RNS Number : 5049E
i-mate plc
29 September 2008
For Immediate Results 29 September 2008
i-mate plc
("i-mate" or the "Company")
Preliminary results for the year ended 31 March 2008
i-mate plc (London AIM:IMTE), the specialist in Microsoft Windows Mobile� devices and software, today announces its Preliminary Results
for the year ended 31st March 2008.
For further information please contact:
Buchanan Communications
Mark Edwards/Jeremy Garcia Tel: 020 7466 5000
i-mate plc
Jim Morrison Tel: 00 971 4360 1989
Chairman's Statement
It is difficult to express how painful this year has been for the company and for all of us. About everything that can happen to a young
high-tech company did. The $134.5m drop in revenue and the $61.6m loss from ordinary activities after net non-recurring charges of $27.1m
speak for themselves and are extremely disappointing.
We had set ourselves some tough objectives at the start of the year. However, our ability to deliver on those objectives was hit early
on through poor quality control by some of our suppliers, product that was delivered late and therefore lagged market requirement, the
necessity of taking after sales management in-house, time and cost dealing with litigation with our former after market supplier and
patent-related delays beyond our control due to major litigation between significant suppliers to the industry. At the time all of these
issues were hitting us, the industry experienced a significant downturn in our market segment and a resulting decline particularly in
corporate volumes. The effect of all this was that revenues throughout the year were significantly below plan, costs were increased by
non-recurring write-offs, claims and reorganisation expense and, most recently, the upturn in sales we had expected in the 4th quarter just
did not happen sufficiently even though we had a good line-up of phones with great features.
We reacted to these events by restructuring even further, cutting costs dramatically and very much going back to the Group's roots. The
key now is to maintain and deliver on core operations. We must manage costs very strictly, concentrate on markets where the brand still has
good presence, deliver our new product over the coming 12 months on time and in line with our absolute quality standards, set ourselves
reasonable and appropriate goals and deliver a sustainable and robust performance against those goals. Whatever we do needs to be based on
cautious assumptions, uncompromised quality and diligent execution.
There is a product pipe-line to drive the Group forward and we continue to envision and develop new and exciting devices. Execution will
be the key. All ventures carry risk, but we believe that our market position and our talented people continue to generate opportunity for
i-mate.
With all the challenges and pressures faced by the business, together with the focus on completing the strategic review, the
reorganisation and the establishment of new operational and financial processes for the future, we have taken more time to produce the
year-end results. We will seek to ensure such delays do not happen again. Clearly with a loss of this magnitude, we have spent time
reviewing our cash position and our ability to deliver our plans for the business in this challenging period. Based on reasonable
projections and with our reduced cost base, we believe that we will have adequate working capital for the Group's requirements for at least
the forthcoming 12 months.
As Jim has said in his statement the Company must consider the merits of maintaining its listing on AIM going forward, and we must
balance the cost and benefits of listing.
With a very difficult year behind us in every aspect of our business, and the uncertainty that all companies are now facing in the
current economic environment, we have taken the necessary actions to redress costs, to establish the right team and to implement the right
business strategy. Those actions, together with the positive response we have had from those who have seen some of our new product pipeline,
mean that we look forward to the new challenges and opportunities of the future.
Bernard Cragg
Chairman
27 September 2008
Chief Executive's Statement
The last 12 months have been extremely difficult for i-mate and have resulted in a very poor year, with losses actually exceeding sales
due to significant non-recurring costs. However, we have taken the difficult actions to restructure and we are now in a position to go
forward as a business.
Based on the key objectives set out last year, we detail below the progress - or conversely our failure - in achieving our stated
goals:
Develop our own unique, exclusive products which are technically superior to other Windows Mobile� devices in the marketplace
i-mate now has 6 devices in the market - Jama 101, Jama 201, Ultimate 6150, 8150, 8502 and 9502. All are in the top of their class in
terms of speed, output video quality and probably the best non-failure rate of any set of devices. The high-end Ultimate devices in
particular have been well received by customers and industry specialists alike.
These were, however, all delivered late, and mainly due to the high quality bar that we set which caused us to have a shortage of
product to sell. Going forward we have a pipeline of new products into 2010 and the early market response from established customers has
been very encouraging. Quality and a full test program by manufacturers before we accept product is being integrated into our procurement
process.
Deliver an outstanding out of box experience, top class support and remote security by enhancing our suite of services
i-mate customers are now able to automatically configure their devices as soon as their SIM card is inserted. It also allows users to
customize settings through the Club i-mate website as well as manage their device remotely. This has resulted in a major decline in the
volume of support calls we have needed to handle. As a result we will be able to decrease the number of customer support calls for all new
devices going forward and can pass the cost saving through to the price of the device.
We stated in our interim report that the management of our after-market support service would be moved in-house to improve quality which
we have done quite successfully. However, as a result, a legal dispute with the previous service supplier has resulted in an out-of-court
settlement and legal fees together totalling $6.5m which have been dealt with as a non-recurring item.
Leverage our channels to market to provide global reach for our exclusive products
We failed to achieve this objective due to delays in the delivery of the devices, as well as the non availability of devices in some
regions. As we could not supply our new devices into our distribution channels for several months, we lost some momentum in several markets
which unfortunately is taking a while to re-establish. In addition we were unable to supply our QWERTY keyboard devices into the US market
due to an IP infringement by our radio chip suppliers.
Technology companies operating within the USA market are being strangled by the USA Patent system. We are seriously considering pulling
out of this market as we get about three IP license demands each month based on unsubstantiated patent awards to companies whose whole
business is chasing companies they think operate in the USA. This will not substantially curtail our plans for the business but is a
significant decision that may be imposed upon us.
Given these external factors, our focus in the first instance is now on our established markets and market channels, in the Middle East
and Australasia, as well as the new emerging markets in Russia and India where there is significant opportunity for us.
Chief Executive's Statement (Continued)
Implement an operating model structured around four key sales and marketing regions supported by centres of technical excellence and
expertise in product development, software development and research
This was achieved but subsequently reversed due to the reorganization. Since our statement to the market in January regarding a
strategic review, i-mate has shed its software development team, its centralised QA team (pushing QA responsibility to our suppliers), the
entire senior management team other than Michael Cavey, General Manager Australasia and all of the staff acquired through the acquisition of
A Living Picture. We acknowledge that this acquisition did not achieve the objectives we had set ourselves and resulted in the write off of
the goodwill and some residual stock of Momentos.
In total we have reduced salary costs from $18 Million to $8 million and eliminated a lot of our expenses costs. We have 114 staff in
the Group, down from 248. We now have a lean and focused operating model, and a reduced cost base, that fits the strategy and market
opportunity for the business going forward.
Given the events and the performance of the Group it was concluded that the strategic review should also look at the cash recoverable
value of the Group if it were to be closed down. The announcement of a strategic review gave rise to press speculation that the Company was
"up for sale" although this did not give rise to any approaches. The exercise completed gave a closing down value of +5p to -5p based on
worst case and best case scenarios and in the light of this we proceeded to restructure the Group with a view to trading out of the problems
and reducing costs to a minimum. This is what we have done and we are now confident about the Group's position for the future.
Transform from a single supplier model with geographical restrictions to an OEM with ability to sell globally
This has been achieved but with some major delays from some of the suppliers. However the ability to sell globally has been curtailed by
IP infringement rulings on our suppliers as stated earlier. In that context our strategy is to develop and deliver quality OEM product
effectively into those established and new emerging geographic markets where the opportunity and risk profile will allow the Group to
realize most value.
Financial Update
The Group has recorded a severe curtailment of sales as a result of product supply and quality issues. These issues have delayed new
products to market which in turn affected the Group's ability to achieve forecasted revenue and profit levels.
Revenue during the year declined from $195 million to $61 million. This 69% decrease resulted from a combination of many factors, the
most significant being supply limitations for legacy products, product quality issues from new suppliers, complications in target market
specification requirements, and delayed consumer acceptance of some of the new product ranges.
The Group recorded a loss of $61.6 million in the year ended 31 March 2008 after non-recurring items totalling $27.1 million. The loss
in 2007 was $2.9 million with $nil non-recurring items.
Management's focus during the last nine months has been to reduce costs, which has been carried out without any compromise. At our
review it was planned that the effect of new devices coming to market and cutting costs would result in the Group breaking into profit on a
monthly basis by March or April 2008.
We achieved this in April and May, although since then we have seen a worldwide fall-off in the market. This has followed a general
decline in both subsidised and non-subsidised high-end handset sales and, as we see this continuing until 2009, we have decided to hold off
on launching our new Windows based products and instead update our existing products and retain a close control on costs. We have several
devices in development which we plan to launch at Mobile World Congress in February. At the current date we have $15.4 million in cash and
$9.2 million in stock. After restructuring, our monthly running costs are about $1.3 million per month and capital expenditure will be
around $5 million for the next year.
Chief Executive's Statement (Continued)
Microsoft update
We have had to write-off $7 million in un-used Microsoft licenses as we had committed to purchase these licenses on legacy product but
did not achieve the sales. However, we now have a new agreement with Microsoft where we do not have to pre-order our licenses but simply pay
for licenses used, substantially reducing the risk and cost of volume shortfalls to the Group. We have been looking at other operating
systems utilizing embedded Microsoft software for our low-end phones although no decision has been reached yet. Microsoft will continue to
be the major supplier of our operating system.
People
We have reduced the number of staff significantly over the last year and top management has been completely reorganized. The employees
that have remained with me, in addition to new employees, have been working in tough and uncertain times. I am extremely happy with the team
that we now have in place. The Company feels reborn and very similar to how it was when we were moving fast and growing quickly. There is a
very positive optimism within the Group and I look forward to a fast pace of change in fortunes. To the team we have I say thank you for
sticking with us or joining us during this tough time and may the adventure continue.
Outlook
In summary, we have had a disastrous year with huge losses. The next 12 months is looking a lot better, reflecting our revised market
strategy, our established product range and new product pipeline as well as our leaner, more fit-for-purpose operating model and cost base.
But difficult market conditions are hitting everyone in the first half of the year. We will focus on controlling our costs and making sure
that our new products are world beating and, therefore, despite the current market conditions, are confident in the Group's continued
activity.
We do need to look at the purpose and value of being a publicly quoted company. The cost of being on AIM is about $2 million per year.
Our NOMAD, Cazanove, has indicated that it wishes to resign. We have a new NOMAD lined up and will appoint them later in the year at a cost
of $100K if we decide to remain listed.
Jim Morrison
CEO
27 September 2008
Group Income Statement
for the year ended 31 March 2008
Note 2007
2008 2008 $000
Before non-recurring Non-recurring
items items
$000 (Note 5)
$000 2008
Total
$000
Revenue 4 61,020 - 61,020 195,481
Cost of sales (53,933) (10,047) (63,980) (159,161)
Gross (loss)/profit 7,087 (10,047) (2,960) 36,320
Distribution costs (2,049) - (2,049) (4,930)
Administrative expenses (40,838) (17,017) (57,855) (36,793)
Operating loss 4 (35,800) (27,064) (62,864) (5,403)
Finance revenue 6 1,820 - 1,820 3,335
Loss before taxation (33,980) (27,064) (61,044) (2,068)
Taxation 7 (568) - (568) (820)
Loss for the financial year (34,548) (27,064) (61,612) (2,888)
Attributable to:
Equity holders of the parent (60,613) (3,366)
Minority interest (999) 478
(61,612) (2,888)
Earnings per share 8
Basic (50.63c) (2.83c)
Diluted (50.63c) (2.83c)
Revenue and operating loss are all derived from continuing operations.
There is no difference between the results stated above and their historical cost equivalents.
Group Statement of Changes in Equity
for the year ended 31 March 2008
Share based payment
Reserve
$000
Share Share Merger Retained Exchange Reserve Minority
Capital Premiu Reserve Earnings $000 Interest
$000 m $000 $000 Total $000 Total
$000 $000 $000
Opening balances 10,549 65,735 (8,663) 1,892 31,796 (354) 100,955 1,915 102,870
Shares issued - - - - - - - - -
Currency differences on - - - - - 913 913 - 913
foreign currency net
investments
Share based payment provision - - - 27 - - 27 - 27
Loss for the period - - - - (60,613) - (60,613) (999) (61,612)
Equity at end of the year 10,549 65,735 (8,663) 1,919 (28,817) 559 41,282 916 42,198
for the year ended 31 March 2007
Share based payment
Reserve $000
Share Share Merger Retained Exchange Reserve Minority
Capita Premiu Reserve Earnings $000 Interest
l m $000 $000 Total $000 Total
$000 $000 $000 $000
Opening balances 10,430 62,120 (8,663) 591 35,162 (889) 98,751 1,437 100,188
Shares issued 119 3,615 - - - - 3,734 - 3,734
Currency differences on - - - - - 535 535 - 535
foreign currency net
investments
Share based payment provision - - - 1,301 - - 1,301 - 1,301
Profit for the period - - - - (3,366) - (3,366) 478 (2,888)
Equity at end of the year 10,549 65,735 (8,663) 1,892 31,796 (354) 100,955 1,915 102,870
Group Balance Sheet
as at 31 March 2008
Note 2008 2007
$000 $000
Non current assets
Goodwill - 4,325
Other intangible assets 9 5,003 7,532
Property, plant and equipment 2,902 3,253
7,905 15,110
Current assets
Inventories 8,707 11,373
Trade and other receivables 10 23,438 36,720
Tax recievables 20 -
Cash and cash equivalents 26,933 65,815
59,098 113,908
Total assets 67,003 129,018
Current liabilities
Trade and other payables 11 22,058 25,737
Tax liabilities - 411
22,058 26,148
Net current assets 37,040 87,760
Non-current liabilities
Long term provisions 2,747 -
Total liabilities 24,805 26,148
Net assets 42,198 102,870
Equity
Share capital 19 10,549 10,549
Share premium account 65,735 65,735
Merger reserve (8,663) (8,663)
Exchange reserve 559 (354)
Share based payment reserve 1,919 1,892
Retained earnings (28,817) 31,796
Equity attributable to equity holders of the 41,282 100,955
parent
Minority interest 916 1,915
Total equity 42,198 102,870
Group Cash Flow Statement
for the year ended 31 March 2008
2008 2007
$000 $000
Not
e
Net cash (used in)/from operating activities 13 (36,702) 2,893
Investing activities
Interest received 1,820 3,335
Proceeds on disposal of property, plant and equipment - 56
Proceeds on disposal of investment 115 -
Purchase of property, plant and equipment (212) (2,772)
Expenditure on intangible assets (4,861) (5,317)
Acquisition of subsidiary - (2,451)
Net cash used in investing activities (3,138) (7,149)
Net increase in cash and cash equivalents (39,840) (4,256)
Cash and cash equivalents at beginning of year 65,815 69,343
Effect of foreign exchange rate changes 958 728
Cash and cash equivalents at end of year 26,933 65,815
Notes
For the year ended 31 March 2008
1. General information
The financial information set out in the announcement does not constitute the Company's statutory accounts for the years ended 31 March
2008 or 2007. The financial information for the year ended 31 March 2007 is derived from the statutory accounts for that year which have
been delivered to the Registrar of Companies. The auditors have reported on those accounts; their report was unqualified and did not
contain a statement under s237(2) or (3) Companies Act 1985. The statutory accounts for the year ended 31 March 2008 will be finalised on
the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of
Companies following the Company's annual general meeting.
While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and
measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient
information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs in October 2007.
The financial information set out in this announcement, has been prepared on the basis of the accounting policies as stated in the
previous year's financial statements, and is consistent with the current year's full financial statements which are yet to be published
2. Significant accounting policies
Basis of accounting
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the
European Union.
The financial statements have been prepared under the historical cost convention. The principal accounting policies are set out below.
The financial information consolidates the Company and entities controlled by the Company (its subsidiaries). Control is achieved where
the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its
activities.
On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair value at the date of
acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill.
Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is
credited to the income statement in the period of acquisition. The interest of minority shareholders is stated at the minority's proportion
of the fair values of the assets and liabilities recognised. Subsequently, any losses applicable to the minority interest in excess of the
minority interest are allocated against the interests of the parent.
The results of subsidiaries acquired or disposed of during a period are included in the consolidated income statement from the effective
date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with
those used by the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
During the period ended 30 September 2005, the Group carried out a corporate restructuring, including the introduction of a new holding
company. The restructuring represented a change in the identity of the holding company rather than an acquisition of the underlying
businesses. Consequently, the restructuring was accounted for using merger accounting principles. In accordance with sections 131 and 133 of
the Companies Act 1985, the Company took no account of any premium on the shares issued and recorded the cost of investment at the nominal
value of the shares issued. The resulting difference on consolidation was debited to a merger reserve.
Goodwill
Goodwill arising on businesses acquired represents the excess of the fair value of the cost of acquisition over the Group's interest in
the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition.
Goodwill is initially recognised as an asset at cost and subsequently measured at cost less any accumulated impairment losses. Goodwill
which is recognised as an asset is reviewed for impairment annually; any impairment is recognised immediately in the income statement and is
not subsequently reversed.
The acquired intangible assets were tested for impairment and have been fully written off in accordance with IAS 38, predominantly due
to the assessment of the degree of certainty regarding future commercial revenue streams.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and
services provided in the normal course of business, net of discounts, VAT and other sales related taxes.
Sales of goods are recognised when goods are delivered and title has passed. Sales in respect of services and licences are recognised on
completion of contractual performance.
Finance income is recognised as it arises.
Foreign currencies
The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it
operates (its functional currency). For the purpose of consolidated financial statements, the results and financial position of each Group
company are expressed in U.S. Dollars, which is the functional currency of the Group and the presentation currency for the consolidated
financial statements.
In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional
currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and
liabilities that are 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 translated at the rates prevailing at the date when the fair
value was determined. Non-monetary items that are measured in terms of historic cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items and on the retranslation of non-monetary items carried at fair value
are included in the income statement for the period except for differences arising on the retranslation of non-monetary items in respect of
which gains and losses are recognised directly in equity.
On consolidation, the assets and liabilities of the Group's subsidiaries whose functional currency is not U.S. Dollars are translated at
exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period.
Exchange differences arising, if any, are classified as equity and transferred to the Group's retained earnings. Such translation
differences are recognised as income or as expenses in the period in which the operation is disposed of.
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.
The share capital and share premium of the Company is Sterling denominated and is translated at actual historic rates.
Property, plant and equipment
Property, plant and equipment balances are stated at cost, net of depreciation and any provision for impairment.
Depreciation is provided on all property, plant and equipment in equal annual instalments over the estimated useful lives of the assets.
The rates of depreciation are as follows:
Buildings 2.5% per annum
Equipment, fixtures and fittings Between 33% and 50% per annum
Motor vehicles 33% per annum
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognised in the income statement in the period of disposal.
Research and development
Research expenditure is written off as incurred. This includes preliminary costs in developing device concepts up to viable commercial
prototype stage.
Development expenditure relating to identifiable projects is capitalised provided it is probable that the project will generate future
economic benefits and the development cost of the project can be measured reliably. In such cases, the identifiable expenditure is
capitalised over the period during which the Group is expected to benefit. All other development expenditure is written off as incurred. The
value of development expenditure capitalised during the year was $4,861,000 (2007: $5,317,000).
Any capitalised development costs are amortised over the life of the products from the date of launch. Where products are discontinued,
all remaining capitalised development costs are written off in the period of discontinuance.
Impairment of tangible and intangible assets excluding goodwill
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, a formal impairment test based on a
discounted cash-flow approach is performed and the recoverable amount of the asset is estimated in order to quantify any impairment loss.
Any impairment loss is recognised as an expense immediately.
Inventories
Inventories are stated at the lower of cost and net realisable value, measured on a FIFO basis. Cost comprises all costs in bringing the
inventories to their present location and condition. Net realisable value is based on estimated selling price less further costs expected to
be incurred to completion and disposal. Provision is made for obsolete, slow moving or defective items where appropriate.
Leases
Operating lease rentals are charged to the income statements in equal annual amounts over the lease term.
Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual
provisions of the instrument.
The Group's activities give rise to some exposure to the financial risks of changes in interest rates and foreign currency exchange
rates. The Group has no borrowings and is principally funded by equity, maintaining all its funds in bank accounts. Surplus funds are placed
in risk free cash deposits. The Group's exposure to foreign currency exchange rates arising from its net investment in currencies other than
the U.S. Dollar is unhedged as this exposure is currently not viewed as material. The Group does not use derivative financial instruments
for speculative purposes.
Trade receivables
Trade receivables in the normal course of trade do not carry any interest and are stated at their nominal value as reduced by
appropriate allowances for irrecoverable amounts. An allowance for impairment is made where there is an identified loss event which, based
on previous experience, is evidence of a reduction in the recoverability of the cash flows. Other trade receivables are provided for on an
individual basis where there is evidence that an amount is no longer recoverable.
Trade payables
Trade payables in the normal course of trade are not interest bearing and are stated at their nominal value.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from the net profit as reported in the income
statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that
are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or subsequently
enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable 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 initial recognition of
other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to
equity, in which case the deferred tax is also dealt with in equity.
Carrier Devices Middle East FZ LLC and i-Mate Middle East FZ LLC, subsidiary companies, operate in a tax free zone; profits are
therefore not subject to corporation tax.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be
required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the
obligation at the balance sheet date and are discounted to present value where the effect is material.
Share based payments
The Group issues equity-settled share based benefits to employees. These share based payments are measured at their fair value at the
date of grant and the fair value of expected shares is expensed on a straight-line basis over the vesting period. Fair value is measured
using the Black Scholes Model.
Dividends
Dividends payable to the Company's shareholders are recorded as a liability in the period in which the dividends are approved. No
dividends have been paid by the Company to date and none are proposed for the current year.
Non-recurring items
Non-recurring items, as disclosed on the face of the income statement, are items which due to their materiality and non-recurring nature
have been classified separately in order to draw them to the attention of the reader of the financial statements and to highlight the impact
of non-recurring items on the results of the Group.
3. Critical accounting judgements and key sources of estimation uncertainty
In the process of applying the Group's accounting policies, as described in note 2, management has made the following judgements that
have the most significant effect on the amounts recognised in the financial information.
Valuation of share based payments to employees
The Group estimates the expected value of share based payments to employees and this is charged through the income statement over the
vesting period of the relevant payments. The cost is estimated using the Black Scholes valuation model which requires a number of
assumptions to be made such as levels of share vesting, time of exercise, expected length of service and employee turnover and share price
volatility. This method of estimating the value of share based payments is intended to ensure that the actual value transferred to employees
is provided for by the time such payments are made.
Trade receivables and inventory allowances
The trade receivables balances recorded in the Group's balance sheet comprise a relatively small number of large balances. A full
line-by-line review of aged trade receivables is carried out at the end of each month. Similarly the aged inventory records are reviewed at
the end of each month. Where appropriate, an allowance is provided for impairment of the related receivables or inventory balance. Whilst
every attempt is made to ensure that the trade receivables and inventory allowances are as accurate as possible, there remains a risk that
the allowance do not match the level of receivables which ultimately prove to be uncollectible and the inventory which ultimately proves not
to be sellable above its carrying value.
Taxation
Under the structure of the Group, the principal operating companies, i-mate Middle East FZ-LLC and Carrier Devices Middle East FZ-LLC,
operate in a tax free zone and accordingly profits from these companies are not subject to tax. No deferred tax has been provided on the
accumulated un-remitted earnings of these companies as it is assumed that no dividend will be paid to the parent Company for the currently
foreseeable future.
Warranty provision
The Group provides for the expected future costs of future warranty claims by estimating the annual failure rate per individual device
and the average cost per repair. A review is performed quarterly of the carrying value of this provision. However there remains a risk that
the provision does not match the level of actual failures and costs incurred to repair those faults.
Development costs
Capitalised development expenditure relating to identifiable projects is capitalised provided it is probable that the project will
generate future economic benefits. There remains a risk that costs previously capitalised relate to projects that are subsequently
considered uneconomic or technically inadequate, at which time the unamortized capitalized costs would be expensed immediately.
In the current period, as set out in Note 5 and 12, development costs on a product discontinued in the period have been written-off in
full. In addition, the remaining economic life of development costs in respect of software has been revised from 36 months to 18 months and
for certain devices to the end of the period that they are expected to generate commercial revenues. This change in estimate has resulted in
an additional amortization charge in the period of $2.13 million.
Revenue recognition
Rebates due from manufacturing partners are recognised in the income statement only once a product has commenced commercial production
and purchases are occurring in order to match the rebates with the relating product purchase.
4. Segmental information
For management purposes, the Group's primary segment is geographical. The directors consider that the business operates in a single
business segment, being hardware. In previous periods, software was identified as a secondary business segment although no separate
disclosure was provided due to immateriality of software revenues and assets.
(a) Segmental revenue by source
2008 2007
Inter Inter
Segment Total Segment Total
Sales Sales Revenue Sales Sales Revenue
$000 $000 $000 $000 $000 $000
Middle East 83,297 (58,435) 24,862 180,119 (69,902) 110,217
Australasia 26,149 - 26,149 61,797 - 61,797
Italy 9,230 - 9,230 19,291 - 19,291
UK 779 - 779 4,176 - 4,176
119,455 (58,435) 61,020 265,383 (69,902) 195,481
Inter segment sales are charged on an agreed transfer pricing basis and are eliminated on consolidation of the Group trading results.
(b) Segmental result (including non-recurring items)
2008 2007
$000 $000
Middle East (52,469) (4,774)
Australasia (3,043) 1,299
Italy (2,099) (64)
UK (4,952) (2,055)
North America (301) 191
Operating loss (including non-recurring items) (62,864) (5,403)
Finance revenues 1,820 3,335
Taxation (568) (820)
Loss after taxation (including non-recurring items) (61,612) (2,888)
(c) Additional information
Sales by destination
2008 2007
$000 $000
Middle East 17,206 61,291
Australasia 26,412 61,583
Africa 1,901 19,935
Italy 7,902 19,292
UK - 12,406
Rest of Europe - 8,961
North America 1,336 4,501
Asia 6,263 7,512
61,020 195,481
5. Non-recurring items
2008 2007
$000 $000
a. Prepaid licenses 7,157 -
b. Inventory impairment
Legacy products 1,674 -
Digital picture frames 1,216 -
Cost of sales 10,047 -
c. Reorganisation costs
Redundancy costs 1,042 -
Urban write-off 1,168 -
d. Goodwill impairment 4,325 -
e. AMS provision 8,671 -
f. Receivables impairment 1,811
Administrative expenses 17,017 -
Total non-recurring items 27,064 -
5. Non-recurring items (continued)
a. Prepaid licenses
During the year a non-recurring charge of $1,800,000 was incurred to extend existing licensing arrangements. Prepayments associated with
these licensing arrangements have been assessed for recoverability based on projected sales to the end of the current arrangements. As a
result a non-recurring charge of $5,357,000 has been recorded to write the prepayment down to its estimated recoverable value. A new license
agreement has been concluded under which licenses will be paid on a call-off basis going forward.
b. Inventory impairment
During the year non-recurring inventory allowances totalling $2,890,000 were recorded. Allowances totalling $1,674,000 were made in
relation to legacy products which are considered to be reaching the end of their product life. In addition, a $1,216,000 allowance has been
made against inventories held of digital picture frames, which, as a result of the strategic review and restructuring are considered not to
be core to the business going forward. As such an allowance has been recorded to write these inventories down to their estimated realisable
value.
c. Reorganisation costs
In April 2007 the Group initiated a restructuring, resulting in the operations being split into four geographic regions - Europe, the
Americas, Australasia & Asia, and the Middle East including Africa and the Indian subcontinent. The reorganisation resulted in redundancy
costs of $1,042,000 being incurred.
Following the restructuring, a further review of new product development was undertaken. As a result it was concluded that the Urban
range of devices would not meet the Group's stringent quality standards in time to penetrate their intended target markets. The Urban range
was therefore abandoned, resulting in development costs of $1,168,000 being expensed immediately.
d. Goodwill Impairment
During the year management completed an impairment review of goodwill. The goodwill relates solely to the acquisition of A Living
Picture plc. As a result of the impairment review, an impairment charge of $4,325,000 has been recorded during the year (Note 11).
e. After market services provision
As set out in Note 23 the Group has had to establish an in-house function for the management of after market services, based in Dubai,
following the termination of the contract with the previous third party provider and the withdrawal of that contractor from all historic
warranty obligations. Non-recurring costs totalling $8,671,000 have been incurred in the year for the additional warranty costs assumed by
the Group, the costs associated with the establishment of the in-house function and the costs incurred in settling the dispute with the
former contractor including associated legal fees.
f. Receivables impairment
Receivables have been hit by a non-recurring allowance of $1,811,000 in relation to technical issues on a superseded product.
6. Finance revenue
2008 2007
$000 $000
Bank interest receivable 1,820 2,779
Trade debtor interest receivable - 556
-
1,820 3,335
7. Taxation
2008 2007
$000 $000
The tax charge comprises:
UK corporation tax 104 120
Foreign tax 464 700
Total current tax 568 820
The actual tax charges for the year differs from the standard rate applicable in the UK of 30% (2007: 30%) for the reasons set out in
the following reconciliation:
2008 2007
$000 $000
Loss on ordinary activities before tax (61,044) (2,068)
Tax at 30% thereon (18,313) (620)
Factors affecting charge for the year:
Profits/(losses) arising in territories where no tax is 18,109 499
charged
Losses on which group relief not available - 664
Capital allowances in excess of depreciation - -
Utilisation of brought forward losses (135) -
Interest imputed on inter-company loans 374 -
Non deductible expenses 440 139
Higher tax rates on overseas earnings 93 52
Adjustment to prior year tax charge - 86
Current tax charge for the year 568 820
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. Carrier Devices Middle East
FZ-LLC and I-Mate Middle East FZ-LLC, subsidiary companies, operate in a tax free zone; profits from these companies, therefore, are not
subject to corporation tax.
At 31 March 2008 the Group had unused tax losses of $6,212,000 (2007: $6,516,000) available for offset against future taxable profits
arising in the UK. No deferred tax asset has been recognised due to the uncertainy of future profit streams in the UK.
8. Earnings per share
Basic and diluted earnings per share are calculated on the loss of the Group attributable to equity holders of the parent of $60,613,000
(2007: $3,366,000 loss) and on 119,722,916 (2007: 118,926,503) equity shares, being the weighted average number of shares in issue during
the year.
9. Intangible fixed assets
Group Development Total
Costs $000
$000 Softwar
e
$000
Cost
At 1 April 2006 1,609 220 1,829
Additions 5,317 - 5,317
Acquisition of subsidiary 1,646 - 1,646
At 1 April 2007 8,572 220 8,792
Additions 4,861 - 4,861
Write-off for discontinued products (Note 5) (1,168) - (1,168)
At 31 March 2008 12,265 220 12,485
Amortisation
At 1 April 2006 - 158 158
Charge for the year 1,040 62 1,102
At 1 April 2007 1,040 220 1,260
Charge for the year 6,222 - 6,222
At 31 March 2008 7,262 220 7,482
Net book value
At 31 March 2008 5,003 - 5,003
At 31 March 2007 7,532 - 7,532
Intangible fixed assets at 31 March 2008 comprises capitalised development expenditure during the year in respect of devices and i-mate*
Suite. The amortisation period for development costs incurred on devices is normally around 18 months. This has been revised during the
current period (Note 3).
10. Trade and other receivables
2008 2007
$000 $000
Current:
Trade receivables 14,041 31,419
Other debtors 208 212
Prepayments and accrued income 9,189 5,089
23,438 36,720
The Group's credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of
allowances for doubtful debtors. An allowance for impairment is made where there is an identified loss event which, based on previous
experience, is evidence of a reduction in the recoverability of the cash flows. An allowance has been made for the estimated irrecoverable
amounts from the sale of goods of $2,319,000 (2007: $104,000). The average credit period taken on sales is 45 days (2007: 40 days). No
interest is charged on receivables in the normal terms of business. Credit risk attributable to trade receivables is mitigated through the
use of letters of credit and credit insurance where possible.
10. Trade and other receivables (continued)
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
The Group's principal financial assets are bank balances and cash, and trade and other receivables.
The credit risk on liquid funds is limited because the counterparties are all banks with high credit ratings assigned by international
credit rating agencies.
11. Trade and other payables
2008 2007
$000 $000
Current:
Trade creditors 10,476 18,925
Accruals and deferred income 11,083 6,271
Social security and other taxes 250 407
Other creditors 249 134
22,058 25,737
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period
taken for trade purchases is 52 days (2007: 47) days. The Directors consider that the carrying amount of trade payables approximates their
fair value
12. Share capital
2008 2007
$000 $000
Authorised
i-mate plc
200,000,000 ordinary shares of 5p each 17,600 17,600
(translated at historic rate of $1.76)
Allotted, issued, and fully paid:
i-mate plc
118,528,297 ordinary shares of 5p each
(translated at historic rate of $1.76) 10,430 10,430
1,194,619 ordinary shares of 5p each
(translated at historic rate of $1.98) 119 119
10,549 10,549
The Company has one class of ordinary shares which carry no right to fixed income.
13. Notes to the cash flow statement
2008 2007
$000 $000
Operating loss (62,864) (5,403)
Amortisation of intangible costs 6,222 1,102
Depreciation of property, plant and equipment 772 766
Loss/(profit) on disposal of property, plant and 25 (19)
equipment
Share based payment provision 27 1,301
Impairment of goodwill (Note 11) 4,325 -
Impairment of development costs (Note 12) 1,168 -
Operating cash flows before movements in working capital (50,325) (2,253)
Decrease in inventories 2,905 10,491
Decrease in receivables 13,684 573
(Decrease) in payables (1,930) (4,592)
Cash (used in)/generated from operations (35,666) 4,219
Income taxes paid (1,036) (1,326)
Net cash (used in)/generated from operating activities (36,702) 2,893
Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash held by the
Group with an original maturity of three months or less. The carrying amount of these assets approximates their fair value.
14. Post balance sheet events
During the period a former contractor who provided management, administration and repair services for products in and out of warranty,
terminated their agreement with the Group and, in breach of that agreement, ceased all historic warranty cover. As a result the Group
assumed responsibility for all historic warranty obligations and established an in-house management function for after market services. The
contractor also pursued a number of claims against the Group. An out-of-court settlement was reached subsequent to the year-end and payment
was made that released the Group from all further actions by that contractor. The costs associated with the historic warranty obligations,
the establishment of the after-market service function and the out-of-court settlement, together with related legal expenses, have been
provided in the year ended 31 March 2008 and are disclosed in Note 5 regarding non-recurring items.
This information is provided by RNS
The company news service from the London Stock Exchange
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