RNS Number:9250D
Freeplay Energy PLC
17 September 2007
17 September 2007
Strictly Embargoed Until 0700
Freeplay Energy plc
("Freeplay", "the Group" or "the Company")
Interim Results for the six months ended 30 June 2007
Freeplay Energy plc, the original and leading global brand of clean, dependable
energy products, announces interim results for the six months ended 30 June
2007.
* Satisfactory progress made during the first half of 2007, particularly
in the UK, where the Group has won a number of new customers, along with
good progress from the Aid & Humanitarian business:
- Total Group turnover for the period was US $21.0 million
(2006: US $3.0million), including a contribution of US $18.9 million
from Dixie Sales Company, acquired in July 2006
- Gross profit increased to US $5.8 million (2006: US $0.1 million),
with Dixie division contributing US $5.2 million to the total
- Loss before tax was US $4.5 million (2006: US $2.4 million) and the
corresponding loss per share was US $0.09 (2006: loss of US $0.08)
* Restructuring programme announced in August to improve the performance
of the Group is already making good progress; key focus is to:
- Increase revenue in Freeplay Energy division
- Improve profitability and margin on existing sales in Dixie sales
- To drive these changes, David Floyd, currently Vice President Global
Sales, has been appointed Managing Director of the Freeplay Energy
division and has joined the Board, and Harold Reiter has become
Chief Executive Officer of Dixie Sales
* Promising early signs from joint-venture with Narang Group in India with
orders received from India's largest company and third largest mobile phone
network, and IFFCO, the Indian farmers' cooperative. Both orders are
expected to contribute significantly to sales in the 2008 financial year
* Number of orders received since the period end is significantly above
the same period last year; orders received from the Freeplay Foundation
include:
- South Sudan order for 85,000 radios shipped from July 2007 onwards
- Orders for Malawi and Tanzania to ship during September
* Freeplay Energy division has had continued success in signing new retail
partners in the UK and North America:
- In the UK, Marks and Spencer, ASDA and Comet to stock products in the
final quarter of 2007, and Dixons/Currys placed a significant opening
order
- In North America, Eddie Bauer, LL Bean and Bass Pro will all stock
products during 2008 and Canadian Tire Company is a new retailer for
Q4 2007
Commenting on the outlook for the remainder of 2007, Rory Stear, Chairman, said:
"Freeplay has enjoyed a steady start to the year and I am confident that the
restructuring measures that have been undertaken and the new leadership, which
has been put in place, will enable the Group to maximise our full potential and
give us greater focus and control in our two divisions.
"The Group enters the second half of 2007 with confidence and the Board remains
encouraged by the number of opportunities opening up to the Group, particularly
in new markets such as India. As we have previously indicated, the markets in
which we operate remain challenging but, despite this, we are seeing good
progress in most areas of our business and the Board believes that both Freeplay
Energy and Dixie Sales will make a significant improvement in revenue over the
second half of the year, which we expect to continue into 2008".
- ends -
For further information, please contact:
Freeplay Energy plc 020 7851 2630
Rory Stear, Chairman
Weber Shandwick Financial 020 7067 0700
Louise Robson or James White
Charles Stanley (Nominated Adviser) 020 7149 6000
Mark Taylor
Notes to Editors
Freeplay Energy plc is the original and leading global brand of clean,
dependable energy products. Freeplay Energy's clean, patented technology
harnesses human, solar and rechargeable energy and converts it into electricity
to power unique portable, consumer products replacing conventional disposable
battery-powered systems that are environmentally toxic and expensive. The
current product range includes radios, torches, lanterns, mobile phone chargers
and standalone foot powered generators. Freeplay Energy's "Lifeline" radio is
distributed throughout the developing world by The Freeplay Foundation
(www.freeplayfoundation.org) and other AID and Humanitarian organisations such
as Unicef and other United Nations' agencies. Further information about Freeplay
Energy plc and its products can be found at www.freeplayenergy.com.
Freeplay Energy - Best in the World, Best for the World
Freeplay Energy plc
("Freeplay", "the Group" or "the Company")
Interim Results for the six months ended 30 June 2007
CHAIRMAN'S STATEMENT
I am pleased to present the interim results for Freeplay Energy plc for the
period ended 30 June 2007.
Freeplay has continued to make satisfactory progress during the first half of
2007, particularly in the UK, where we are pleased that we have signed a number
of new customers, and in our Aid & Humanitarian business which was underpinned
by strong orders from the Freeplay Foundation. We are also beginning to see
early promising signs from our joint-venture with Narang Group in India.
On 2 August 2007, we announced a Group restructuring programme to improve the
performance of the Group and better position it for 2008 and beyond. The
restructuring programme is focusing on maximising the benefits of the
acquisition of Dixie Sales and exploiting the synergies between the two
operating divisions of Freeplay to reduce costs throughout the business. The
restructuring programme will also see the Group exit certain non-core areas and
consolidate sales operations where appropriate.
The planned changes will have no negative effect on the future growth of the
business, with manufacturing, product development and sales functions remaining
unchanged.
In the announcement on 2 August, we indicated that good progress had been made
in the following areas:
* Approximately US $1.5 million of cost-savings have been achieved to
date, with the total reduction in Group overhead expected to be up to US $4
million annually;
* Dixie Sales discontinued its motorcycle business unit, the distribution
of Husaberg and Gas Gas products, with effect from 1 September 2007; and
* Dixie Sales has consolidated its warehousing locations in the US from
three to two with no impact on customer service levels.
As part of the restructuring programme, we have further refined our approach to
our two divisions, Freeplay Energy and Dixie Sales. Based on the complexities of
the different business models, the key focus is to increase revenue in the
Freeplay Energy division and improve profitability and margin on existing sales
in Dixie Sales.
As we announced on 13 September 2007, in order to drive this approach, David
Floyd, currently Vice President Global Sales, has been appointed Managing
Director of the Freeplay Energy division and has joined the Board, and Harold
Reiter, who was appointed to the Board as an Executive Director in August 2006,
has become Chief Executive Officer of Dixie Sales. Mike Rounsavall remains as
President of Dixie Sales, reporting directly to Harold Reiter.
David joined Freeplay in January 2006 from Motorola, where he spent 15 years in
a number of senior management roles, most recently as Director of Wireless
Enterprise Solutions Europe, Middle East and Africa. He has significant
leadership experience following his positions at Motorola, and the Board
believes he is the most appropriate person to be driving the Freeplay Energy
division forward. Harold Reiter joined Freeplay as a non-executive director
following the acquisition of Dixie Sales in July 2006, and was subsequently
appointed an Executive Director. His considerable experience whilst at Barrett
Corporation places him in an ideal situation to lead Dixie Sales into the next
stage of its development.
Peter Porteous, currently Chief Executive Officer, has resigned from the Board
of Freeplay, with effect from 12 September 2007. Peter will remain with Freeplay
for a short while to enable a smooth handover. His position of Chief Executive
of the Freeplay Energy Group will not be replaced.
Financial Review
Total Group turnover for the period was US $21.0 million (2006: US $3.0
million), including a contribution of US $18.9 million from Dixie Sales Company,
which was acquired in July 2006.
Gross profit increased to US $5.8 million (2006: US $0.1 million), with the
Dixie division contributing US $5.2 million to the total. Loss before tax was US
$4.5 million (2006: US $2.4 million) and the corresponding loss per share was
US $0.09 (2006: loss of US $0.08).
Administration and distribution expenses increased to US $9.5 million (half year
2006: US $3.0 million), due to the inclusion of US $6.3 million of Dixie
administration and distribution expenses.
During the period, net debt increased by US $3.4 million to US $14.5 million
(year end 2006: US $11.1 million, half year 2006: US $ 5.1 million). This was
largely attributable to losses from the first six months operations (US $4.5
million), with the remaining losses funded by an increase in trade payables. At
30 June 2007, Freeplay had a net overdraft of US $13.2 million.
We are currently renegotiating our five year overdraft with HSBC to a five year
term loan facility to assist in funding working capital requirements.
Review of Operations
Freeplay Energy ("Freeplay Energy")
During the first six months of the year, this division has made steady progress,
particularly in the UK and Aid & Humanitarian, which are both performing
strongly in line with expectations, and we are seeing good early-stage momentum
from our joint-venture with Narang Group in India.
We have been successful in the period in signing new retail partners in the UK,
with Marks & Spencer, ASDA and Comet stocking a number of Freeplay Energy
products in the final quarter of 2007, with Dixons/Currys placing a significant
opening order. In addition, we have received verbal confirmation from several of
the other major high street retailers that they will stock our products in early
2008. We are pleased with this increasing momentum and the prospects for further
new retail partners are looking encouraging.
We have seen good momentum in Aid & Humanitarian, underpinned by orders from the
Freeplay Foundation. The order received for South Sudan in late May for delivery
in the second half is the largest ever from the Foundation.
We have made good progress with the One Laptop Per Child programme, where we are
supplying the human power generators for each laptop, and we are pleased to have
received a firm order, with the first shipment to Peru expected in late
November. The Freeplay logo is displayed on the wind-up handle of each laptop,
creating brand awareness in this important developing market. As the full
roll-out of the One Laptop Per Child programme is scheduled to be shipped in
early 2008, this programme will not contribute to sales until the first part of
the next financial year.
However, the One Laptop Per Child programme is extremely important to the Group
as it is a real endorsement of Freeplay Energy's technology by the technology
professionals at MIT, emphasising the quality of our product and our leadership
in human powered energy.
The Board is disappointed with the slower than anticipated progress in the North
American market and expects that revenue will be flat for the full year.
However, we are already beginning to see encouraging signs for 2008 and this
market is a key focus for the Group going forward.
David Floyd, Vice President, Global Sales, has recently spent considerable time
in the United States working with the sales team to improve processes and focus
on building on the recent success we have had in the UK in securing new retail
partners. We have seen a good performance from REI, the premium outdoor goods
retailer, where there has been significant success in the lantern category, and
we have signed Eddie Bauer, LL Bean and Bass Pro, all major US retailers, which
will stock products during 2008, and in Canada, Canadian Tire Company is a new
retailer for the fourth quarter 2007, and we have shipped product to Mountain
Equipment Co-op.
In Africa, where progress has continued to be modest, we have been focusing on
the transition of our distribution process, particularly in South Africa and
Kenya. Operationally, we have moved responsibility closer to the factories in
China from South Africa and appointed Sonny Ma as Operations Manager China. We
have also appointed Malibuye Monyoro as Business Development Manager for Africa
and the Middle East and have been successful in securing new distributors in
Nigeria and Ethiopia. Malibuye joined us in July 2007 from Mars, the FMCG group,
where he has significant experience in the African market.
On the product development side, during the first half of the year we have
concentrated primarily on developing the technology for the One Laptop Per Child
programme and we are extremely pleased with the progress made there, where the
tooling for the Freeplay Energy product has now been completed. We have also
developed a lantern specifically for the Indian market, where we are seeing good
potential for this type of product, as well as in other developing world
markets.
Dixie Sales ("Dixie Sales")
Overall, sales for the Dixie division were largely in line with expectations,
albeit down by 3% compared to the same period last year. The performance of the
Outdoor Power Equipment parts line of business met expectations for the first
half of the year, largely through strong performance in the first quarter.
The sector came under significant pressure during the latter part of the second
quarter of the period due to severe drought conditions in the south eastern
United States commencing in May and which have continued throughout the summer.
The impact on Dixie Sales is consistent with the adverse effects experienced by
our manufacturer and other channel partners.
Results were also adversely impacted by lower than anticipated revenue from the
power sports division due to lower consumer discretionary spending resulting
from difficult economic conditions throughout the United States.
Given the difficult market conditions, Dixie Sales has adjusted its operating
costs as much as possible without negatively impacting the overall business. The
cost adjustment strategy enabled the division to focus on its core competencies
by exiting marginal product lines and pursuing higher value-added product lines
and services. In August 2007, Freeplay announced that Dixie Sales was exiting
the low margin motorcycle business and is reviewing certain other business
activities. In addition to the cost savings noted above Dixie Sales has
commenced a detailed review of its other service offerings with the view of
reducing its cost to provide. The results of these activities will likely impact
the 2008 results.
Dixie Sales is aggressively pursuing new business opportunities with a
particular focus on providing high value added services levering its core
strengths. In July 2007 Dixie entered into an exclusive distribution and
services agreement with Bye Bye Standby Inc to market, sell and provide
fulfillment support for its recently introduced energy savings solution,
designed in the UK, to reduce daily energy consumption of electrical devices. In
addition Dixie Sales has entered into three other new long-term distribution or
services agreements that will take effect during the second half of the year.
The new business wins are expected to produce in the order of US $3 million in
new revenue on an annual basis.
Trading Update
As we announced on 2 August, we have terminated the five-year agreement with
World Phones to distribute the FreeCharge Mobile Phone Charger in Africa and the
Caribbean region, signed in May 2006, as World Phones had not fulfilled its
contractual obligations to Freeplay. Termination of this exclusive agreement
will give Freeplay the opportunity to engage directly with these important
markets, which it was precluded from doing under the terms of the World Phones
agreement.
Since the period end we have continued to see strong momentum in all areas of
our business.
In late May 2007, the Freeplay Energy division received a significant order for
85,000 radios from the Freeplay Foundation for South Sudan. We are pleased that
the first deliveries were shipped during July and August, after the period end,
with the final delivery being shipped in October. Post the period end we have
received new orders for Lifeline radios from the Freeplay Foundation for Malawi
and Tanzania, which will ship during September.
In early September the joint-venture with Narang Group, Freeplay Energy India,
received its first order for FreeCharge mobile phone charges from Reliance
Industries, India's largest company and third largest mobile phone network.
Freeplay Energy has had an initial order for the FreeCharge, Weza and the
lantern specifically developed for this market from IFFCO, the Indian farmers'
cooperative, which has 55 million members and consequently excellent influence
and distribution channels to the all-important rural areas. We expect these
orders from the important business to business market to gain momentum during
the year and contribute significantly to sales in the 2008 financial year.
As part of our drive to increase the number of outlets selling the Freeplay
Energy product range, in September we appointed Dalesman International to
distribute products to the outdoor market in the UK. Dalesman is the leading
distributor of outdoor accessory brands, including market leaders such as
Garmin, Memory Map, Timex and LaCrosse.
Our People
Following the Annual General Meeting on 20 July 2007, Leonard Fassler retired as
a Non-Executive Director and from the Board. Mr Fassler has had a 10 year
relationship with Freeplay and served as a director of Freeplay Energy plc for
over six years and has played an important role in the development of Group. We
would like wish Mr Fassler well in his retirement.
Stuart Kinney has resigned as a Non-Executive Director and from the Board. This
is to ensure a good balance between representatives of the Barrett Corporation
and the other members of the Freeplay Board. Mr Kinney joined Freeplay following
the acquisition of Barrett Marketing Group Inc in July 2006. Mr Kinney is
currently General Counsel at Barrett Corporation.
As indicated above, Peter Porteous has resigned as Chief Executive Officer of
the Group and the Board with effect from 17 September 2007. The Board would like
to take this opportunity of wishing Peter well in the future.
David Floyd has been appointed Managing Director of the Freeplay Energy division
and to the Board of Freeplay, and Harold Reiter, already an Executive Director
of the Group has been appointed Chief Executive Officer of Dixie Sales. Both
these appointments took effect from 13 September 2007.
In May 2007, we appointed Rahul Sharma as Vice President, Marketing and Internet
Channel. In this newly created role, Rahul will oversee worldwide marketing
including brand development, product management, e-commerce, and the internet.
Rahul has an eclectic skill set blending marketing, technology, and operations.
One of Rahul's first tasks was to improve the Freeplay website,
www.freeplayenergy.com, and we are pleased that from the 17 September 2007, for
the first time the website will have a fully functional online sales capability,
using Dixie Sales' call centre and distribution function. In March 2007, Rory
Stear was selected as one of CNN/Time/Fortune's Principal Voices, highlighting
how innovation and sustainable energy technology can help address energy poverty
in the developing world. Principal Voices is an international project aimed at
stimulating discussion on some of the challenges confronting the world today.
Outlook
The Board and key shareholders are optimistic about the steady progress made
during the first half of the year and are encouraged by the number of
opportunities opening up to the Group, particularly in new markets such as
India. In addition, we have a strongly increasing franchise in the important Aid
& Humanitarian market, which has already translated into sales. At Dixie Sales,
we are excited by the orders coming through and are making good progress in
moving the product range to fit in with Freeplay's culture.
As we have indicated above, the markets in which we operate remain challenging
but, despite this, we are seeing progress in most areas of our business, even
though it may not always be at the pace we would like to enable Freeplay to
become the leading global brand of clean, dependable energy products. The Board
believes that both Freeplay Energy and Dixie Sales will make a significant
improvement in revenue over the second half of the year, which we expect to
continue into 2008.
Consolidated Balance sheet
As at 30 June 2007 30 June 2007 30 June 2006 31 December 2006
(Unaudited) (Unaudited) (Unaudited)
Assets US $000's US $000's US $000's
Non current assets
Goodwill 8,198 - 8,198
Other intangible assets 258 97 211
Property, plant and equipment 1,329 561 1,386
Investment in joint venture 21 - -
---------- ---------- ----------
Total non-current assets 9,806 658 9,795
Current Assets
Inventory 11,110 1,094 10,203
Trade and other receivables 6,686 2,952 8,217
Other financial assets 85 - -
Other assets 661 179 900
Cash at bank and in hand 626 25 353
---------- ---------- ----------
Total current assets 19,168 4,250 19,673
---------- ---------- ----------
Total assets 28,974 4,908 29,468
========== ========== ==========
Equity and liabilities
Capital and reserves
Issued Capital 6,608 3,936 6,608
Share premium 29,028 17,052 29,028
Reserves 4,057 3,015 3,572
Retained earnings (33,149) (26,503) (28,638)
---------- ---------- ----------
Total equity 6,544 (2,500) 10,570
Non-current liabilities
Borrowings 1,054 32 1,101
Deferred tax liability 200 - 200
---------- ---------- ----------
Total non-current liabilities 1,254 32 1,301
Current liabilities
Trade and other payables 7,091 2,184 6,360
Borrowings 14,085 5,082 10,418
Provisions - 110 819
---------- ---------- ----------
Total current liabilities 21,176 7,376 17,597
Total Liabilities 22,430 7,408 18,898
---------- ---------- ----------
Total equity and liabilities 28,974 4,908 29,468
---------- ---------- ----------
Consolidated Income Statement
for 6 months ended 30 June 2007
6 months ended 6 months ended 12 months ended
30 June 2007 30 June 2006 31 December 2006
(Unaudited) (Unaudited) (Unaudited)
US $000's US $000's US $000's
Revenue 21,017 3,001 26,108
Cost of sales (15,234) (2,074) (18,939)
---------- ---------- ----------
Gross profit 5,783 927 7,169
Administration expenses (7,967) (2,453) (9,934)
Distribution expenses (1,500) (532) (1,782)
Other gains/(losses) 171 (153) (253)
Other income/(expenses) (485) (129) 294
Investment revenue - - 2
Finance costs (496) (128) (491)
Share of loss of joint venture (46) - -
---------- ---------- ----------
Loss before taxation (4,540) (2,468) (4,995)
Income tax refund - 58 365
---------- ---------- ----------
Loss after taxation (4,540) (2,410) (4,630)
---------- ---------- ----------
Basic and diluted loss per 5p
ordinary share (in US$) (0.09) (0.08) (0.11)
Consolidated statement of changes in equity
for the period ended 30 June 2007
Attributable to equity holders of the Group
Share
Share Share Merger Other based Retained
capital premium reserve reserve FCTR payments earnings Total
US $000's US $000's US $000's US $000's US $000's US $000's US $000's US $000's
Balance at 31
December 2005 3,936 17,052 1,947 60 - 893 (24,063) (175)
Exchange differences
arising on translation
of foreign operations - - - - (30) - - (30)
Share based compensation - - - - - 115 - 115
Loss for the 6 months - - - - - - (2,410) (2,410)
--------------------------------------------------------------------------------------------
Balance at 30 June 2006 3,936 17,052 1,947 60 (30) 1,008 (26,473) (2,500)
Exchange differences
arising on translation
of foreign operations - - - - 85 - - 85
Share based
compensation - - - - - 557 - 557
Issue of shares 2,672 12,826 - - - - - 15,498
Share issue costs - (850) - - - - - (850)
Loss for the 6 months - - - - - - (2,220) (2,220)
--------------------------------------------------------------------------------------------
Balance at 31
December 2006 6,608 29,028 1,947 60 55 1,565 (28,693) 10,570
Exchange differences
arising on translation
of foreign operations - - - - 29 - - 29
Share based
compensation - - - - - 485 - 485
Loss for the 6 months - - - - - - (4,540) (4,540)
--------------------------------------------------------------------------------------------
Balance at 30 June 2007 6,608 29,028 1,947 60 84 2,050 (33,233) 6,544
--------------------------------------------------------------------------------------------
Consolidated cash flow statement
30 June 2007
For the 6 For the 6 For the 12
months ended months ended months ended
30 June 2007 30 June 2006 31 December 2006
(Unaudited) (Unaudited) (Unaudited)
US $000's US $000's US $000's
Cash flows from operating
activities
Cash used in operations Note 1 (2,522) (2,657) (6,501)
Interest paid (496) (106) (490)
Taxation refund - 58 321
-------------------------------------------
Cash used in by operating
activities (3,018) (2,705) (6,670)
-------------------------------------------
Investing activities
Interest received - - 2
Payments for property, plant
and equipment (177) (52) (213)
Proceeds from disposal of
property, plant and equipment 8 - -
Payments for intangible assets (19) - -
Development costs paid (74) (24) (79)
Acquisition of subsidiary
undertakings - - (6,709)
Acquisition of joint venture (67) - -
-------------------------------------------
Cash used in investing
activities (329) (76) (6,999)
-------------------------------------------
Financing
Proceeds from issue of
equity shares - - 6,074
Payment for share issue costs - - (850)
Proceeds from borrowings 198 20 -
Repayments of borrowings (331) (4) (93)
-------------------------------------------
Cash (used in)/generated
from financing activities (133) 16 5,131
-------------------------------------------
Net decrease in cash and
cash equivalents (3,480) (2,765) (8,538)
Cash and cash equivalents
at the beginning of the period (9,746) (1,208) (1,208)
-------------------------------------------
Cash and cash equivalents at
the end of the period (13,226) (3,973) (9,746)
-------------------------------------------
Note 1
For the 6 For the 6 For the period
months ended months ended ended
30 June 2007 30 June 2006 31 December 2006
(Unaudited) (Unaudited) (Unaudited)
US $000's US $000's US $000's
Cash generated from operations
Loss for the period (4,540) (2,410) (4,630)
Adjustments for:
Depreciation 227 119 336
Amortisation 49 14 36
Write back of legal obligation - - (999)
Loss on sale of property, plant
and equipment (4) -
Net movements in provisions - 50
Interest income - - (2)
Taxation - (58) (365)
Interest expense 496 128 490
Share of loss from joint venture 46 - -
Share based compensation 485 115 672
Exchange gains/losses on borrowings - 184 -
Changes in working capital:
Inventory (907) (257) (218)
Trade and other receivables 1,010 (488) 650
Trade and other payables 203 (4) (2,521)
------------------------------------------
Cash used in operations (2,522) (2,657) (6,501)
------------------------------------------
Notes to the interim financial statements
1. Basis of preparation
The Group's previous financial statements have been prepared under UK Generally
Accepted Accounting Principles (UK GAAP). For the financial year ended 31
December 2007, the Group will prepare its annual consolidated financial
statements in accordance with IFRS as adopted by the European Union (EU) and
implemented in the UK.
The Group's date of transition to IFRS was 31 December 2005 at which date the
Group prepared its opening IFRS balance sheet. The financial information for the
6 months ended 30 June 2007 is unaudited and has been prepared in accordance
with the Group's accounting policies based on IFRS standards that are expected
to apply for the financial year 2007. The financial information for the 6 months
ended 30 June 2006 is also unaudited and has been restated under IFRS. The Group
has not applied IAS 34, Interim Financial Reporting, which is not mandatory for
UK Groups, in the preparation of these interim financial statements.
The presentation of financial information under IFRS is governed by IFRS 1
'First-time Adoption of IFRS', because they are part of the period covered by
the Group's first IFRS financial statement for the year ended 31 December 2007.
In some cases this will require the presentation of an item in a different
position, or the use of a different description in the financial statements to
that adopted in the UK GAAP financial statements. These reclassifications have
been described in the explanatory notes.
An explanation of how the transition from UK GAAP to IFRS has affected the
Group's financial statements for the periods ended 31 December 2006 and 30 June
2006 is set out in note 5.
The interim financial information has not been audited and does not constitute
statutory accounts within the meaning of Section 240 of the Companies Act 1985.
The Group's statutory accounts for the year ended 31 December 2006, prepared
under UK GAAP have been delivered to the Registrar of Companies. The report of
the auditors on these accounts was unqualified and did not contain a statement
under Section 237(2) or (3) of the Companies Act 1985.
The principal accounting policies adopted in the preparation of these interim
financial statements are set out below. These policies have been consistently
applied to all periods presented.
2. Summary of significant accounting policies
Consolidation
(a) Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the
financial and operating policies generally accompanying a shareholding of more
than one half of the voting rights. The existence and effect of potential voting
rights that are currently exercisable or convertible are considered when
assessing whether the Group controls another entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group. They
are de-consolidated from the date on which control ceases.
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 given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets 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
acquisition is less than the fair value of the Group's share of net assets of
the subsidiary acquired, the difference is recognised directly in the income
statement.
Inter-company transactions, balances and unrealised gains on transactions
between group companies are eliminated. Unrealised losses are also eliminated
unless the transaction provides evidence of an impairment of the asset
transferred. Subsidiaries' accounting policies have been changed where necessary
to ensure consistency with the policies adopted by the Group.
(b) Joint ventures
The Group's interests in jointly controlled entities are accounted for by the
equity method of accounting and are initially recognised at cost.
The Group's investment in its jointly controlled entity includes goodwill (net
of any accumulated impairment loss) identified on acquisition.
The Group's share of its jointly controlled entities' post-acquisition profits
or losses is recognised in the income statement, and its share of
post-acquisition movements in reserves is recognised in reserves. The cumulative
post-acquisition movements are adjusted against the carrying amount of the
investment. When the Group's share of losses in a jointly controlled entity
equals or exceeds its interest in the jointly controlled entity, including any
other unsecured receivables, the Group does not recognise further losses, unless
it has incurred obligations or made payments on behalf of the associate.
Unrealised gains on transactions between the Group and the jointly controlled
entity are eliminated to the extent of the Group's interest in the jointly
controlled entity. Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred. Jointly controlled
entities' accounting policies have been changed where necessary to ensure
consistency of the policies adopted by the Group.
Segment reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments. A geographical segment is engaged in
providing products or services within a particular economic environment that is
subject to risks and returns that are different from those of segments operating
in other economic environments.
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of the Group are measured using the
currency of the primary economic environment in which the entity operates. The
Group's financial statements are presented in United States Dollars, which is
the Group's functional and presentation currency.
(b) Transactions and balances
In preparing the financial statements of the Group, transactions in currencies
other than the entity's functional currency (foreign currencies) are recorded at
the rates of exchange prevailing on the dates of the transactions. At each
balance sheet date, monetary items denominated in foreign currencies are
retranslated at the rates prevailing on the balance sheet date. Non-monetary
items carried at fair value that are denominated in foreign currencies are
retranslated at the rates prevailing on the date when the fair value was
determined. Non-monetary items that are measured in terms of historical cost in
a foreign currency are not retranslated.
Exchange differences arising on the settlement of the monetary items, and on the
retranslation of monetary items, are included in profit or loss for the period.
Exchange differences arising on the retranslation of non-monetary items carried
at fair value are included in profit or loss for the period except for
differences arising on the retranslation of non-monetary items in respect of
which gains or losses are recognised directly in equity. For such non-monetary
items, any exchange component of that gain or loss is also recognised directly
in equity.
(c) Group companies
The results and financial position of all Group entities (none of which has the
currency of a hyperinflationary economy) that have a functional currency
different from the presentation currency are translated into the presentation
currency as follows:
(i) Assets and liabilities for each balance sheet presented are translated
at the closing rate at the date of that balance sheet;
(ii) Income and expenses for each income statement are translated at the
average rates (unless the average is not an approximation of the cumulative
effect of the rates prevailing on the transaction dates, in which case
income and expenses are translated at the dates of the transactions); and
(iii)All resulting exchange differences are recognised as a separate component
of equity (cumulative transition adjustment).
Exchange differences arising from the translation of the net investment in
foreign entities, and of borrowings and other currency instruments designated as
hedges of such instruments, are taken to shareholders' equity on consolidation.
When a foreign operation is sold, such exchange adjustments are recognised in
the income statement as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
Property, plant and equipment
Subsequent costs are included in the asset's carrying amount or recognised as a
separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of the
item can be measured reliably. All other repairs and maintenance are charged to
the income statement during the financial period in which they are incurred.
Depreciation on other assets is calculated using the straight-line method to
allocate the cost of each asset to its residual value over its estimated useful
lives.
All significant assets' residual values and remaining useful lives are reviewed,
and estimated useful lives are adjusted if appropriate, at each balance sheet
date. The following estimated useful lives used the preparation of these
accounts:
Leasehold improvements Over shorter of lease term and 10% - 33% straight line
Plant and machinery,
moulds and tooling 20% - 50% straight line
Office furniture and equipment 10% - 20% straight line
Motor vehicles 20% straight line
An asset's carrying amount is written down immediately to its recoverable amount
if the asset's carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with the
respective carrying amounts and are included in profit from operations.
Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value
of the Group's share of the net identifiable assets of the acquired subsidiary
at the date of acquisition. Goodwill on acquisitions of subsidiaries is included
in intangible assets. Goodwill is tested annually for impairment and carried at
cost less accumulated impairment losses. Gains and losses on the disposal of an
entity include the carrying amount of goodwill relating to the entity sold.
(b) Computer software
Acquired computer software licenses are capitalised on the basis of the costs
incurred to acquire and bring to use the specific software. These costs are
amortised over their estimated useful lives (three to five years).
(c) Research and development
Costs incurred on development projects (relating to the design and testing of
new or improved products) are recognised as intangible assets when it is
probable that the project will be a success considering its commercial and
technological feasibility, and only if the cost can be measured reliably. Other
development expenditures are recognised as an expense as incurred.
Development costs previously expensed are not recognised as an asset in a
subsequent period. The estimated life of the development is seen as finite and
is amortised using a straight line method over its estimated useful live, not
exceeding five years.
Research expenditure is recognised as an expense as incurred.
Impairment of tangible and definite lived intangible assets
At each balance sheet date, the Group reviews the carrying amounts of its
tangible and intangible assets to determine whether there is any indication that
those assets have suffered an impairment loss. If any such indication exists,
recoverable amount of the asset is estimated in order to determine the extent of
the impairment loss (if any). Where it is not possible to estimate the
recoverable amount of an individual asset, the Group estimates the recoverable
amount of the cash-generating unit to which the asset belongs.
The recoverable amount is the higher of fair value less costs to sell and value
in use. 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. If the recoverable amount of an asset (or cash-generating unit) is
estimated to be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised immediately in profit or loss, unless the relevant asset is
carried at a revalued amount, in which case the impairment loss is treated as a
revaluation decrease.
Investments
The Group classifies its investments in the following categories: financial
assets at fair value through profit or loss, loans and receivables,
held-to-maturity investments, and available-for-sale financial assets. The
classification depends on the purpose for which the investments were acquired.
Management determines the classification of its investments at initial
recognition and re-evaluates this designation at every reporting date.
(a) Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading, and
those designated at fair value through profit or loss at inception. A financial
asset is classified in this category if acquired principally for the purpose of
selling in the short term or if so designated by management. Derivatives are
also held for trading unless they are designated as hedges. Assets in this
category are classified as current assets if they are either held for trading or
are expected to be realised within 12 months of the balance sheet date.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They arise when
the Group provides money, goods or services directly to a debtor with no
intention of trading the receivable. They are included in current assets, except
for maturities greater than 12 months after the balance sheet date. These are
classified as non-current assets. Loans and receivables are included in trade
and other receivables in the balance sheet.
Appropriate allowance for estimated irrecoverable amounts are recognised in
income statement when there is objective evidence that the asset is impaired. The
allowance recognised is measured as the difference between the asset's carrying
amount and the present value of estimated future cash flows discounted at the
effective interest rate computed at initial recognition.
Inventories
Inventories are stated at the lower of cost incurred in bringing each product to
its present location, and net realisable value. Cost is determined using the
first-in, first-out (FIFO) method. Net realisable value is based on estimated
selling price less any further costs expected to be incurred to completion and
disposal and also includes provisions made for obsolete and slow moving
inventory.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with
banks, other short-term highly liquid investments with original maturities of
three months or less, and bank overdrafts. Bank overdrafts are shown within
borrowings in current liabilities in the balance sheet.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently stated at amortised cost; any difference
between the proceeds (net of transactions costs) and the redemption value is
recognised in the income statement over the period of the borrowings using the
effective interest method.
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least 12 months
after the balance sheet date.
Taxation
Deferred tax is recognised on differences between the carrying amounts of assets
and liabilities in the financial statements and the corresponding tax bases used
in the computation of taxable profit, 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. Such assets and liabilities
are not recognised if the temporary difference arises from goodwill or from the
recognition (other than in a business combination) of other assets and
liabilities in a transaction that affects neither the taxable profit nor the
accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered. Deferred tax is calculated at the tax rates that have been enacted or
substantially enacted by the balance sheet date. Deferred tax is charged or
credited to profit or loss, except when it relates to items charged or credited
directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and
the Group intends to settle its current tax assets and liabilities on a net
basis.
Employee benefits
(a) Retirement benefit costs
Certain companies in the group operate defined contribution pension schemes. The
Group pays fixed contributions into a separate entity. The Group's
contribution to the defined contribution provident plan is charged to the income
statement in the period to which the contribution relates. No legal or
constructive obligations exist to pay further contributions.
(b) Share-based plans
The Group's management awards high-performing employees bonuses in the form of
share options, from time-to-time, on a discretionary basis. The options are
subject to one or two-year service vesting condition, and their fair value is
recognised as an employee benefits expense with a corresponding increase in
other reserve equity over the vesting period. The proceeds received net of any
directly attributable transaction costs are credited to share capital (nominal
value) and share premium when the options are exercised.
Employee leave entitlement
Employee entitlements to annual leave are recognised when they accrue to
employees. A provision is made for the estimated liability to the employees for
annual leave up to the balance sheet date. This provision has been included in
the accruals balance in the balance sheet.
Provisions
Provisions are recognised when the Group has a present legal or constructive
obligation as a result of past events, it is more likely than not that an
outflow of resources will be required to settle the obligation and the amount
has been reliably estimated. Provisions are not recognised for future operating
losses.
Where there are a number of similar obligations, the likelihood that an outflow
will be required in settlement is determined by considering the class of
obligations as a whole. A provision is recognised even if the likelihood of an
outflow with respect to any one item included in the same class of obligations
may be small.
Revenue recognition
Revenue comprises the fair value of the sale of goods and services, net of
value-added tax, rebates and discounts and after eliminating sales within the
Group. Revenue is recognised as follows:
(a) Sales of goods
Sales of goods are recognised upon delivery to the customer, when there are no
significant vendor obligations remaining, and the collection of the related
receivables is considered probable.
(b) Sales of services
Sales of services are recognised in the accounting period in which the services
are rendered, by reference to completion of the specific transaction, assessed
on the basis of the actual service provided as a proportion of total services to
be provided.
(c) Royalty income
Royalty income is recognised on an accruals basis in accordance with the
substance of the relevant agreements.
Leases
Leases of property, plant and equipment where the Group assumes substantially
all the benefits and risks of ownership are classified as finance leases.
Finance leases are capitalised at the estimated present value of the underlying
lease payments. Each lease payment is allocated between the liability and
finance charges to achieve a constant rate on the finance balance outstanding.
The corresponding rental obligations, net of finance charges, are included in
other long term payables. The interest element of the finance charge is charge
is charged to the income statement over the lease period. Plant and equipment
acquired under finance leasing contracts are depreciated over the useful lives
of the assets.
Leases in which a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor) are charged to
the income statement on a straight-line basis over the period of the lease.
3. Segmental reporting
The analysis of the group's revenue, loss before tax and net assets /
(liabilities) by class of business is set out below:
The analysis of the group's revenue by geographical destination and the group's
revenue, loss before tax and net assets / (liabilities) by geographical origin
is set out below:
Revenue 6 months ended 6 months ended 12 months ended
30 June 2007 30 June 2006 31 December 2006
US $'000 US $'000 US $'000
-------------------------------------------------------------------------------
Geographical analysis by
destination
United Kingdom and Continental
Europe 577 571 1,565
North America 19,864 885 21,380
Africa and Rest of World 576 1,488 3,163
-------------------------------------------------------------------------------
21,017 3,001 26,108
-------------------------------------------------------------------------------
Revenue 6 months ended 6 months ended 12 months ended
30 June 2007 30 June 2006 31 December 2006
US $'000 US $'000 US $'000
-------------------------------------------------------------------------------
Geographical analysis by origin
United Kingdom and Continental
Europe - 900
North America - 16,429
Africa and Rest of World 3,001 8,779
-------------------------------------------------------------------------------
21,017 3,001 26,108
-------------------------------------------------------------------------------
Loss before tax 6 months ended 6 months ended 12 months ended
30 June 2007 30 June 2006 31 December 2006
US $'000 US $'000 US $'000
-------------------------------------------------------------------------------
Geographical analysis by origin
United Kingdom and Continental
Europe (3,224) (2,356) (4,179)
North America (1,154) - (503)
Africa and Rest of World (162) (112) (322)
-------------------------------------------------------------------------------
(4,540) (2,468) (4,995)
-------------------------------------------------------------------------------
Net assets / (liabilities) 6 months ended 6 months ended 12 months ended
30 June 2007 30 June 2006 31 December 2006
US $'000 US $'000 US $'000
-------------------------------------------------------------------------------
Geographical analysis by origin
United Kingdom and
Continental Europe 5,308 (1,794) 8,046
North America 2,193 - 3,354
Africa and Rest of World (964) (706) (830)
-------------------------------------------------------------------------------
Net assets / (liabilities) 6,544 (2,500) 10,570
-------------------------------------------------------------------------------
4. Loss per ordinary share
The calculation of loss per share is based on the loss of US $4.54 million (for
the six months ended 30 June 2006: US $2.41 million; for the twelve months
ended 31 December 2006: US $4.63 million) and on 49,801,868 Ordinary shares (for
the six months ended 30 June 2006: 29,110,647; for the twelve months ended 31
December 2006: 43,157,101) in issue.
5. Explanation of transition to IFRS
For all periods up to and including the year ended 31 December 2006 the Group
prepared its financial statements in accordance with United Kingdom Generally
Accepted Accounting Practices (UK GAAP).
In preparing these interim financial statements, the Group has started from an
opening balance sheet as at 31 December 2006, the Group's date of transition to
IFRS, and made those changes in accounting policies and other restatements
required by IFRS.
IFRS 1 allows first time adopters certain exemptions from the general
requirements to retrospectively apply IFRS as effective for the 31 December 2005
year end. The optional exemptions taken by the Group are as follows:
(a) Business combinations exemption
Business combinations prior to 31 December 2005, the Group's date of transition
to IFRS have not been restated to comply with IFRS 3 'Business Combinations'.
(b) Cumulative translation differences exemption
Cumulative translation differences on foreign operations are deemed to be nil at
31 December 2005. Any gains or losses recognized in the consolidated income
statement on subsequent disposal of foreign operations will exclude translation
differences arising prior to the transition date.
(c) Share based payment transactions
Only share based payment arrangements granted after 7 November 2002 that had not
vested prior to 1 January 2006 are recognized in the financial statements.
Freeplay Energy Plc has applied the following mandatory exemptions from
retrospective application.
(a) Estimates exemption
Estimates under IFRS at 31 December 2005 should be consistent with estimates
made for the same date under previous UK GAAP, unless there is evidence that
those estimates were in error.
(b) Assets held for sale and discontinued operations exception
Management applies IFRS 5 prospectively from 1 January 2007. Any assets held for
sale or discontinued operations are recognised in accordance with IFRS 5 only
from 1 January 2007. Freeplay Energy Plc did not have any assets that met the
held-for-sale criteria during the period presented. No adjustment was required.
(c) Derecognition of financial assets and liabilities exception
Financial assets and liabilities derecognised before 31 December 2005 are not
re-recognised under IFRS. Freeplay Energy Plc did not have any financial assets
and liabilities that met these criteria. No adjustment was required.
(d) Hedge accounting exception
Management has claimed hedge accounting from 1 January 2007 only if the hedge
relationship meets the entire hedge accounting criteria under IAS 39.
Reconciliations between IFRS and UK GAAP
The following reconciliations provide a quantification of the effect of the
transition to IFRS. The first reconciliation provides an overview of the impact
on equity of the transition at 31 December 2005, 30 June 2006 and 31 December
2006. The following reconciliations provide details of the impact of the
transition on:
- Equity at 31 December 2005, 30 June 2006 and 31 December 2006
- Balance sheets as at 31 December 2005, 30 June 2006 and 31 December 2006
- Net income for 6 months ended 30 June 2006 and year ended 31 December 2006
- Consolidated cash flow statement for the 6 months ended 30 June 2006 and
year ended 31 December 2006
Reconciliation of equity 31 December 30 June 31 December
2005 2006 2006
US $000's US $000's US $000's
Total Equity under UK
GAAP Notes (249) (2,584) 10,086
Reversal of goodwill
amortization 1 - - 364
Development capitalization 2 74 84 120
--------- --------- ---------
Total Equity under IFRS (175) (2,500) 10,570
========= ========= =========
Note 1 - Reversal of goodwill amortisation
Under UK GAAP, goodwill was amortised over the estimated useful life and
assessed for an indication of impairment at each balance sheet date. Under IFRS
goodwill is initially recognised as an asset at cost and is tested annually for
impairment, as well as when there are indications of impairment.
Note 2 - Development capitalisation
Per IAS 38 Intangible assets, if development expenditure meets the definition of
an intangible asset then it may be capitalised. Costs that were directly related
to development of products were capitalised and amortised over their useful
life. Under UK GAAP these were expensed as incurred.
Reconciliation of balance sheet as at 31 December 2005
Assets Notes UK GAAP Effect IFRS
Non current assets US $'000's US $000's US $'000's
Other intangible Assets (A) & (B) - 91 91
Property, plant and equipment (B) 651 (17) 634
---------- ---------- ----------
Total non-current assets 651 74 725
Current Assets
Inventory 838 838
Trade and other receivables 2,391 2,391
Other assets 252 252
Cash at bank and in hand 325 325
-------- --------- ---------
Total current assets 3,806 3,806
--------- --------- ---------
Total assets 4,457 74 4,531
========= ========= =========
Equity and liabilities
Capital and reserves
Issued Capital 3,936 - 3,936
Reserves (C) 2,007 893 2,900
Retained earnings (23,244) (819) (24,063)
---------- ---------- ----------
Total equity (249) 74 (175)
Non-current liabilities
Borrowings 45 45
---------- ---------- ----------
Total non-current liabilities 45 45
Current liabilities
Trade and other payables 1,949 1,949
Borrowings 2,571 2,571
Provisions 141 141
---------- ---------- ----------
Total current liabilities 4,661 4,661
Total liabilities 4,706 4,706
---------- ---------- ----------
Total equity and liabilities 4,457 74 4,531
========= ========= =========
Reconciliation of balance sheet as at 30 June 2006
Assets Notes UK GAAP Effect IFRS
Non current assets US $000's US $000's US $000's
Other intangible Assets (A) & (B) - 97 97
Property, plant and equipment (B) 574 (13) 561
---------- ---------- ----------
Total non-current assets 574 84 658
Current Assets
Inventory 1,094 1,094
Trade and other receivables 2,952 2,952
Other assets 179 179
Cash at bank and in hand 25 25
---------- ---------- ----------
Total current assets 4,250 4,250
---------- ---------- ----------
Total assets 4,824 84 4,908
========= ========= =========
Equity and liabilities
Capital and reserves
Issued Capital 3,936 3,936
Reserves (C) 2,007 1,008 3,015
Retained earnings (25,579) (924) (26,503)
---------- ---------- ----------
Total equity (2,584) 84 (2,500)
Non-current liabilities
Borrowings 32 32
---------- ---------- ----------
Total non-current liabilities 32 32
Current liabilities
Trade and other payables 2,184 2,184
Borrowings 5,082 5,082
Provisions 110 110
---------- ---------- ----------
Total current liabilities 7,376 7,376
Total liabilities 7,408 7,408
---------- ---------- ----------
Total equity and liabilities 4,824 84 4,908
========= ========= =========
Reconciliation of balance sheet as at 31 December 2006
Assets Notes UK GAAP Effect IFRS
Non current assets US $000's US $000's US $000's
Goodwill (D) 7,834 364 8,198
Other intangible Assets (A) & (B) 0 (211) 211
Property, plant and equipment (B) 1,477 91 1,386
---------- ---------- ----------
Total non-current assets 9,311 484 9,795
Current Assets
Inventory 10,203 10,203
Trade and other receivables 8,217 8,217
Other assets 900 900
Cash at bank and in hand 353 353
---------- ---------- ----------
Total current assets 19,673 19,673
---------- ---------- ----------
Total assets 28,984 484 29,468
========= ========= =========
Equity and liabilities
Capital and reserves
Issued Capital 6,608 6,608
Reserves (C) 2,007 1,565 3,572
Retained earnings (27,557) (1,081) (28,638)
---------- ---------- ----------
Total equity 10,086 484 10,570
Non-current liabilities
Borrowings 1,101 1,101
Deferred tax liability 200 200
---------- ---------- ----------
Total non-current liabilities 1,301 1,301
Current liabilities
Trade and other payables 6,360 6,360
Borrowings 10,418 10,418
Provisions 819 819
---------- ---------- ----------
Total current liabilities 17,597 17,597
Total Liabilities 18,898 18,898
---------- ---------- ----------
Total equity and liabilities 28,984 484 29,468
========== ========== ==========
Notes
(A) Other intangible assets
31-Dec-2005 30-Jun-2006 31-Dec-2006
US $000's US $000's US $000's
(i) Capitalization of intangible asset 77 101 156
(ii)Amortization of intangible asset (3) (17) (36)
-------- -------- --------
Net impact on intangible assets and
equity 74 84 120
========= ========= =========
(i) + (ii) Per IAS 38, Intangible assets, if development expenditure meets the
definition of an intangible asset then it must be capitalized. Costs that were
directly related to development of products were capitalized and amortized over
their useful life. Under UK GAAP these were expensed as incurred.
(B) Other intangible assets/tangible assets
31-Dec-2005 30-Jun-2006 31-Dec-2006
US $000's US $000's US $000's
(i) Reclassification of computer
software to other intangible assets 17 13 91
(ii)Reclassification of computer
software from property, plant and
equipment (17) (13) (91)
---------- ---------- ----------
Net impact on intangible assets and - - -
equity ========== ========== ==========
(i) + (ii) Under UK GAAP, computer software was disclosed under "Tangible
Assets" which fell under "Fixed Assets". Under IFRS, this must be disclosed
under Other Intangible Assets. This has no effect on equity. It is merely a
balance sheet reclassification.
(C) Share based compensation
31-Dec-2005 30-Jun-2006 31-Dec-2006
US $000's US $000's US $000's
(i) Share option expense (893) (1,008) (1,565)
======== ======== ========
(i) Recognition of share options issued. IFRS 2 'Share Based Payments' requires
that an expense is recognized over the vesting period in respect of all equity
instruments that have been granted, based on their fair value at the date of
grant, in order to reflect the cost of issuing these share options. The Group
has applied the Black-Scholes method of valuing the fair value of the relevant
share options
(D) Goodwill
31-Dec-2005 30-Jun-2006 31-Dec-2006
US $000's US $000's US $000's
(i) Reversal of goodwill amortisation - - 364
======== ======== ========
(i) Under UK GAAP, goodwill was amortized over the estimated useful life and
assessed for an indication of impairment at each balance sheet date.. Under
IFRS, goodwill is initially recognized as an asset at cost and is tested
annually for impairment, as well as when there are indications of impairment.
Income Statement for 6 months ended 30 June 2006
Per UK GAAP Effect IFRS
Notes US $000's US $000's US $000's
Revenue 3,001 3,001
Cost of sales (2,074) (2,074)
---------- ---------- ----------
Gross profit 927 927
Administration expenses (A) (2,477) 24 (2,453)
Distribution expenses (532) (532)
Other losses (153) (153)
Other expenses (B) - (129) (129)
Finance costs (128) (128)
---------- ---------- ----------
Loss before taxation (2,363) (105) (2,468)
Income tax expense 58 58
---------- ---------- ----------
Loss after taxation (2,305) (105) (2,410)
========== ========== ==========
Income Statement for 12 months ended 31 December 2006
Per UK GAAP Effect IFRS
Notes US $000's US $000's US $000's
Revenue 26,108 26,108
Cost of sales (18,939) (18,939)
---------- ---------- ----------
Gross profit 7,169 - 7,169
Administration expenses (A) (10,013) 79 (9,934)
Distribution expenses (1,782) (1,782)
Other losses (253) (253)
Other expenses (B) 999 (705) 294
Investment revenue 2 2
Finance costs (491) (491)
Goodwill amortisation (C) (364) 364 -
---------- ---------- ----------
Loss before taxation (4,733) (262) (4,995)
Income tax expense 365 365
---------- ---------- ----------
Loss after taxation (4,368) (262) (4,630)
========== ========== ==========
Notes
(A) Administration expenses
30-Jun-2006 31-Dec-2006
$000's $000's
(i) Reversal of previously expensed development
costs that have been capitalised 24 79
======== ========
(i) Per IAS 38, Intangible assets, if development expenditure meets the
definition of an intangible asset then it must be capitalized. Costs that were
directly related to development of products were capitalized. Under UK GAAP
these were expensed as incurred. This results in a reversal of previously
recognised expenses.
(B) Other income/expenses
30-Jun-2006 31-Dec-2006
$000's $000's
(i) Share option expense (115) (672)
(ii) Amortisation of intangible assets -
Development capitalised (14) (33)
------- ---------
(129) (705)
======== =========
(i) Recognition of share options issued. IFRS 2 'Share Based Payments' requires
that an expense is recognised over the vesting period in respect of all equity
instruments that have been granted, based on their fair value at the date of
grant, in order to reflect the cost of issuing these share options. The Group
has applied the Black-Scholes method of valuing the fair value of the relevant
share option
(ii) Per IAS 38, Intangible assets, if development expenditure meets the
definition of an intangible asset then it must be capitalised. Costs that were
directly related to development of products were capitalised and amortised.
Under UK GAAP these were expensed as incurred.
(C) Goodwill amortisation
30-Jun-2006 31-Dec-2006
$000's $000's
(i) Reversal of goodwill amortisation - 364
======== ========
Under UK GAAP, goodwill was amortised over the estimated useful life and
assessed for an indication of impairment at each balance sheet date. Under IFRS
goodwill is initially recognised as an asset at cost and is tested annually for
impairment, as well as when there are indications of impairment.
Consolidated cash flow statement
Per UK GAAP Effect of IFRS
transition to
IFRS
For the 6 For the 6 For the 6
months ended months ended months ended
30-Jun-06 30-Jun-06 30-Jun-06
US $000's US $000's US $000's
Cash flows from operating
activities
Cash used in operations (2,681) 24 (2,657)
Interest paid (106) (106)
Taxation refund 58 58
-------------------------------------
Cash used in operating activities (2,729) 24 (2,705)
-------------------------------------
Investing activities
Payments for property, plant
and equipment (52) 1 (51)
Proceeds from disposal of
property, plant and equipment - - -
Payments for intangible assets - (1) (1)
Development costs paid - (24) (24)
-------------------------------------
Cash used in investing activities (52) (24) (76)
-------------------------------------
Financing
Proceeds from borrowings 20 - 20
Repayments of borrowings (4) - (4)
-------------------------------------
Cash used in financing activities 16 - 16
-------------------------------------
Net increase in cash and
cash equivalents (2,765) - (2,765)
Cash and cash equivalents at
the beginning of the period (1,208) - (1,208)
-------------------------------------
Cash and cash equivalents at
the end of the period (3,973) - (3,973)
-------------------------------------
Consolidated cash flow statement
Per UK GAAP Effect of IFRS
transition to
IFRS
For the 12 For the 12 For the 12
months ended months ended months ended
31-Dec-06 31-Dec-06 31-Dec-06
US $000's US $000's US $000's
Cash flows from operating activities
Cash generated from operations (6,580) 79 (6,501)
Interest paid (490) (490)
Taxation refund 321 321
-------------------------------------
Cash used in operating activities (6,749) 79 (6,670)
-------------------------------------
Investing activities
Interest received 2 - 2
Payments for property, plant and
equipment (213) - (213)
Development costs paid - (79) (79)
Acquisition of subsidiaries (6,709) - (6,709)
-------------------------------------
Cash used in investing activities (6,920) (79) (6,999)
-------------------------------------
Financing
Proceeds from issue of
equity shares 6,074 - 6,074
Payment for share issue costs (850) - (850)
Repayments of borrowings (93) - (93)
-------------------------------------
Cash used in financing activities 5,131 - 5,131
-------------------------------------
Net increase in cash and
cash equivalents (8,538) - (8,538)
Cash and cash equivalents at
the beginning of the period (1,208) - (1,208)
-------------------------------------
Cash and cash equivalents at
the end of the period (9,746) - (9,746)
-------------------------------------
6. Movement in net debt
1 January 2007 Cash flow 30 June 2007
US $'000 US $'000 US $'000
-------------------------------------------------------------------------------
Cash at bank and in hand 353 273 626
Bank overdraft (10,099) (3,753) (13,852)
-------------------------------------------------------------------------------
Net overdraft (9,746) (3,480) (13,226)
Debt due within one year:
- Current portion: long
term debt (105) (5) (110)
- Other loans (122) 93 (29)
- Finance leases (92) (2) (915)
- Finance leases (74) (65) (139)
-------------------------------------------------------------------------------
(1,420) 133 (1,287)
-------------------------------------------------------------------------------
(11,166) (3,347) (14,513)
-------------------------------------------------------------------------------
7. Reconciliation of net cash flow to movement in net debt
6 months ended 12 months ended
30 June 2007 31 December 2006
US $'000 US $'000
-------------------------------------------------------------------------------
(Decrease) /increase in cash in year (3,480) (8,538)
Movement in borrowings 200 77
Finance lease payments 131 16
-------------------------------------------------------------------------------
Change in net debt resulting
from cash flows (3,149) (8,445)
Loans and finance leases acquired with
subsidiary - (339)
New finance leases (198) (6)
Other non-cash changes - (86)
Net debt at beginning of period (11,166) (2,290)
-------------------------------------------------------------------------------
Net debt at end of period (14,513) (11,166)
-------------------------------------------------------------------------------
8. The Board of Directors approved the interim report on 17 September 2007.
This statement will be made available online at www.freeplayenergy.com and
copies will be made available at the Company's registered office, 2 Stone
Buildings, Lincoln's Inn, London WC2A 3TH.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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