RNS Number:1078R
Knowledge Technology Solutions PLC
31 March 2008
RNS Release: 31 March 2008
KNOWLEDGE TECHNOLOGY SOLUTIONS PLC
INTERIM REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2007
Knowledge Technology Solutions PLC (AIM: KTS), providers of market information
services in the finance sector, reports its unaudited results for the six months
ended 31 December 2007.
Financial and business highlights:
* Increase in turnover of 65% to �917,701 (2006: �555,884)
* Group loss of �718,908 (2006: �596,356) before tax, interest and
exceptional items.
* Completed substantial fund raising amounting to over �0.9 million (net
of expenses)
* Completed acquisition of Arcontech Limited
Richard Last, Chairman of Knowledge Technology Solutions, said:
"The Directors consider that the opportunities for the re-shaped business,
focussed on the Arcontech product set and exploiting the skill set and
Intellectual Property of the Market Terminal team, are good despite the present
uncertainties in the financial services sector generally. In particular we are
experiencing strong demand for the CFD and Spread Betting AXE system with new
prospects arising in Europe and the Middle East."
Enquiries; please contact:
Andrew Miller Knowledge Technology Solutions PLC 020 7256 2300
Mike Coe/Marc Davies Blue Oar Securities PLC 0117 933 0020
Chairman's Statement
The results for the six months ended 31 December show an increase in turnover of
65 % to �917,701 (2006 �555,884). This includes a four-month contribution from
Arcontech of �504,708, which was acquired on 4 September 2007. The Group loss
before tax, interest and exceptional items amounted to �718,908 (2006 �596,356).
The acquisition of Arcontech has proved to be extremely positive for the Group,
in its first four months it contributed �504,708 to turnover and produced an
operating profit of �109,153. It continues to grow its business with increasing
interest in its CityVision and Axe products. The Contract for Difference (CFD)
and Spread Betting sector is also a significant area of opportunity for
Arcontech. The Arcontech business has relocated successfully to the KTS
premises resulting in rent and other property cost savings and improving
business efficiency.
In my Chairman's statement dated 4 December 2007 I reported that we were
carrying out a detailed review of the Market Terminal subscription business,
this review is now complete. We have concluded that the financial and
management resources required to develop this business further should more
appropriately be applied to growing our software and solutions business where
the financial results are more certain. We are presently in discussions for the
sale of the subscription business. These discussions are at an early stage and
therefore not certain as to the outcome and are not as yet exclusive. We will
however, continue to maintain ownership of the Market Terminal Intellectual
Property ("IP") which is currently being used to deliver the recently awarded
contract to provide a managed and hosted solution to Borse Berlin/Equiduct, the
new pan-European stock exchange, for a real-time market data and full order book
web portal. The IP will be incorporated within the Arcontech product set, with
which integration is already completed.
The exceptional charge of �221,787 relates to the cost of terminating the
Arcontech lease prior to moving to the KTS premises, and the settlement with the
former chief executive. These costs will not recur.
Financing
As at 31 December 2007 the Group held total cash balances of �796,951. We are
currently undertaking a fund raising by way of a placing of new ordinary shares.
The proceeds of the fund raising will be used to increase sales and marketing
resources and related expenditure, to support further product development as
well as to provide the working capital necessary to support the implementation
and delivery of larger contracts that tend to be of a longer duration.
Employees
We are extremely grateful to our staff for their excellent support and
commitment during these changing times.
Outlook
The Directors consider that the opportunities for the re-shaped business,
focussed on the Arcontech product set and exploiting the skill set and
Intellectual Property of the Market Terminal team, are good despite the present
uncertainties in the financial services sector generally. In particular we are
experiencing strong demand for the CFD and Spread Betting AXE system with new
prospects arising in Europe and the Middle East.
The Board is planning to change the name of the company to Arcontech Plc at the
AGM in December 2008 and expects the company to trade profitably in 2008/2009.
In addition to the organic growth of the business we will continue to look for
suitable acquisition opportunities, which add to our product proposition as well
as increasing the size and scale of the Group.
Richard Last
Chairman
CONSOLIDATED INCOME STATEMENT for the six months ended 31 December 2007
Six months ended Six months ended Year ended 30
31 December 31 December June
Notes 2007 2006 2007
� � �
Continuing operations
Revenue 4 917,701 555,884 981,745
Distribution costs (523,257) (595,667) (1,043,738)
Administrative expenses (1,113,352) (556,573) (1,129,359)
Administrative expenses - 3 (221,787) - -
exceptional
Operating loss 4 (940,695) (596,356) (1,191,352)
Finance income 25,732 16,073 50,834
Loss before taxation (914,963) (580,283) (1,140,518)
Taxation 5 - - -
Loss for the year (914,963) (580,283) (1,140,518)
Loss per share
Basic 6 (0.21)p (0.33)p (0.45)p
Diluted 6 (0.21)p (0.33)p (0.45)p
CONSOLIDATED BALANCE SHEET as at 31 December 2007
31 December 31 December 30 June
Notes 2007 2006 2007
� � �
Non-current assets
Goodwill 7 1,422,598 - -
Plant and equipment 128,731 140,523 122,226
Total non-current assets 1,551,329 140,523 122,226
Current assets
Inventories 281 - -
Trade and other receivables 519,158 253,929 216,641
Cash and cash equivalents 796,951 1,937,108 1,473,451
Total current assets 1,316,390 2,191,037 1,690,092
Current liabilities
Trade and other payables 962,851 373,487 421,109
Current tax liabilities 121,536 28,062 21,433
Total current liabilities 1,084,387 401,549 442,542
Net current assets 232,003 1,789,488 1,247,550
Net assets 1,783,332 1,930,011 1,369,776
Equity
Share capital 10 488,643 332,532 332,532
Share premium account 7,489,278 6,316,870 6,316,870
Retained earnings (6,194,589) (4,719,391) (5,279,626)
1,783,332 1,930,011 1,369,776
CONSOLIDATED CASH FLOW STATEMENT for the six months ended 31 December 2007
Six months Six months ended Year ended 30
ended 31 31 December June
December
Notes 2007 2006 2007
� � �
Net cash used in operating activities 8 (821,433) (759,096) (1,254,885)
Investing activities
Interest received 25,732 16,073 50,834
Acquisition of subsidiary, net of cash 7 (782,574) -
acquired
-
Purchases of property, plant and (21,744) (6,344) (8,971)
equipment
Disposal of property, plant and equipment - 1,044 1,042
(778,586) 10,773 42,905
Net cash (used in)/generated from
investing activities
Financing activities
Proceeds on issue of shares 1,000,000 1,842,571 1,842,571
Expenses paid in connection with share
issues (76,481) (119,018) (119,018)
Net cash generated from financing
activities 923,519 1,723,553 1,723,553
Net (decrease)/increase in cash and cash (676,500) 975,230 511,573
equivalents
Cash and cash equivalents at beginning of 1,473,451 961,878 961,878
year
Cash and cash equivalents at end of year 796,951 1,937,108 1,473,451
NOTES TO THE FINANCIAL INFORMATION for the six months ended 31 December 2007
1 Accounting policies
Basis of preparation
The next annual financial statements of the Knowledge Technology Solutions plc
("the Group") will be prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted for use in the EU, applied in accordance
with the provisions of the Companies Act 1985.
Accordingly, the interim financial information in this report has been prepared
using accounting policies consistent with IFRS. IFRS is subject to amendment and
interpretation by the International Accounting Standards Board (IASB) and the
International Financial Reporting Interpretations Committee (IFRIC) and there is
an ongoing process of review and endorsement by the European Commission. The
financial information has been prepared on the basis of IFRS that the Directors
expect to be applicable as at 30 June 2008.
The financial information has been prepared under the historical cost
convention. The principal accounting policies set out below have been
consistently applied to all periods presented.
IFRS transition
The disclosures required by IFRS 1 concerning the transition from UK
GAAP to IFRS are given in note 12.
Non-statutory accounts
The financial information for the year end 30 June 2007 set out in this interim
report does not comprise the Group's statutory accounts as defined in section
240 of the Companies Act 1985.
The statutory accounts for the year ended 30 June 2007, which were prepared
under UK Generally Accepted Accounting Practice (UK GAAP), have been delivered
to the Registrar of Companies. The auditors reported on those accounts; their
report was unqualified and did not contain a statement under either Section 237
(2) or Section 237 (3) of the Companies Act 1985.
The financial information for the 6 months ended 31 December 2007 and 31
December 2006 is unaudited.
Basis of consolidation
The financial information incorporates the results of 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.
The results of subsidiaries acquired or disposed of during the period are
included in the consolidated income statement from the effective date of
acquisition or up to the effective date of disposal, as appropriate. Where
necessary, adjustments are made to the results 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.
Business combinations and goodwill
On acquisition, the assets and liabilities and contingent liabilities of
subsidiaries are measured at their fair values at the date of acquisition. Any
excess of cost of acquisition over the fair values of the identifiable net
assets acquired is recognised as goodwill. Goodwill arising on consolidation is
recognised as an asset and reviewed for impairment at least annually. Any
impairment is recognised immediately in profit or loss and is not subsequently
reversed.
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.
Revenue arising from the sale of services is recognised when and to the extent
that the Group obtains the right to consideration in exchange for the
performance of its contractual obligations as follows:
Subscriptions, software, advertising and sponsorship - over the contract period
Long-term contracts - attributable turnover in the period
Foreign currency
Transactions in foreign 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. Exchange gains
and losses on short-term foreign currency borrowings and deposits are included
with net interest payable. Exchange differences on all other transactions,
except relevant foreign currency loans, are taken to operating profit.
Taxation
The tax expense represents the sum of the tax currently payable and any deferred
tax.
The tax currently payable is based on the estimated taxable profit for the year.
Taxable profit differs from 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 substantially 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 (other
than in a business combination) of other assets and liabilities in a transaction
that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries, except where the Group is able to
control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.
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 are expected to apply in the
period when the liability is settled or the asset realised. 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 assets and liabilities on a net basis.
Share based payments
The cost of share-based employee compensation arrangements, whereby employees
receive remuneration in the form of shares or share options, is recognised as an
employee benefit expense in the income statement.
The total expense to be apportioned over the vesting period of the benefit is
determined by reference to the fair value (excluding the effect of non
market-based vesting conditions) at the date of grant. The assumptions
underlying the number of awards expected to vest are subsequently adjusted for
the effects of non market-based vesting to reflect the conditions prevailing at
the balance sheet date. Management give consideration to the best estimate for
the effects of the non-transferability, exercise restrictions and behavioural
considerations.
Plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and any
recognised impairment loss.
Depreciation is charged so as to write off the cost of assets, over their
estimated useful lives, using the straight-line method, on the following bases:
Leasehold property - over the period of the lease
Computer equipment - 33%
Office furniture and equipment - 25%
Inventories
Inventories comprise long term contracts, which are stated at cost, less
foreseeable losses and applicable payments on account. Cost is comprised of
direct labour costs and, where applicable, those overheads that have been
incurred in bringing the inventories to their present location and condition.
Financial instruments
Financial assets and financial liabilities are recognised on the balance sheet
when the Group becomes a party to the contractual provisions of the instrument.
Trade and other receivables are measured at initial recognition at fair value,
and are subsequently measured at amortised cost using the effective interest
method. A provision is established when there is objective evidence that the
Group will not be able to collect all amounts due. The amount of any provision
is recognised in the income statement.
Cash and cash equivalents comprises cash held by the Group and short-term bank
deposits with an original maturity of three months or less.
Trade and other payables are initially measured at fair value, and are
subsequently measured at amortised cost, using the effective interest rate
method.
Financial liabilities issued by the Group are classified in accordance with the
substance of the contractual arrangements entered into and the definitions of a
financial liability.
Leasing commitments
Payments made under operating leases are charged against profit as incurred.
Research and development
Research costs are charged to the profit and loss account in the year incurred.
Development expenditure is capitalised to the extent that it meets all of the
criteria required by IAS 38, otherwise it is charged to the profit and loss
account in the year incurred.
2 Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial information in conformity with generally accepted
accounting practice requires management to make estimates and judgements that
affect the reported amounts of assets and liabilities as well as the disclosure
of contingent assets and liabilities at the balance sheet date and the reported
amounts of revenues and expenses during the reporting period.
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. The significant judgements
made by management in applying the Group's accounting policies and the key
sources of estimation uncertainty were:
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in
use of the cash generating units to which goodwill has been allocated. The value
in use calculation requires the Group to estimate the future cash flows expected
to arise from the cash-generating unit and a suitable discount rate in order to
calculate the present value. No provision for impairment was made in the period
and the carrying value of goodwill at the balance sheet date was �1,422,598.
Share based payments
In determining the fair value of equity settled share based payments and the
related charge to the income statement, the Group makes assumptions about future
events and market conditions. In particular, judgement must be made as to the
likely number of shares that will vest, and the fair value of each award
granted. The fair value is dependent on further estimates, including the Group's
future dividend policy, employee turnover, the timing with which options will be
exercised and the future volatility in the price of the Group's shares.
Different assumptions about these factors to those made by the Group could
materially affect the reported value of share based payments.
Six months ended Six months Year ended 30
31 December ended 31 June
December
3 Administrative costs - exceptional 2007 2006 2007
� � �
Directors remuneration - payment in lieu 135,315 - -
of notice
Restructuring costs - office relocation 86,472 - -
expenses
221,787 - -
4 Segmental reporting
Revenue and operating profit/(loss) for the period are attributable as follows:
Revenue Operating
profit/(loss)
� �
Arcontech Limited 504,708 109,153
MarketTerminal business 412,993 (639,639)
PLC costs - (188,422)
917,701 (718,908)
Exceptional items - (221,787)
917,701 (940,695)
Six months ended Six months Year ended 30
31 December ended 31 June
December
5 Taxation 2007 2006 2007
� � �
Current tax - - -
Deferred tax - - -
Total tax expense for the period - - -
Tax has been calculated using an estimated annual effective tax rate of 30% (2006 interim 30%, 2007
actual 30%) on loss before tax and exceptional items.
Six months ended 31 Six months ended Year ended 30
December 31 December June
6 Earnings per share 2007 2006 2007
� � �
Earnings
Earnings for the purposes of basic and
diluted earnings per share being net
loss attributable to equity
shareholders (914,963) (580,283) (1,140,518)
Number of shares
Weighted average number of ordinary
shares for the purposes of basic
earnings per share 434,098,861 176,973,016 254,113,141
Number of dilutive shares under option - - -
Weighted average number of ordinary
shares for the purposes of dilutive
earnings per share 434,098,861 176,973,016 254,113,141
The calculation of diluted earnings per share assumes conversion of all potentially dilutive ordinary
shares, all of which arise from share options. A calculation is performed to determine the number of
shares that could have been acquired at fair value, based upon the monetary value of the subscription
rights attached to outstanding share options. The impact on the net loss of these potential ordinary
shares is anti-dilutive.
7 Acquisition of subsidiary
On 4 September 2007, the Group acquired 100 per cent of the issued share capital of Arcontech Limited.
The initial consideration was satisfied with cash of �1,239,933 and the issue of 45 million shares of
0.1 pence. In addition, deferred consideration capped at �300,000 is payable in cash or shares if
Arcontech Limited achieves turnover over �1.2 million and up to �2.2 million in the twelve month
period immediately following the completion of the acquisition. The principal activity of Arcontech
Limited is that of real-time software specialists. This transaction has been accounted for by the
purchase method of accounting.
Book value Fair value Fair value
adjustments
Net assets acquired:
� � �
Plant and equipment 4,737 - 4,737
Trade and other receivables 266,263 - 266,263
Cash and cash equivalents 537,240 - 537,240
Trade and other payables (506,024) - (506,024)
302,216 - 302,216
Goodwill 1,422,598 - 1,422,598
Total consideration 1,724,814 - 1,724,814
Satisfied by:
Cash 1,239,933 - 1,239,933
Directly attributable costs 79,881 79,881
1,319,814 - 1,319,814
Shares 405,000 - 405,000
1,724,814 - 1,724,814
Net cash outflow arising on
acquisition:
Cash consideration 1,319,814 - 1,319,184
Cash and cash equivalents acquired (537,240) - (537,240)
782,574 - 782,574
8 Cash used in operations
Six months ended 31 Six months ended Year ended 30
December 31 December June
2007 2006 2007
� � �
Operating loss (940,695) (596,356) (1,191,352)
Depreciation charge 19,976 23,796 44,722
(Increase)/decrease in trade and other (36,255) (24,870) 12,418
receivables
Increase in inventories (281) - -
Increase/(decrease) in trade and other 135,822 (161,174) (120,181)
payables
Profit on disposal of property, plant - (492) (492)
and equipment
Cash used in operations (821,433) (759,096) (1,254,885)
9 Dividends
There were no dividends paid or proposed during the period (2006: Nil).
10 Share capital
The Company allotted Ordinary Shares of 0.1 pence each during the period as follows:
Date Number
3 September 2007 111,111,111 shares at 0.9 pence per share
4 September 2007 45,000,000 shares at 0.9 pence per share
11 Copies of this statement
Copies of this statement are available from the Company Secretary at the Company's registered office
at 8th Floor Finsbury Tower, 103-105 Bunhill Row, London, EC1Y 8LZ or from the Company's website at
www.ktsplc.com.
12 Transition to IFRS
The transition to IFRS has not resulted in any impact on the net assets, loss or cash flow statement
at 1 July 2006, 31 December 2006 or 30 June 2007.
Cashflow statement
The Group's consolidated cash flow statements are presented in accordance with IAS 7. The statements
present substantially the same information as that required under UK GAAP, with the following
principle exceptions:
1. Under UK GAAP, cashflows are presented under nine standard headings, whereas IFRS
requires the classification of cash flows resulting from operating, investing and financing
activities.
2. The cash flows reported under IAS 7 relate to movements in cash and cash
equivalents, which include cash and short term liquid investments. Under UK GAAP, cash comprises
cash in hand and deposits repayable on demand.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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