------
Company balance sheet
at 30 June 2003
2003 2002
Notes # #
Fixed assets
Tangible assets 14 1,556,163 4,555,030
Investments 15 999 2,100,049
-------------- --------------
1,557,162 6,655,079
-------------- --------------
Current assets
Stock 16 - 1,405,454
Debtors 17 466,344 82,162
Cash at bank and in hand (including restricted cash) 18 275,219 473,706
-------------- --------------
741,563 1,961,322
Creditors: amounts falling due within one year
Convertible loan notes 19 - (381,514)
Other creditors 20 (6,836,934) (4,977,515)
-------------- --------------
Net current liabilities (6,095,371) (3,397,707)
-------------- --------------
Total assets less net current liabilities (4,538,209) 3,257,372
Creditors: amounts falling due after more than one 21 (2,235,724) (2,002,606)
year
-------------- --------------
Net (liabilities)/assets (6,773,933) 1,254,766
-------------- --------------
Capital and reserves
Called up share capital 24 13,654,500 11,032,750
Share premium account 25 29,815,396 29,620,678
Other reserve 25 9,200,000 9,200,000
Profit and loss account 25 (59,443,829) (48,598,662)
-------------- --------------
Equity shareholders' funds 26 (6,773,933) 1,254,766
-------------- --------------
Consolidated statement of cash flows
For the year ended 30 June 2003
2003 2002
Note # #
Net cash outflow from operating activities 27(a) (4,263,500) (4,065,246)
--------------- --------------
Returns on investments and servicing of finance
Interest received 33,605 52,938
Interest paid (505,197) (39,854)
Interest element of finance lease rental payments (254,933) (268,630)
--------------- --------------
Net cash outflow from returns on investments
and servicing of finance (726,525) (255,546)
--------------- --------------
Taxation
Research and Development tax credit received 654,245 -
--------------- --------------
Capital expenditure and financial investment
Payment to acquire tangible assets (57,033) (27,487)
Receipts from sale of tangible fixed assets 135,000 11,090
--------------- --------------
Net cash inflow/(outflow) from capital
expenditure
and financial investment 77,967 (16,397)
--------------- --------------
Net cash outflow before financing (4,257,813) (4,337,189)
Financing
Issue of ordinary share capital 1,082,152 291,000
Capital element of finance lease rental payments (507,831) (47,756)
New loans and convertible loan notes 3,485,005 1,381,258
--------------- --------------
Decrease in cash during the year 27(b) (198,487) (2,712,687)
--------------- --------------
Reconciliation of net cash flow to movements in net debt
for the year ended 30 June 2003
2003 2002
# #
Decrease in cash during the year (198,487) (2,712,687)
Cash inflow from increase in debt and lease financing (2,977,175) (1,333,502)
-------- --------
Change in net debt resulting from cash flows (3,175,662) (4,046,189)
Finance leases - (105,642)
Conversion of loans into share 1,734,317 -
capital
-------- --------
Movement in the period (1,441,345) (4,151,831)
Net debt at beginning of period (4,684,911) (533,080)
-------- --------
Net debt at end of period 27(b) (6,126,256) (4,684,911)
-------- --------
Notes to the financial statements
At 30 June 2003
1. Fundamental accounting concept
The financial statements have been prepared on the assumption that the company
is a going concern. The company is engaged in a new and high growth industry
where losses are expected. These losses represent the company's investment in
its development. At the date of approving these financial statements, there
exists a fundamental uncertainty concerning the company's ability to continue as
a going concern.
The company is dependent on the ability to generate significant revenues and
free cash flow from sales of its products to new customers. To date the company
has entered into contracts to supply its product and services to significant
customers and is in advanced discussions with other substantial potential
customers. The directors believe that many of these potential customers will
enter into contracts with the company. However, the timing and value of future
sales cannot be guaranteed.
Since the balance sheet date, the company has raised additional finance through
the issue of Ordinary Shares for cash consideration of #3.6 million. The company
still has an immediate funding requirement which, on the assumption that trade
debtors and other amounts from customers are collected as anticipated, is at
least #1 million. Beyond that, the company needs to secure further significant
funding for expansion and to deliver its business plan. This funding is
expected to come from a combination of substantial increases in recurring
revenues and (to the extent that the company's needs are not met out of cash
receipts from these new sales) external sources of finance. The directors are
presently in negotiations with potential investors to raise these funds and are
confident of success.
In the event that further finance cannot be raised in the short term and if
sufficient revenues and free cash flows are not generated to meet the company's
working capital requirements, it may be forced into liquidation or receivership.
When assessing the foreseeable future the directors have looked at a period of
twelve months from the date of approval of the financial statements. The
directors consider that the uncertainties referred to above cast doubt on the
company's ability to continue as a going concern. Nevertheless the directors
believe that sufficient revenues and finance will be generated, and therefore
consider that it is appropriate to prepare the company's financial statements on
a going concern basis, which assumes that the company is to continue in
operational existence for the foreseeable future.
The financial statements do not include any adjustment that would result should
the company not generate sufficient revenues, free cash flow or raise additional
finance through further injections of debt or equity. It is not practical to
quantify the adjustments that might be required, but should any adjustments be
required they may be significant.
2. Accounting policies
Basis of preparation
The financial statements are prepared under the historical cost convention and
in accordance with applicable accounting standards.
Basis of consolidation
The group financial statements consolidate the financial statements of earthport
plc and all of its subsidiaries for the year ended 30 June 2003. No profit and
loss account is presented for earthport plc as permitted by section 230 of the
Companies Act 1985.
All subsidiaries have been included in the group financial statements from the
date control passes, using the acquisition method of accounting.
Entities, other than subsidiary undertakings, in which the group has a
participating interest and over whose operating and financial policies the group
exercises a significant interest are treated as associates. In the group
financial statements, associates are accounted for using the equity method.
Turnover
Revenue on the sale of software licences and from the service agreements is
recognised upon delivery to the customer providing that there is evidence of a
contract, the fee is fixed or determinable, no significant customer obligations
remain and collection of the resulting receivable is probable. In circumstances
where a significant vendor obligation exists (such as the installation and
acceptance of the software), revenue recognition is delayed until the obligation
has been satisfied.
Revenue from client transaction volume is billed monthly in arrears.
Revenue from software implementation, consultancy and training is based on time
and materials incurred and recognised as the services are performed.
Revenue from software support and maintenance agreements is either a pre-agreed
fixed fee or a percentage of the licence fee, payable either monthly or annually
in advance commencing on the installation date. Revenue recognition on
maintenance income paid annually in advance is spread evenly over the period of
the contract.
Intangible assets
Intangible assets acquired separately from a business are capitalised at cost.
Intangible assets acquired as part of an acquisition of a business are
capitalised separately from goodwill if the fair value can be measured reliably
on initial recognition, subject to the constraint that, unless the asset has a
readily ascertainable market value, the fair value is limited to an amount that
does not create or increase any negative goodwill arising on the acquisition.
Intangible assets created within the business are not capitalised and
expenditure is charged against profits in the year in which it is incurred.
Intangible assets are amortised on a straight-line basis over their estimated
useful lives of 4 years. The carrying value of intangible assets is reviewed
for impairment at the end of the first full year following acquisition and in
other periods if events or changes in circumstances indicate the carrying value
may not be recoverable.
Tangible fixed assets and depreciation
Tangible fixed assets are initially recorded at cost. Depreciation is provided
at rates calculated to write off the cost or valuation, less estimated residual
value of each asset over its expected useful life, as follows:
Office equipment, fixture and fittings - 20%-33.3% straight line per annum
Computer equipment - 33% straight line per annum
Computer software - 25% straight line per annum
Motor vehicles - 16.6% straight line per annum
The carrying values of tangible fixed assets are reviewed for impairment in
periods if events or changes in circumstances indicate the carrying value may
not be recoverable.
Leasing
Assets held under finance leases, which are leases where substantially all of
the risks and rewards of ownership of the asset have passed to the group, and
hire purchase contracts are capitalised in the balance sheet and are depreciated
over their useful lives. The capital elements of future obligations under
finance leases and hire purchase contracts are included as liabilities in the
balance sheet. The interest elements of the rental obligations are charged to
the profit and loss account over the period of the lease and represent a
constant proportion of the balance of capital repayment outstanding.
Rentals payable under operating leases are charged against income on a
straight-line basis over the lease term.
Investments
Fixed asset investments are stated at cost less provision for diminution in
value.
The carrying values of fixed asset investments are reviewed for impairment in
periods if events or changes in circumstances indicate the carrying value may
not be recoverable.
Stock
Stock represents licences held for resale at the lower of cost and net
realisable value.
Research and development
Research and development expenditure is charged to the profit and loss account
as incurred.
Pensions
The company operates a defined contribution pension scheme. Contributions are
charged in the profit and loss account as they become payable in accordance with
the rules of the scheme.
Deferred tax
Deferred taxation is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events have occurred at that date that will result in an obligation to pay more,
or a right to pay less or to receive more, tax, with the following exceptions:
* provision is made for tax on gains arising from the revaluation (and
similar fair value adjustments) of fixed assets, and gains on disposal of fixed
assets that have been rolled over into replacement assets, only to the extent
that, at the balance sheet date, there is a binding agreement to dispose of the
assets concerned. However, no provision is made where, on the basis of all
available evidence at the balance sheet date, it is more likely than not that
the taxable gain will be rolled over into the replacement assets and charged to
tax only where the replacement assets are sold;
* provision is made for deferred tax that would arise on remittance of
the retained earnings of subsidiaries and associates only to the extent that, at
the balance sheet date, dividends have been accrued as receivable;
* deferred tax assets are recognised only to the extent that the
directors consider that it is more likely than not that there will be suitable
taxable profits from which the future reversal of the underlying timing
differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are
expected to apply in the periods in which timing differences reverse, based on
tax rates and laws enacted or substantively enacted at the balance sheet date.
Foreign currency translation
Company
Transactions in foreign currencies are recorded at the rate ruling at the date
of the transaction. Monetary assets and liabilities denominated in foreign
currencies are retranslated at the rate of exchange ruling at the balance sheet
date. All differences are taken to the profit and loss account.
Group
The financial statements of overseas subsidiary undertakings are translated at
the rate of exchange ruling at the balance sheet date. The exchange difference
arising on the retranslation of opening net assets is taken directly to
reserves. All other translation differences are taken to the profit and loss
account with the exception of exchange differences on the carrying amount of
foreign investments, which are taken directly to reserves.
Financial risk management
The group's principal financial instruments comprise secured and unsecured
short-term creditors, finance leases, cash, short-term deposits and convertible
loan notes. The main purpose of these financial instruments is to finance the
group's operations, including any acquisitions where relevant. The group has
various other financial instruments, such as trade debtors and trade creditors
that arise directly from its operations.
It is, and has been throughout the period under review, the group's policy that
no trading in financial instruments shall be undertaken.
The group borrows at both fixed and floating rates of interest. The group's
policy in relation to the finance is to ensure that sufficient liquid funds are
maintained for operations.
Details of cash and other financial instruments are shown in note 23 to the
financial statements.
3. Turnover and segmental analysis
Turnover represents amounts, stated net of value added tax, derived from the
provision of goods and services which fall within the group's one continuing
ordinary activity, being the provision and ongoing development of a secure
payment system for electronic commerce. Turnover, profit and net assets are all
attributable to one business segment. Turnover can be further analysed as
follows:
2003 2002
# #
Transaction fees 212,241 1,341
Development, licences and implementation 300,640 246,439
--------------- -------------
512,881 247,780
--------------- -------------
--
An analysis of turnover by geographical market is given below:
2003 2002
# #
United Kingdom 220,640 247,780
Europe 292,241 -
--------------- -------------
512,881 247,780
--------------- -------------
4. Exceptional items
2003 2003 2002 2002
# # # #
Recognised in arriving at operating loss:
Impairment of goodwill - (1,151,632)
Impairment of acquired software (note 13) (1,616,090) -
Impairment of tangible fixed assets (723,248) -
Write-off of stock held for resale (1,405,454) -
--------------- ---------------
Administrative expenses (3,744,792) (1,151,632)
Release of deferred income - 2,000,000
--------------- ---------------
(3,744,792) 848,368
Recognised below operating loss:
Loss on disposal of fixed assets (426,926) (1,416,296)
--------------- ---------------
(426,926) (1,416,296)
--------------- ------------
---
(4,171,718) (567,928)
--------------- ------------
The tax effect in the profit and loss account relating to the exceptional items is #nil (2002 - #nil).
5. Operating loss
Operating loss is stated after charging:
2003 2002
# #
Amortisation of intangible assets 2,238,356 2,797,945
Depreciation of owned assets 1,152,556 1,611,672
Depreciation of assets held under finance lease 618,170 875,996
Research and development 145,000 562,333
Operating lease rentals - land and buildings 152,900 584,002
Auditors' remuneration 30,000 30,000
Remuneration of auditors for non-audit work 52,000 98,000
--------------- -------------
6. Staff costs
2003 2002
# #
Wages and salaries 2,525,788 2,345,702
Social security costs 220,843 230,986
Pension costs 18,000 13,561
--------------- -------------
2,764,631 2,590,249
--------------- -------------
The average monthly number of employees during the year was:
No. No.
Directors 6 5
Administration and technical 50 32
--------------- -------------
56 37
--------------- -------------
7. Directors' emoluments
Basic salary 2003 2002
and fees Benefits Total Total
# # # #
Executive directors:
L Ljungwaldh 60,000 3,600 63,600 111,500
R Flood 120,000 7,200 127,200 60,000
R Mennie 120,000 7,200 127,200 60,000
B Tucker - - - 59,833
J Baile - - - 20,833
Non-executive directors:
R Rakison 20,000 - 20,000 8,333
A Ripley 30,000 - 30,000 3,750
C Keen 13,333 - 13,333 -
R Manchanda 13,333 - 13,333 -
C C Procter - - - 6,875
P F Lynch - - - 6,875
Lord Shrewsbury - - - 6,875
------------- ------------- --------------- -------------
-- --
376,666 18,000 394,666 344,874
------------- ------------- --------------- -------------
Included above is an amount of #120,800 (2002 - #90,000) due to the executive
directors that has been accrued at 30 June 2003. The amount accrued at 30 June
2002 remain accrued at 30 June 2003. Of the total amount accrued at 30 June
2003 of #210,800, #59,200 remains unpaid at the date of approving these
financial statements.
Compensation paid to former director for loss of office was #nil (2002 -
#25,000).
Company contributions paid to the money purchase pension scheme was #nil (2002 -
#nil). The number of directors that were members of the money purchase pension
scheme was nil (2002 - 2).
8. Interest receivable and similar income
2003 2002
# #
Bank interest 33,605 52,938
--------------- -------------
9. Interest payable
2003 2002
# #
Bank interest 28,624 -
Secured loan interest 494,550 76,364
Finance lease interest 236,956 268,630
--------------- -------------
760,130 344,994
--------------- -------------
10. Taxation
UK corporation tax:
2003 2002
# #
Current tax on income for the period (39,000) -
Adjustment in respect of previous years (615,245) -
--------------- -------------
Total current tax (654,245) -
--------------- -------------
The tax credit in respect of the previous and current period relates to amounts
received/receivable in respect of Research and Development tax credits.
The tax assessed for the period differs from the standard rate of corporation
tax in the UK of 30%. The differences are explained below:
2003 2002
# #
Loss on ordinary activities before tax (12,932,259) (12,478,398)
--------------- ---------------
Loss on ordinary activities multiplied by standard rate of corporation tax in (3,879,678) (3,743,520)
the UK of 30%
Effect of:
Expenses not deductible for tax purposes 2,305,146 1,280,963
Depreciation in excess of capital allowances 471,783 286,435
Adjustment in respect of previous years (615,245) -
Tax losses 1,063,749 2,176,122
--------------- ---------------
Total current tax (654,245) -
--------------- ---------------
The unprovided deferred tax asset is as follows:
2003 2002
# #
Decelerated capital allowances 835,547 66,031
Tax losses 7,407,877 7,807,381
--------------- ------------
8,243,424 7,873,412
--------------- ------------
A deferred tax asset has not been recognised as the criteria of FRS19 have not been satisfied.
11. Loss per share
The calculation of basic loss per share is based on the loss on ordinary
activities after taxation, namely #12,278,014 (2002 - #12,478,398) and on the
number of New Ordinary Shares, being the weighted average number of New Ordinary
Shares in issue during the year of 192,797,846. (2002 - 109,767,560).
The loss attributable to ordinary shareholders and weighted average number of
ordinary shares for the purposes of calculating the diluted loss per share are
identical to those used for basic loss per ordinary share. This is because the
exercise of share options and other share benefits would have the effect of
reducing the loss per share and is therefore not dilutive under the terms of FRS
14.
12. Loss attributable to members of the parent undertaking
The loss dealt with in the financial statements of the parent undertaking was
#10,845,167 (2002 - #16,136,086).
13. Intangible fixed assets
Group Acquired
software Goodwill Total
# # #
Cost or valuation:
At 30 June 2002 and 30 June 2003 8,252,078 2,490,215 10,742,293
--------------- --------------- -------------
Amortisation:
At 30 June 2002 4,397,632 2,490,215 6,887,847
Provided during the year 2,238,356 - 2,238,356
Impairment 1,616,090 - 1,616,090
--------------- --------------- -------------
At 30 June 2003 8,252,078 2,490,215 10,742,293
--------------- --------------- -------------
Net book value:
At 30 June 2003 - - -
--------------- --------------- -------------
At 30 June 2002 3,854,446 - 3,854,446
--------------- --------------- -------------
In accordance with FRS 11 'Impairment of fixed assets and goodwill', the
carrying values of assets at 30 June 2003 have been compared to their
recoverable amounts, represented by their residual value to the group, and as a
result the carrying value of acquired software has been fully written down.
14. Tangible fixed assets
Group and company Computer
equipment Equipment,
and fixture and Motor
software fittings vehicles Total
# # # #
Cost:
At 30 June 2002 7,034,150 387,433 - 7,421,583
Additions 10,414 26,619 20,000 57,033
Disposals (1,012,385) - - -(1,012,385)
--------------- --------------- --------------- -------------
At 30 June 2003 6,032,179 414,052 20,000 6,466,231
--------------- --------------- --------------- -------------
Depreciation:
At 30 June 2002 2,721,058 145,495 - 2,866,553
Provided during the year 1,667,068 103,658 - 1,770,726
Impairment 723,248 - - 723,248
Disposals (450,459) - - (450,459)
--------------- --------------- --------------- -------------
At 30 June 2003 4,660,915 249,153 - 4,910,068
--------------- --------------- --------------- -------------
Net book value:
At 30 June 2003 1,371,264 164,899 20,000 1,556,163
--------------- --------------- --------------- -------------
At 30 June 2002 4,313,092 241,938 - 4,555,030
--------------- --------------- --------------- -------------
The net book value of computer equipment and software held by the group and
company under finance lease is #669,684 (2002 - #1,990,898).
In accordance with FRS 11 'Impairment of Fixed Assets and Goodwill' the carrying
values of the UK based assets at 30 June 2003 have been compared to their
recoverable amounts, represented by their value in use to the group.
The value in use has been derived from discounted cash flow projections using a
nominal discount rate of 30% on a pre-tax basis.
15. Fixed asset investments
Company Shares in
subsidiary
undertakings
#
Cost:
At 30 June 2002 10,322,245
Additions 999
---------------
At 30 June 2003 10,323,244
---------------
Amounts provided:
At 30 June 2002 8,222,196
Provided during the year 2,100,049
---------------
At 30 June 2003 10,322,245
---------------
Net book value:
At 30 June 2003 999
---------------
At 30 June 2002 2,100,049
---------------
The company's principal subsidiaries are:
Company Country of Nature of business Holding
incorporation
101010 Ltd England and Wales Software development 100%
earthport Solutions Ltd England and Wales Internet support 100%
earthport Australia and New Zealand Pty Ltd Australia Internet trading 100%
earthport Enterprises Ltd England and Wales On line services 100%
ensurePay Ltd England and Wales On line services 100%
16. Stock
Group and Company 2003 2002
# #
Goods held for resale - 1,405,454
--------------- ---------------
17. Debtors
Group Company
2003 2002 2003 2002
# # # #
Trade debtors 135,016 82,162 135,016 82,162
Other debtors 145,120 - 168,705 -
Prepayments and accrued income 162,624 - 162,623 -
--------------- ------------- --------------- ---------------
--
442,760 82,162 466,344 82,162
--------------- ------------- --------------- ---------------
--
18. Cash
Group and company 2003 2002
# #
Cash at bank and in hand 17,116 18,904
Cash - restricted 258,103 454,802
--------------- ---------------
275,219 473,706
--------------- ---------------
Included within cash at bank at 30 June 2003, is an amount deposited with
Barclays Bank Plc that has been assigned to a finance company as partial
security for a loan facility. This amount has been designated as restricted
cash.
19. Convertible loan notes
Group and company 2003 2002
# #
Investors' loan notes - 250,000
Other convertible loan notes - 131,514
--------------- ---------------
- 381,514
--------------- ---------------
The Investors' loan notes and convertible loan notes were converted during the
year into new ordinary shares at a conversion price of 3.5p.
20. Creditors: amounts falling due within one year
Group Company
2003 2002 2003 2002
# # # #
Secured loans 1,764,034 749,744 1,764,034 749,744
Unsecured loans 1,241,999 1,466,999 25,000 250,000
Trade creditors 1,989,653 2,221,296 1,797,389 1,683,898
Amounts owed to subsidiary undertakings - - 999 -
Other taxation and social security 408,560 521,431 408,560 521,431
Accruals and deferred income 1,681,235 454,416 1,681,235 454,416
Obligations under finance leases and
hire purchase contracts 1,159,717 1,318,026 1,159,717 1,318,026
--------------- ------------- --------------- ---------------
--
8,245,198 6,731,912 6,836,934 4,977,515
Convertible loan notes (note 19) - 381,514 - 381,514
--------------- ------------- --------------- ---------------
--
8,245,198 7113426 6,836,934 5,359,029
--------------- ------------- --------------- ---------------
--
Secured loans include #327,420, repayable over ten months, at an interest rate
of 20% per annum. This loan is secured over certain net current assets.
21. Creditors: amounts falling due after more than one year
Group and company 2003 2002
# #
Secured loans 1,342,912 -
Obligations under finance leases and hire purchase contracts 892,812 1,242,334
Trade creditors - 760,272
--------------- ---------------
2,235,724 2,002,606
--------------- ---------------
22. Obligations under leases and hire purchase contracts
Amounts due under finance lease and hire purchase contracts:
Group and Company 2003 2002
# #
Amounts payable:
Within one year 1,253,325 1,557,883
In one to two years 743,998 1,495,870
In two to five years 193,867 -
--------------- ---------------
2,191,190 3,053,753
Less: finance charges allocated to future periods 138,661 493,393
--------------- ---------------
2,052,529 2,560,360
--------------- ---------------
23. Derivatives and other financial instruments
Financial instruments, policies and strategies
During the year the group has financed its business with cash it has raised
through the issue of shares and convertible loan notes. It has used these funds
to develop its secure payment system. It is, and has been throughout the year,
the group's policy that no trading in financial instruments should be
undertaken.
An explanation of the group's financial risk management is set out in note 2.
Short-term debtors and creditors have been excluded from all risk disclosures,
but included in the currency risk disclosures.
Interest rate risk profile
At floating
interest rates
Financial assets 2003 2002
# #
Sterling 275,219 473,706
--------------- ---------------
Floating rate financial assets comprise cash deposits on money market deposit at
call, overnight and periodic rates, ie at Barclays standard rates.
Financial liabilities
The maturity profile of the group's financial liabilities was as follows:
At fixed
interest rates
2003 2002
# #
In one year or less, or on demand 2,948,751 2,699,284
In more than one year but not more than two years 1,879,286 479,126
In more than two years but not more than five years 356,438 763,208
--------------- ---------------
5,184,475 3,941,618
--------------- ---------------
The weighted average interest rate of the fixed rate financial liabilities is
14.0% (2002: 13.1%). The liabilities at fixed interest rates comprise secured
and unsecured loans and finance leases. The weighted average period for which
interest rates are fixed is 23 months (2002: 28 months).
Financial liabilities include #1,216,999 (2002: #1,977,271) in respect of non
interest bearing loans due in one year or less, or on demand.
Foreign currency risk disclosures
The tables below show the group's currency exposures; in other words, those
transactional (or non-structural) exposures that give rise to the net currency
gains and losses recognised in the profit and loss account. Such exposures
comprise the monetary assets and monetary liabilities of the group that are not
denominated in the operating (or 'functional') currency of the operating unit
involved.
During the year to 30 June 2002 the group closed all of its overseas operations.
Accordingly there were no monetary assets or monetary liabilities of the group
that are not denominated in the operating (or 'functional') currency of the
operating unit involved as at 30 June 2003.
Net
Financial Financial monetary
assets liabilities liabilities
# # #
At 30 June 2002
Swiss francs 55,514 66,158 (10,644)
South African rands 27,281 6,281 21,000
HK dollars 34,493 5,496 28,997
--------------- --------------- ---------------
117,288 77,935 39,353
--------------- --------------- ---------------
23. Derivatives and other financial instruments (continued)
Net
Financial Financial monetary
assets liabilities liabilities
# # #
At 30 June 2003
Swiss francs - 102,398 102,398
South African rands - 18,000 18,000
HK dollars - 71,866 71,866
--------------- --------------- ---------------
- 192,264 192,264
--------------- --------------- ---------------
Fair values of financial instruments
Set out below is a table showing the book values and fair values of all the
group's financial assets and financial liabilities.
Book value and fair value
2003 2002
# #
Short term borrowings and current
portion of long term borrowings (4,165,750) (3,534,769)
Long term borrowings (2,235,724) (1,242,334)
Convertible loan notes - (381,514)
Cash at bank and in hand (including restricted cash) 275,219 473,706
--------------- ---------------
The fair values of all items have been calculated by discounting cash flows at
prevailing interest rates at the year end.
24. Share capital
2003 2002
# #
Authorised:
642,110,352 (2002 - 482,110,352) ordinary shares of 2.5p each 16,052,759 12,052,759
105,963,216 deferred shares of 7.5p each 7,947,241 7,947,241
---------------- ----------------
- -
24,000,000 20,000,000
---------------- ----------------
- -
2003 2002
# #
Allotted, called up and fully paid:
228,290,361 (2002 -123,420,357) ordinary shares of 2.5p each 5,707,259 3,085,509
105,963,216 deferred shares of 7.5p each 7,947,241 7,947,241
--------------- ---------------
13,654,500 11,032,750
--------------- ---------------
On 30 December 2002, the company's authorised share capital was increased by
#4,000,000 by the creation of 160,000,000 Ordinary Shares of 2.5p each.
The deferred shares carry no rights to receive any dividend or other
distribution. The holders of the deferred shares have no rights to receive
notice, attend, speak or vote at any general meeting of the Company. On a
return of capital on liquidation or otherwise, the holders of the deferred
shares are entitled to receive the nominal amount paid-up on the deferred shares
after the repayment of #10,000,000 per Ordinary Share. Consequently a value of
#nil has been ascribed to the deferred shares.
During the year to 30 June 2003 a total of 104,870,004 Ordinary Shares with an
aggregate nominal value of #2,621,750 were issued for cash consideration of
#1,082,152 and the conversion of debt amounting to #1,734,316. Of the total
19,471,839 were issued at 3.5p per share in respect of convertible loan notes
outstanding at 30 June 2002 and 4,400,000 were issued at par in respect of a
loan outstanding at 30 June 2002.
A further 37,712,103 were issued at par in respect of convertible loan notes
issued during the year and 43,286,062 were issued at par for cash.
The company has granted share options to subscribe to the company's shares to
certain employees. At 30 June 2003, options under this scheme were outstanding
over New Ordinary Shares of 2.5 p each at strike prices ranging from 5.0p to
#1.75, exercisable at various dates up to 30 June 2008 as shown in the table
below.
Options Options
Exercise outstanding at outstanding at
Exercise period price 1 July 2002 Granted Exercised Lapsed 30 June 2003
From To # No. No. No. No. No.
1 March 1999 1 March 2005 #0.10 558,000 - - - 558,000
1 March 1999 1 September 2005 #0.10 20,000 - - - 20,000
30 September 30 September #0.20 50,000 - - - 50,000
1999 2006
1 January 2001 31 December 2006 #0.25 1,340,000 - - - 1,340,000
30 June 2001 30 June 2007 #0.35 200,000 - - - 200,000
1 June 2001 30 June 2006 #0.63 250,000 - - - 250,000
1 June 2001 31 December 2006 #0.35 2,580,000 - - - 2,580,000
1 July 2001 30 June 2006 #0.60 1,275,000 - - - 1,275,000
1 October 2001 30 September #0.70 200,000 - - - 200,000
2006
31 December 2001 31 December 2006 #1.50 20,000 - - - 20,000
1 January 2002 30 June 2006 #0.40 52,000 - - - 52,000
1 January 2002 31 December 2006 #1.50 20,000 - - - 20,000
1 March 2002 28 February 2007 #1.75 117,500 - - - 117,500
1 April 2002 31 March 2007 #1.60 500,000 - - - 500,000
1 May 2002 1 May 2007 #1.60 1,000,000 - - - 1,000,000
1 July 2002 30 June 2007 #1.60 150,000 - - - 150,000
1 July 2002 1 July 2004 #0.05 - 250,000 - - 250,000
1 September 2002 31 August 2007 #1.60 60,000 - - - 60,000
1 October 2002 30 September #1.60 325,000 - - - 325,000
2007
15 November 2002 15 November 2004 #0.05 - 500,000 - - 500,000
1 January 2003 30 December 2007 #1.60 125,000 - - - 125,000
1 April 2003 31 March 2008 #1.60 170,000 - - - 170,000
1 May 2003 1 May 2005 #0.05 - 500,000 - - 500,000
30 June 2003 30 June 2008 #0.50 138,000 - - - 138,000
1 July 2003 1 July 2005 #0.05 - 400,000 - 100,000 300,000
1 July 2003 30 June 2008 #1.60 300,000 - - - 300,000
1 July 2004 1 July 2006 #0.05 - 400,000 - 100,000 300,000
1 July 2005 1 July 2007 #0.05 - 400,000 - 100,000 300,000
-------------- -------------- -------------- -------------- --------------
- - - - -
9,450,500 2,450,000 - 300,000 11,600,500
-------------- -------------- -------------- -------------- --------------
- - - - -
Other than the employees share options described above, further options have
been granted in respect of 85,240,610 New Ordinary Shares of 2.5p each under the
terms of the company's fund-raising activities and acquisitions, at strike
prices ranging from 5p to #1.60, exercisable at various dates between 23 March
1999 and 31 December 2006 or Initial Public Offering of the group, as shown in
the table below.
Options Options
Exercise outstanding at outstanding at
Exercise period price 1 July 2002 Granted Exercised Lapsed 30 June 2003
From To # No. No. No. No. No.
23 March 1999 11 November #0.25 230,610 - - - 230,610
2003
18 June 1999 31 December #0.60 600,000 - - 600,000 -
2002
18 June 1999 31 December #0.60 820,000 - - 820,000 -
2002
21 June 1999 31 December #0.60 70,000 - - 70,000 -
2002
21 December 21 December #1.60 90,000 - - - 90,000
2000 2005
30 April 2001 30 April 2005 #1.60 40,000 - - - 40,000
1 June 2001 30 June 2003 #0.63 100,000 - - 100,000 -
1 July 2001 30 June 2005 #1.60 80,000 - - - 80,000
17 October 2001 17 October 2006 #0.05 1,500,000 - - - 1,500,000
7 December 2001 7 December 2003 #0.05 24,684,071 - - 24,684,071 -
1 January 2003 31 December #0.04 - 3,300,000 - - 3,300,000
2004
31 March 2003 31 December #0.03 - 24,000,000 - - 24,000,000
2003
31 March 2003 31 December #0.03 - 20,000,000 - - 20,000,000
2004
31 March 2003 31 December #0.04 - 20,000,000 - - 20,000,000
2005
31 March 2003 31 December #0.05 - 16,000,000 - - 16,000,000
2006
-------------- -------------- -------------- -------------- --------------
- - - - -
28,214,681 83,300,000 - 26,274,071 85,240,610
-------------- -------------- -------------- -------------- --------------
- - - - -
25. Reserves
Group Share
premium Other Profit and
account reserve loss account Total
# # # #
At 30 June 2002 29,620,678 9,200,000 (48,598,662) (9,777,984)
Loss for the year - - (12,278,014) (12,278,014)
Arising on share issues 194,718 - - 194,718
--------------- --------------- --------------- ---------------
At 30 June 2003 29,815,396 9,200,000 (60,876,676) (21,861,280)
--------------- --------------- --------------- ---------------
Company Share
premium Other Profit and
account reserve loss account Total
# # # #
At 30 June 2002 29,620,678 9,200,000 (48,598,662) (9,777,984)
Loss for the year - - (10,845,167) (10,845,167)
Arising on share issues 194,718 - - 194,718
--------------- --------------- --------------- ---------------
At 30 June 2003 29,815,396 9,200,000 (59,443,829) (20,428,433)
--------------- --------------- --------------- ---------------
26. Movements in shareholders' funds
Group Company
2003 2002 2003 2002
# # # #
Brought forward 1,254,766 13,192,164 1,254,766 16,849,852
Loss for the financial year (12,278,014) (12,478,398) (10,845,167) (16,136,086)
Arising on issue of shares 2,816,468 541,000 2,816,468 541,000
--------------- --------------- --------------- ---------------
Carried forward (8,206,780) 1,254,766 (6,773,933) 1,254,766
--------------- --------------- --------------- ---------------
27. Notes to the statement of cash flows
(a) Reconciliation of operating loss to net cash outflow from operating
activities
2003 2002
# #
Operating loss (11,778,808) (10,770,046)
Impairment losses on intangible assets 1,616,090 1,151,632
Impairment of tangible fixed assets 723,248 -
Amortisation of intangible assets 2,238,356 2,797,945
Depreciation of tangible assets 1,770,726 2,487,668
(Increase)/decrease in debtors (360,598) 1,309,680
Decrease in stocks 1,405,454 156,161
Increase/(decrease) in creditors 122,032 (1,198,286)
-------- --------
Net cash outflow from operating activities (4,263,500) (4,065,246)
-------- --------
(b) Analysis of net debt
2002 Cash flow Non cash flow 2003
# # # #
Cash at bank and in hand 18,904 (1,788) - 17,116
Cash - restricted 454,802 (196,699) - 258,103
--------------- --------------- --------------- ---------------
473,706 (198,487) - 275,219
Loans (2,598,257) (3,485,006) 1,734,317 (4,348,946)
Finance lease obligations (2,560,360) 507,831 - (2,052,529)
--------------- --------------- --------------- ---------------
(4,684,911) (3,175,662) 1,734,317 (6,126,256)
--------------- --------------- --------------- ---------------
28. Financial commitments
At 30 June 2003 the group had annual commitments under non-cancellable operating
leases as follows:
Land and buildings Other
2003 2002 2003 2002
# # # #
Expiry date:
Less than one year 16,022 18,313 - -
Between one and two years - 50,500 - -
Between two to five years 137,000 - - -
--------------- --------------- --------------- --------------
29. Pension commitments
The company operates a defined contribution pension scheme, the earthport Group
Personal Pension Scheme for its directors and senior employees. The assets of
the scheme are held separately from those of the company in an independently
administered fund. The unpaid contributions outstanding at the year end were
#nil (2002 - #nil).
30. Related party transactions
During the year the group entered into transactions, in the ordinary course of
business, with related parties. Transactions entered into, and balances
outstanding at 30 June 2003, are set out below.
Gelande Corporation Limited ('Gelande'), a company in which Robert Rakison, a
director of earthport and Rob Cunningham, a senior executive of earthport, have
a direct beneficial interest, invoiced earthport in the year to 30 June 2003 for
a total amount of #577,035 (2002 - #1,081,798) in respect of fees payable under
an agreement with earthport plc dated March 2002. Under the terms of this
agreement, Gelande are entitled to commission for new business introduced, fees
for consultancy services and commission of 10% of amounts raised from
fundraising. The agreement was substantially amended in March 2003 to remove
some of these fee entitlements from that date. During the year a total amount
of #227,938 (2002 - #274,653) was paid to Gelande. In addition Gelande issued
credit notes to earthport for an amount of #760,272 in respect of invoices
issued in the year to 30 June 2002 following an arrangement whereby Gelande
agreed that this amount would not be due for payment before 1 July 2003.
Accordingly, earthport have made provision for the amount credited, less VAT, of
#647,040 at 30 June 2003. Of the loans made to earthport by Gelande #45,000 was
outstanding at 30 June 2002 and this reduced to #30,000 at 30 June 2003. The
total amount included in the financial statements as being due to Gelande at 30
June 2003 is, therefore, #1,026,136 (2002 - #805,272).
In addition, on 2 December 2002, Gelande provided a guarantee for #200,000 by
way of security in respect of third party loans to earthport. Further, in April
2003, Rob Cunningham provided a personal guarantee of #100,000 to the same third
party also in respect of loans to earthport.
Grundberg Mocatta Rakison, a legal firm in which Robert Rakison, a director of
earthport is a partner, invoiced earthport for a total amount of #260,722 (2002
- #252,465) in respect of legal fees incurred during the year and payments of
#175,101 were made. The amount outstanding to the firm at 30 June 2003 was
#338,086 (2002 - #252,465).
David Vanrenen, the ex Chairman of earthport made a loan to the company of
#100,000 on 31 July 2001. The company has repaid #75,000 and #25,000 is
outstanding at 30 June 2003 which is in dispute. (2002 - #50,000). Interest is
due on this loan at 10% per annum.
Rob Cunningham made loans to the company totalling #182,000 during the year in
addition to the balance outstanding of #10,764 at 30 June 2002. The company had
repaid #185,577 by the year end leaving #7,187 outstanding at 30 June 2003. In
July 2003, Rob Cunningham provided security to a third party in respect of a
loan to earthport of #250,000.
As security for the personal guarantee and security given by Rob Cunningham to
third parties amounting to #350,000 in total, earthport issued in July 2003, a
licence to its software to Mr Cunningham which is valid until such time as the
security he has given is released.
31. Events since the balance sheet date
On 31 July 2003 as a result of the issue of Ordinary Shares for cash and the
conversion of loans into Ordinary Shares at a price of 2.5p, 33,371,491 new
Ordinary Shares were issued, allotted and admitted to trading on AIM on Friday 1
August 2003.
The total number of Ordinary Shares in issue on that date was 261,661,852.
On 9 September 2003 the Board of earthport announced that it had completed
arrangements to issue a total of 107,160,000 new Ordinary Shares of 2.5p each at
a price of 2.5p per share by way of a placing for cash, raising #2,679,000.
Seymour Pierce, the Company's broker, placed 87,070,000 new Ordinary Shares with
institutions and private investors. The Company in addition received
subscriptions for 20,090,000 new Ordinary Shares directly and also issued
1,313,478 Ordinary Shares in settlement of miscellaneous staff payments and
commissions.
The Company also announced that it had exchanged an agreement for the issue of
#400,000 of Convertible Loan Notes ("the Convertible") to raise a total of
#3,079,000 for the Company (before expenses).
The Convertible was subscribed for by investors including funds advised by Park
Place Capital ("Park Place Investors"). This funding, together with the amount
of #427,500 raised in July 2003 and announced on 31 July 2003, brought the total
raised during the period of July to September 2003 to #3,506,500, (before
expenses).
On 29 September 2003 an additional 14,328,571 new Ordinary Shares were issued
for cash at a price of 2.5 pence per share, which were allotted and admitted to
trading on AIM on Wednesday 1 October 2003 and, together with 114,284 Ordinary
Shares issued to staff, brought the total number of Ordinary Shares in issue at
that date to 384,578,185.
In November 2003 the Board of earthport announced that it had agreed a variation
of the proposed investment of funds in the Company by Park Place Investors
announced on 9 September 2003 following a number of inquiries from existing
shareholders and potential investors.
The previous intention to accept investment of #400,000 and rights to invest a
further #1,200,000 by way of a Convertible for 2.5p per Ordinary Shares bearing
a coupon of 10% with additional warrants on the same terms ("the Old Warrants")
as the Convertible with an anti-dilution provision were renegotiated. In
addition all other conditions and rights of the announcement of 9 September 2003
were replaced by a new agreement.
The Board of earthport announced on 14 November 2003 that investors including
funds advised by Park Place Investors have subscribed #200,000 for 8,000,000
Ordinary Shares at 2.5p each. In addition, the Park Place Investors have been
issued with warrants to invest a further #300,000 up to 30 June 2004 and a
further #100,000 up to 31 December 2004 on the same terms ("the New Warrants").
The Park Place Investors have given an undertaking that they will not increase
their shareholding in the Company without the consent of the earthport Board.
Exercise of the New Warrants is not subject to the undertaking.
The new Ordinary Shares represented approximately 2.04% of the enlarged issued
share capital of earthport.
The proceeds of the issue will be used to provide additional working capital for
the development of the earthport group.
Following the above issues of new Ordinary Shares together with an issue of
3,591,909 Ordinary Shares on 18 November, there was a total of 396,170,094
Ordinary Shares in issue as at 24 November 2003.
32. The Annual Report and Accounts for the year ended 30 June 2003 will be
posted to shareholders on 28 November and copies will also be available from the
Company's head office at 7-10 Chandos Street, London, W1G 9DQ.
- Ends -
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR GCBDBDXDGGXL