SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

  FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

 

Date of report (Date of earliest event reported): July 27, 2018

 

PARETEUM CORPORATION

(Exact name of registrant as specified in Charter)

 

Delaware 001-35360 95-4557538
(State or other jurisdiction of
incorporation)
(Commission File Number) (IRS Employer
Identification No.)

 

1185 Avenue of the Americas, 37 th Floor

New York, NY 10036

(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number, including area code: (212) 984-1096

 

 

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below:

 

¨    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b2 of the Securities Exchange Act of 1934 (§240.12b2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

  

Item 8.01. Other Events  

 

As previously reported on June 7, 2018, Pareteum Corporation, a Delaware corporation (the “Company”), issued an announcement pursuant to Rule 2.7 of the United Kingdom City Code of Takeovers and Mergers disclosing the terms of a recommended offer (the “Offer”) by the Company to acquire the entire issued and to be issued shares of Artilium plc, a public limited company registered in England and Wale (“Artilium”), in a cash and stock transaction (the “Acquisition”). The foregoing is a summary of the Acquisition, and information regarding the Acquisition and the Offer can be found in that Current Report on Form 8-K filed as of June 7, 2018, File No. 001-35360.

 

The attached exhibits are filed herewith in connection to the potential Acquisition.

 

 

Item 9.01 Financial Statements and Exhibits

 

Financial statements, pro forma financial information and other exhibits filed herein include:

 

(d) Exhibits

 

99.1 Unaudited Pro Forma Condensed Combined Financial Information
99.2 Artilium Financial Statements
99.3 Selected Consolidated Historical Financial Information of Artilium
99.4 Selected Unaudited Pro Forma Condensed Combined Financial Data

  

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Dated: July 27, 2018 PARETEUM CORPORATION
       
  By:   /s/ Edward O’Donnell  
  Name: Edward O’Donnell
  Title: Chief Financial Officer

 

 

 

 

Exhibit 99.1

 

UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION

(in Dollars)

 

On June 7, 2018, pursuant to Rule 2.7 of the Takeover Code, Pareteum and Artilium released the Offer Announcement disclosing the terms on which Pareteum intends to make a recommended offer to acquire the issued and to be issued ordinary shares of Artilium in a cash and stock transaction. Under the terms of the Offer, Artilium shareholders will be entitled to receive, for each Artilium ordinary share held by such shareholders, 1.9 pence in cash and 0.1016 new shares of Pareteum common stock. The Acquisition is to be effected by means of a court-sanctioned scheme of arrangement between Artilium and Artilium shareholders under the UK Companies Act 2006, as amended.

 

The following unaudited pro forma condensed combined financial information gives effect to the Acquisition, which includes adjustments for the following:

 

· the conversion of Artilium’s historical financial statements from Euros to U.S. Dollars;

 

· the conversion of Artilium’s historical financial statements prepared in accordance with IFRS to U.S. GAAP;

 

· certain reclassifications to conform Artilium’s historical financial statement presentation to Pareteum’s presentation; and

  

· transaction costs in connection with the Acquisition.

 

The following unaudited pro forma condensed combined statements and related notes are based on and should be read in conjunction with (i) the historical consolidated financial statements of Pareteum and the related notes included in Pareteum’s Annual Report on Form 10-K for the year ended December 31, 2017 which was filed with the SEC on March 30, 2018 and the historical unaudited consolidated financial statements of Pareteum and related notes included in Pareteum’s Quarterly report on Form 10-Q for the period ended March 31, 2018 which was filed with the SEC on May 11, 2018, each of which is incorporated by reference in this document, and (ii) the audited consolidated financial statements of Artilium for the years ended June 30, 2017 and 2016 and the related notes and the unaudited condensed consolidated financial statements of Artilium for each of the nine months ended March 31, 2018 and March 31, 2017 and related notes contained herein.

 

The unaudited pro forma condensed combined statements of income for the three months ended March 31, 2018 and the year ended December 31, 2017 combine the historical consolidated statements of income of Pareteum and Artilium, giving effect to the Acquisition as if it had been completed on January 1, 2017. The accompanying unaudited pro forma condensed combined statement of financial position as of March 31, 2018 combines the historical condensed combined statements of financial position of Pareteum and Artilium, giving effect to the Acquisition as if it had been completed on March 31, 2018.

 

The historical consolidated financial information has been adjusted in the pro forma financial statements to give effect to pro forma events that are (i) directly attributable to the Acquisition, (ii) factually supportable and (iii) with respect to the unaudited pro forma condensed combined statements of income, expected to have a continuing effect on the combined results of Pareteum and Artilium. The statements contained herein do not reflect the costs of any integration activities or benefits that may result from the realization of future cost savings from operating efficiencies, or any other synergies that may result from the Acquisition.

 

The statements and related notes are being provided for illustrative purposes only and do not purport to represent what the combined company’s actual results of operations or financial position would have been had the Acquisition been completed on the dates indicated, nor are they necessarily indicative of the combined company’s future results of operations or financial position for any future period.

 

1  

 

 

The pro forma adjustments are based upon available information and certain assumptions as described in the accompanying notes to the unaudited pro forma condensed combined financial information which management believes are reasonable under the circumstances. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information.

   

2  

 

 

Pareteum Corporation
Unaudited Pro Forma Condensed Combined Statement of Financial Position
As of March 31, 2018

   

          Artilium plc              
    Historical
Pareteum
    Historical U.S.
Dollars (IFRS)
    Pro Forma
Reclassification
Adjustments
[Note 1]
    Pro Forma (U.S.
GAAP)
    Pro Forma
Adjustments
(Note 2)
   

Pro Forma
Condensed

Combined

 
ASSETS                                                
Current assets:                                                
Cash and cash equivalents   $ 15,988,645     $ 2,736,476     $ -     $ 2,736,476     $ (15,467,248 )   $ 3,257,873  
Accounts receivable, net     1,954,495       4,272,654       -       4,272,654               6,227,149  
Other current assets     1,153,742       99,284       -       99,284               1,253,026  
Total current assets     19,096,882       7,108,414       -       7,108,414       (15,467,248 )     10,738,048  
                                                 
Investments     3,230,208       7,878,935       -       7,878,935       (11,109,143 )     -  
                                                 
Fixed assets, net     4,176,199       612,112       -       612,112               4,788,311  
                                                 
Note receivable     601,583       -       -       -               601,583  
                                                 
Intangible assets     -       3,440,932       -       3,440,932               3,440,932  
                                                 
Other assets     93,730       -       -       -               93,730  
                                                 
Goodwill     -       25,407,871       153,507       25,561,378       82,991,482       108,552,860  
                                                 
TOTAL ASSETS   $ 27,198,602     $ 44,448,264     $ 153,507     $ 44,601,771     $ 56,415,091     $ 128,215,464  
                                                 
LIABILITIES AND STOCKHOLDER’S EQUITY                                                
                                                 
Current liabilities:                                                
Accounts payable     2,286,347     $ 3,830,530     $ 201,803       4,032,333             $ 6,318,680  
Line of credit     -       -       -       -               -  
Other current liabilities     5,157,202       616,226       -       616,226               5,773,428  
Deferred revenue - current             2,468,624       77,902       2,546,526               2,546,526  
Convertible notes     118,813       -       -       -               118,813  
Loans payable     -       12,325       -       12,325               12,325  
Total current liabilities     7,562,362       6,927,705       279,705       7,207,410       -       14,769,772  
                                                 
Long-term liabilities                                                
Derivative liabilities     1,911,381       -       -       -               1,911,381  
Deferred tax liabilities     -       234,966       -       234,966               234,966  
Deferred revenue - long-term     -       4,151,548       (279,705 )     3,871,843               3,871,843  
Other long term liabilities     738,208       518,266       -       518,266               1,256,474  
Total current and long-term liabilities     10,211,951       11,832,485       -       11,832,485       -       22,044,436  
                                                 
Stockholder's equity:                                                
Preferred shares     -       -       -       -               -  
Common stock     324,866,254       24,418,230       -       24,418,230       71,569,347       420,853,831  
Additional paid in capital     -       66,250,916       222,667       66,473,583       (66,473,583 )     -  
Treasury stock     -       (2,458,068 )     -       (2,458,068 )     2,458,068       -  
Accumulated other comprehensive loss     (6,202,289 )     2,296,813       -       2,296,813       (2,296,813 )     (6,202,289 )
Accumulated deficit     (301,677,314 )     (57,892,112 )     (69,160 )     (57,961,272 )     51,158,072       (308,480,514 )
Total stockholder's equity     16,986,651       32,615,779       153,507       32,769,286       56,415,091       106,171,028  
                                                 
TOTAL LIABILITIES AND EQUITY   $ 27,198,602     $ 44,448,264     $ 153,507     $ 44,601,771     $ 56,415,091     $ 128,215,464  

 

3  

 

 

Pareteum Corporation

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Three Months Ended March 31, 2018

 

          Artilium plc              
    Historical
 Pareteum
    Historical U.S.
Dollars (IFRS)
    Pro Forma
Reclassification
Adjustments
[Note 1]
    Pro Forma (U.S.
GAAP)
    Pro Forma
Adjustments
(Note 2)
    Pro Forma
Condensed
Combined
 
Revenue   $ 4,112,570     $ 6,383,434     $ -     $ 6,383,434       -     $ 10,496,004  
Cost of revenue     1,194,523       3,326,877       -       3,326,877               4,521,400  
Gross profit     2,918,047       3,056,557       -       3,056,557       -       5,974,604  
Operating expenses:                                                
Selling, general and administrative     4,751,585       3,825,282       24,370       3,849,652       6,803,200       15,404,437  
                                                 
Loss before other income / (expenses)     (1,833,538 )     (768,725 )     (24,370 )     (793,095 )     (6,803,200 )     (9,429,833 )
                                               
Interest expense     (50,562 )     (24,016 )     -       (24,016 )     -       (74,666 )
Changes in derivative liabilities     (313,733 )     -       -       -       -       (313,733 )
Other income     69,545       -       -       -       -       69,545  
Amortization of deferred financing costs     (6,142 )                     -       -       (6,142 )
                                                 
Net loss before income tax     (2,134,518 )     (792,741 )     (24,370 )     (817,111 )     (6,803,200 )     (9,754,829 )
Benefit for income taxes     (418 )     (61,235 )     -       (61,235 )     -       (61,653 )
                                                 
Net Loss     (2,134,100 )     (731,506 )     (24,370 )     (755,876 )     (6,803,200 )     (9,693,176 )
Foreign currency loss     104,402       (1,890,429 )     -       (1,890,429 )     -       (1,786,027 )
Change in fair value of available for sale securities     -       851,068       -       851,068       -       851,068  
                                                 
Comprehensive Loss   $ (2,029,698 )   $ (1,770,867 )   $ (24,370 )   $ (1,795,237 )   $ (6,803,200 )   $ (10,628,135 )
                                                 
Net income (loss) per common share from continuing operations:                                                
                                                 
Basic   $ (0.04 )   $ (0.01 )     -     $ (0.01 )   $ (0.18 )   $ (0.12 )
Diluted   $ (0.04 )   $ (0.01 )     -     $ (0.01 )   $ (0.18 )   $ (0.12 )
                                                 
Weight average common share outstanding:                                                
Basic     50,062,434       353,732,000       -       353,732,000       37,852,076       87,914,510  
Diluted     50,062,434       353,732,000       -       353,732,000       37,852,076       87,914,510  

 

Pro forma adjustments

 

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:

 

Adjustments to the pro forma condensed combined balance sheet:

 

1) Note 1 reflects the conversion of the Artilium financial statements from IFRS to U.S. GAAP; and

 

2) Note 2 reflect the purchase price and preliminary estimate of goodwill, which represents the excess of the purchase price over the fair value of assets acquired of Artilium.

 

Artilium, plc is a UK public company whose audited financial statements are presented under IFRS. In connection with Pareteum’s planned acquisition of Artilium, the combined consolidated balance sheets and statements of operations of both entities, as of as of March 31, 2018 and for the quarter ended were prepared. The following entry was made to convert Artilium’s IFRS financial statements to U.S. GAAP:

 

Note 1   Goodwill     153,507        
    Accumulated deficit     44,791          
    Deferred revenues - long-term     279,705          
    Selling, general and administrative     24,370          
    Accounts payable           $ 201,803  
    Deferred revenues - current             77,902  
    Additional paid in capital             222,667  

 

4  

 

 

 The above entry represents the following adjustments:

 

1) Adjustment to increase goodwill with a corresponding credit to additional paid in capital of $153,507 due to fair value adjustment on the shares to be issued as consideration in the acquisition of IDM.
2) Adjustment to record stock-based compensation expense for options granted to two officers of Artilium, plc in July 2017 in the amount of $44,791 and $24,370 for the year ended December 31, 2017 and for the quarter ended March 31, 2018 with a corresponding credit to additional paid in capital of $69,161.
3) Adjustment to correct the overstatement in deferred revenue-long-term of $279,705 and to reclass accruals of $201,803 which were erroneously classified as deferred-current to accounts payable.

 

The following adjustments represent the acquisition and consolidation of Artilium by Pareteum.

 

Note 2   Common stock     24,418,230        
    Additional paid-in capital     66,473,583          
    Treasury stock             2,458,068  
    Accumulated other comprehensive gain (loss)     2,296,813          
    Accumulated deficit             57,961,272  
    Goodwill     82,991,482          
    Professional Fees - M&A     6,803,200          
    Cash             8,864,348  
    Cash - M&A Costs             6,602,900  
    Investments             11,109,143  
    Common Stock             95,787,177  
    Common Stock - M&A Fees             200,400  

 

As a part of the acquisition Pareteum acquired Artillium in a common stock purchase and Note 2 represents the entry:

 

1) All Artilium shareholder’s equity balances are adjusted by $32,769,286 to reflect the transaction as if completed. Goodwill for the difference of net assets acquired and fair market value totals approximately $82,991,482.
2) Cash payments for the acquisition and professional fees for the transaction are approximately $8,864,348 and $6,602,900.
3) Additional professional fees are to be paid in stock in the amount of approximately $200,400. The elimination of net investment between companies is approximately $11,109,143.
4) Pareteum will issue equity of approximately $95,787,177 to complete the transaction.

 

5  

 

 

Pareteum Corporation
Unaudited Pro Forma Condensed Combined Statement of Financial Position
For the Year Ended December 31, 2017

   

          Artilium plc              
    Historical
Pareteum
    Historical U.S.
Dollars (IFRS)
    Pro Forma
Reclassification
Adjustments
[Note 1]
    Pro Forma (U.S.
GAAP)
    Pro Forma
Adjustments
(Note 2)
    Pro Forma
Condensed
Combined
 
ASSETS                                                
Current assets:                                                
Cash and cash equivalents   $ 13,737,675     $ 3,499,113     $ -     $ 3,499,113     $ (15,467,248 )   $ 1,769,540  
Accounts receivable, net     2,058,284       4,725,090       (1,081,760 )     3,643,330       -       5,701,614  
Other current assets     900,369       134,312       -       134,312       -       1,034,681  
Total current assets     16,696,328       8,358,515       (1,081,760 )     7,276,755       (15,467,248 )     8,505,835  
                                                 
Investments     3,230,208       6,596,487       -       6,596,487       (9,826,695 )     -  
Fixed assets, net     4,713,710       545,494       -       545,494       -       5,259,204  
Note receivable     594,520       -       -       -       -       594,520  
Intangible assets     -       3,749,141       -       3,749,141       -       3,749,141  
Other assets     91,267       -       -       -       -       91,267  
Goodwill     -       20,549,865       -       20,549,865       85,315,016       105,864,881  
                                                 
TOTAL ASSETS   $ 25,326,033     $ 39,799,502     $ (1,081,760 )   $ 38,717,742     $ 60,021,073     $ 124,064,848  
                                                 
LIABILITIES AND STOCKHOLDER’S EQUITY                                                
                                                 
Current liabilities:                                                
Accounts payable   $ 1,978,726     $ 2,749,261     $ (187,743 )   $ 2,561,518       -     $ 4,540,244  
Other current liabilities     5,493,116       119,986       -       119,986       -       5,613,102  
Deferred revenue - current     -       2,260,347       (285,507 )     1,974,840       -       1,974,840  
Convertible notes     66,000       -       -       -       -       66,000  
Loans payable     -       11,999       -       11,999       -       11,999  
Total current liabilities     7,537,842       5,141,593       (473,250 )     4,668,343       -       12,206,185  
                                                 
Long-term liabilities                                                
Derivative liabilities     1,597,647       -       -       -       -       1,597,647  
Deferred tax liabilities     -       314,282       -       314,282       -       314,282  
Deferred revenue - long-term     -       4,344,608       (608,510 )     3,736,098       -       3,736,098  
Other long term liabilities     769,011       835,715       -       835,715       -       1,604,726  
Total current and long-term liabilities     9,904,500       10,636,198       (1,081,760 )     9,554,438       -       19,458,938  
                                                 
Stockholder's equity:                                                
Preferred shares     -       -       -       -       -       -  
Common stock     321,271,437       23,484,192       -       23,484,192       72,503,385       417,259,014  
Additional paid-in capital     -       62,156,505       44,791       62,201,296       (62,201,296 )     -  
Treasury stock     -       (2,458,068 )     -       (2,458,068 )     2,458,068       -  
Accumulated other comprehensive gain (loss)     (6,306,691 )     3,141,281       -       3,141,281       (3,141,281 )     (6,306,691 )
Accumulated deficit     (299,543,213 )     (57,160,606 )     (44,791 )     (57,205,397 )     50,402,197       (306,346,413 )
Total stockholder's equity     15,421,533       29,163,304       -       29,163,304       60,021,073       104,605,910  
                                                 
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY   $ 25,326,033     $ 39,799,502     $ (1,081,760 )   $ 38,717,742     $ 60,021,073     $ 124,064,848  

 

6  

 

 

Pareteum Corporation

Unaudited Pro Forma Condensed Combined Statement of Operations

For the 12 month period ended December 31, 2017

 

 

          Artilium plc              
    Historical
Pareteum
    Historical U.S.
Dollars (IFRS)
    Pro Forma
Reclassification
Adjustments
[Note 1]
    Pro Forma (U.S.
GAAP)
    Pro Forma
Adjustments
(Note 2)
    Pro Forma
 Condensed
Combined
 
Revenue   $ 13,547,507     $ 12,246,485     $ -     $ 12,246,485       -     $ 25,793,992  
Cost of revenue     3,683,609       2,943,919       -       2,943,919       -       6,627,528  
Gross profit     9,863,898       9,302,566       -       9,302,566               19,166,464  
Operating expenses:                                                
Selling, general and administrative     18,651,085       10,684,607       44,791       10,729,398       6,803,200       36,183,683  
Income before other income / (expenses)     (8,787,187 )     (1,382,041 )     (44,791 )     (1,426,832 )     (6,803,200 )     (17,017,219 )
                                                 
Interest expense     (4,890,900 )     (243,605 )     -       (243,605 )     -       (5,134,505 )
Changes in derivative liabilities     794,691       -       -       -       -       794,691  
Other income     705,140       -       -       -       -       705,140  
Amortization of deferred financing costs     (177,519 )     -       -       -       -       (177,519 )
                                                 
Net income before income tax     (12,355,775 )     (1,625,646 )     (44,791 )     (1,670,437 )     (6,803,200 )     (20,829,412 )
Provision (benefit) for income taxes     107,205       (301,008 )     -       (301,008 )             (193,803 )
                                                 
Net Loss     (12,462,980 )     (1,324,638 )     (44,791 )     (1,369,429 )     (6,803,200 )     (20,635,609 )
Foreign currency translation gain (loss)     (1,219,782 )     810,157       -       810,157       -       (409,625 )
Change in fair value of available for sale securities     -       2,331,124       -       2,331,124       -       2,331,124  
                                                 
Comprehensive Loss   $ (13,682,762 )   $ 1,816,643     $ (44,791 )   $ 1,771,852     $ (6,803,200 )   $ (18,714,110 )
                                                 
Net income (loss) per common share from continuing operations:                                                
Basic   $ (0.84 )   $ (0.01 )   $ -     $ (0.01 )   $ (0.18 )   $ (0.35 )
Diluted   $ (0.84 )   $ (0.01 )   $ -     $ (0.01 )   $ (0.18 )   $ (0.38 )
                                                 
Weight average common share outstanding:                                                
Basic     16,338,156       316,418,000       -       316,418,000       37,852,076       54,190,232  
Diluted     16,338,156       316,418,000       -       316,418,000       37,852,076       54,190,232  

 

Pro forma adjustments

 

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:

 

Adjustments to the pro forma condensed combined balance sheet:

 

1) Note 1 reflects the conversion of the Artilium financial statements from IFRS to U.S. GAAP; and

 

2) Note 2 reflect the purchase price and preliminary estimate of goodwill, which represents the excess of the purchase price over the fair value of assets acquired of Artilium.

 

Artilium, plc is a UK public company whose audited financial statements are presented under IFRS. In connection with Pareteum’s planned acquisition of Artilium, the combined consolidated balance sheets and statements of operations of both entities, as of December 31, 2017 and for the year then ended were prepared. The following entry was made to convert Artilium’s IFRS financial statements to U.S. GAAP:

 

Note 1   Accounts payable     187,743        
    Deferred revenues - current     285,507          
    Deferred revenues - long-term     608,510          
    Selling, general and administrative     44,791          
    Accounts receivable             1,081,760  
    Additional paid in capital             44,791  

 

7  

 

 

The above entry represents the following adjustments:

 

1) Adjustment to accounts payable, deferred revenues-current and deferred revenues – long-term of $187,743, $285,507 and $608,510, respectively, with a corresponding credit to accounts receivable of $1,081,760 to correct the overstatement in deferred revenue for amounts billed but not collected as of December 31, 2017.
2) Adjustment to increase selling, general and administrative by $44,791 with a corresponding credit to additional paid in capital to record stock-based compensation for options granted to two officers of Artilium, plc.

 

The following adjustments represent the acquisition and consolidation of Artilium by Pareteum.

 

Note 2   Common stock     23,484,192        
    Additional paid-in capital     62,201,296          
    Treasury stock             2,458,068  
    Accumulated other comprehensive gain (loss)     3,141,281          
    Accumulated deficit             57,205,397  
    Goodwill     85,315,016          
    Professional Fees - M&A     6,803,200          
    Cash             8,864,348  
    Cash - M&A Costs             6,602,900  
    Investments             9,826,695  
    Common Stock             95,787,177  
    Common Stock - M&A Fees             200,400  
                     
    To record purchase of Artillium plc                

 

As a part of the acquisition Pareteum acquired Artillium in a common stock purchase and Note 2 represents the entry:

 

1) All Artilium shareholder’s equity balances are adjusted by $32,769,286 to reflect the transaction as if completed. Goodwill for the difference of net assets acquired and fair market value totals approximately $82,991,482.
2) Cash payments for the acquisition and professional fees for the transaction are approximately $8,864,348 and $6,602,900.
3) Additional professional fees are to be paid in stock in the amount of approximately $200,400. The elimination of net investment between companies is approximately $11,109,143.
4) Pareteum will issue equity of approximately $95,787,177 to complete the transaction.

 

8  

 

 

Exhibit 99.2

 

ARTILIUM FINANCIAL STATEMENTS

 

Independent auditor’s report F-2
Unaudited condensed consolidated income statement for the nine months ended 31 March 2018 and 2017 F-3
Unaudited condensed consolidated statement of comprehensive income for the nine months ended 31 March 2018 and 2017 F-4
Unaudited condensed consolidated statement of financial position for the nine months ended 31 March 2018 and 2017 F-5
Unaudited condensed consolidated statement of changes in equity for the nine months ended 31 March 2018 and 2017 F-7
Unaudited condensed consolidated statement of cash flows for the nine months ended 31 March 2018 and 2017 F-9
Notes to the unaudited condensed consolidated financial statements F-10

 

Annual reports for the year ended 30 June 2017

F-12
Independent auditor’s report F-13
Audited consolidated income statement for the year ended 30 June 2017 F-18
Audited consolidated statement of comprehensive income for the year ended 30 June 2017 F-19
Audited consolidated statement of financial position for the year ended 30 June 2017 F-20
Audited consolidated statement of changes in equity for the year ended 30 June 2017 F-22
Audited consolidated statement of cash flows for the year ended 30 June 2017 F-23
Notes to the audited consolidated financial statements F-24

 

Annual reports for the year ended 30 June 2016

F-71
Independent auditor’s report F-72
Audited consolidated income statement for the year ended 30 June 2016 F-74
Audited consolidated statement of comprehensive income for the year ended 30 June 2016 F-75
Audited consolidated statement of financial position for the year ended 30 June 2016 F-76
Audited consolidated statement of changes in equity for the year ended 30 June 2016 F-78
Audited consolidated statement of cash flows for the year ended 30 June 2016 F-79
Notes to the audited consolidated financial statements F-80

  

F- 1  

 

 

ARTILIUM PLC

 

Introduction

 

We have been engaged by the Company to review the condensed set of financial statements in the interim financial information for the nine months ended 31 March 2017 and 31 March 2018 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated cash flow statements and related notes. We have read the other information contained in the interim financial information and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

Directors’ responsibilities

 

The interim financial information is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim financial information in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) as adopted by the European Union. The Directors, in addition, have also applied the recognition and measurement principles of IFRSs as issued by the International Accounting Standards Board (IASB).

 

The annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) as adopted by the European Union and the recognition and measurement criteria of IFRSs as issued by the International Accounting Standards Board (IASB).

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”, issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK), and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the nine months ended 31 March 2017 and 31 March 2018 is not prepared, in all material respects, in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) as adopted by the European Union and IFRSs as issued by the IASB.

 

 

PKF Littlejohn LLP

28 June 2018

 

F- 2  

 

 

ARTILIUM PLC

CONDENSED CONSOLIDATED INCOME STATEMENT

 

    9 months     9 months  
    ended     ended  
    31 March     31 March  
    2018     2017  
    Unaudited     Unaudited  
    €’000     €’000  
Continuing Operations                
Revenue     10,675       8,103  
Cost of sales     (3,908 )     (2,025 )
Gross profit     6,767       6,078  
Depreciation and amortization     (1,251 )     (1,324 )
Administrative expenses before redundancy costs     (6,333 )     (5,859 )
Redundancy costs     (131 )     (287 )
Administrative expenses     (6,464 )     (6,146 )
Operating loss     (948 )     (1,392 )
Finance costs     (87 )     (352 )
Loss before tax     (1,035 )     (1,744 )
Tax credit     169       170  
Loss for the period from continuing operations attributable to owners of the Company     (866 )     (1,574 )

 

Reconciling table operating result-adjusted EBITDA

 

    9 months     9 months  
    ended     ended  
    31 March     31 March  
    2018     2017  
    Unaudited     Unaudited  
    €’000     €’000  
Operating loss     (948 )     (1,392 )
Redundancy costs     131       287  
Depreciation, amortization and impairments     1,251       1,324  
Adjusted EBITDA     434       219  

 

F- 3  

 

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

    9 months     9 months  
    ended     ended  
    31 March     31 March  
    2018     2017  
    Unaudited     Unaudited  
    €’000     €’000  
Loss for the period     (866 )     (1,574 )
Other comprehensive income:                
Items that may be subsequently reclassified to profit or loss                
Exchange differences on translation of foreign operations     316       148  
Change in fair value of available for sale financial assets     2,915       -  
Total comprehensive income for the period attributable to owners of the Company     2,365       (1,426 )

 

F- 4  

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

    31 March     31 March  
    2018     2017  
    Unaudited     Unaudited  
    €’000     €’000  
Non-current assets                
Goodwill     20,616       17,127  
Other intangible assets     2,792       3,991  
Property, plant and equipment     497       407  
Available for sale financial assets     6,393       -  
      30,298       21,525  
Current assets                
Inventories     81       104  
Trade and other receivables     3,467       3,731  
Cash and cash equivalents     2,220       3,531  
      5,768       7,366  
Total assets     36,066       28,891  
Non-current liabilities                
Deferred tax liabilities     191       458  
Bank loans     14       20  
Other borrowings     275       1,164  
Other payables     3,500       4,200  
      3,980       5,842  
Current liabilities                
Trade and other payables     5,111       4,224  
Other borrowings     500       1,309  
Bank loans     10       90  
      5,621       5,623  
Total liabilities     9,601       11,465  

 

F- 5  

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued)

 

    31 March     31 March  
    2018     2017  
    Unaudited     Unaudited  
    €’000     €’000  
Equity attributable to owners of the Company                
Share capital     22,928       20,267  
Share premium     50,151       47,480  
Shares to be issued     1,489       -  
Merger relief reserve     1,488       1,488  
Capital redemption reserve     6,503       6,503  
Available for sale reserve     2,915       -  
Translation reserve     (1,840 )     (2,195 )
Own shares     (2,336 )     (2,336 )
Retained deficit     (54,833 )     (53,781 )
Total equity     26,465       17,426  
Total liabilities and equity     36,066       28,891  

 

F- 6  

 

  

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

    Share
capital
    Share
premium account
    Merger
relief
reserve
    Shares to
be issued
    Capital
redemption
reserve
    Available
for sale
reserve
    Translation
reserve
    Own
shares
    Retained
deficit
    Total  
    Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000  
Balance at 1 July 2017     20,267       47,480       1,488       125       6,503       -       (2,156 )     (2,336 )     (53,967 )     17,404  
                                                                                 
Unaudited:                                                                                
Nominal value of shares issued and to be issued     2,661       -       -       626       -       -       -       -       -       3,287  
Premium arising on issue of shares and shares to be issued     -       2,671       -       863       -       -       -       -       -       3,534  
Movement in shares to be issued     -       -       -       (125 )     -       -       -       -       -       (125 )
Total transaction with owners, recognised directly in equity     2,661       2,671       -       1,364       -                       -       -       6,696  
Loss for the period     -       -       -       -       -       -       -       -       (866 )     (866 )
Other comprehensive income     -       -       -       -       -       2,915       316       -       -       3,231  
                                                                                 
Total comprehensive income for the period     -       -       -       -       -       2,915       316       -       (866 )     2,365  
                                                                                 
Balance at 31 March 2018     22,928       50,151       1,488       1,489       6,503       2,915       (1,840 )     (2,336 )     (54,833 )     26,465  

 

F- 7  

 

 

   

Share

capital

   

Share

premium

   

Merger

relief
reserve

    Shares to
be issued
    Capital
redemption
reserve
    Available
for sale
reserve
    Translation
reserve
    Own
shares
    Retained
deficit
    Total  
    Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000  
Balance at 1 July 2016     19,601       47,379       1,488       -       6,503       -       (2,343 )     (2,336 )     (52,207 )     18,085  
Unaudited:                                                                                
Nominal value of shares issued     666       -       -       -       -       -       -       -       -       666  
Premium arising on issue of shares     -       101       -       -       -       -       -       -       -       101  
Total transaction with owners, recognised directly in equity     666       101       -       -       -       -       -       -       -       767  
Loss for the period     -       -       -       -       -       -       -       -       (1,574 )     (1,574 )
Other comprehensive income - currency translation differences     -       -       -       -       -       -       148       -       -       148  
Total comprehensive income for the period     -       -               -       -       -       148       -       (1,574 )     (1,426 )
Balance at 31 March 2017     20,267       47,480       1,488               6,503               (2,195 )     (2,336 )     (53,781 )     17,426  

 

F- 8  

 

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

    9 months     9 months  
    ended     ended  
    31 March     31 March  
    2018     2017  
    Unaudited     Unaudited  
    €’000     €’000  
Loss from continuing operations before tax     (1,035 )     (1,744 )
Depreciation of property, plant and equipment     231       273  
Amortisation of intangible assets     1,020       1,051  
Share based payments     476       467  
Finance costs     87       352  
Foreign exchange differences     -       (6 )
(Increase)/decrease in receivables     (717 )     288  
Increase in payables     710       2,159  
Decrease in inventory     3       26  
Net cash generated from operating activities     775       2,866  
I nvesting activities                
Acquisition of subsidiaries and businesses, net of cash acquired     (2,000 )     175  
Purchase of property, plant and equipment     (195 )     (209 )
Loans repaid     1,000       -  
Loans advanced     -       (1,000 )
Net cash used in investing activities     (1,195 )     (1,034 )
Financing activities                
Proceeds on issue of shares     1,228       -  
Proceeds from borrowings     -       1,751  
Interest paid     (87 )     (312 )
Repayment of borrowings     (1,364 )     (162 )
Net cash generated from/(used in) financing activities     (223 )     1,277  
Net (decrease)/increase in cash and cash equivalents     (643 )     3,109  
Cash and cash equivalents at beginning of the period     2,863       422  
Cash and cash equivalents at the end of the period     2,220       3,531  

 

F- 9  

 

 

NOTES TO THE CONDENSED CONSOLIDATED HALF YEARLY FINANCIAL STATEMENTS

 

1. Nature of operations and general information

 

Artilium plc and its subsidiaries (together ‘the Group’) operates in the business to business communications sector delivering innovative software solutions which layer seamlessly over disparate fixed, mobile and IP networks to enable the deployment of converged services and applications. Artilium plc is incorporated and domiciled in the United Kingdom. The address of its registered office is 9-13 St. Andrew Street, London EC4A 3AF. The Group’s principal place of business is Belgium, Germany and the Netherlands.

 

2. Basis of preparation

 

These unaudited condensed consolidated financial statements have been prepared under the historical cost convention and in accordance with the AIM Rules for Companies. As permitted, the Group has chosen not to adopt IAS 34 “Interim Financial Statements” in preparing this interim financial information. The unaudited condensed consolidated financial statements should be read in conjunction with the annual financial statements for the year ended 30 June 2017 and 30 June 2016, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The Group, in addition to complying with its legal requirement to apply IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB).

 

The unaudited condensed consolidated financial statements do not constitute statutory financial statements within the meaning of the Companies Act 2006. They have been prepared on a going concern basis in accordance with the recognition and measurement criteria of IFRSs as adopted by the European Union and IFRSs as issued by the IASB. Statutory financial statements for the year ended 30 June 2017 and 30 June 2016 were approved by the Board of Directors on 30 October 2017 and 3 November 2016 respectively, and delivered to the Registrar of Companies. The report of the auditor on those financial statements was unqualified.

 

The same accounting policies, presentation and methods of computation are followed in these unaudited condensed consolidated financial statements as were applied in the preparation of the Group’s annual audited financial statements for the years ended 30 June 2017 and 30 June 2016.

 

The preparation of unaudited condensed consolidated half yearly financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the end of the reporting period. Significant items subject to such estimates are set out in the Group’s Annual Report and Financial Statements for the years ended 30 June 2017 and 30 June 2017. Except as described below, the nature and amounts of such estimates have not changed significantly during the interim periods.

 

The presentational currency of the Group is round thousand Euros.

 

F- 10  

 

 

Basis of consolidation

 

The unaudited condensed consolidated financial statements incorporate the financial statements of Artilium plc and the entities controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

 

All material intra-group transactions, balances, income and expenses are eliminated on consolidation.

 

Going concern

 

The Directors have adopted the going concern basis in preparing the condensed consolidated financial statements, having carried out a going concern review. In carrying out the review the Directors have made assumptions about the future revenue that will be generated based on its pipeline. The Directors are satisfied that the going concern basis is appropriate.

 

Intangibles

 

IAS 36 requires the Directors to consider intangible assets and goodwill for impairment on an annual basis. The last review was performed at 30 June 2017 and has not been updated at the interim date.

 

F- 11  

 

  

Artilium plc

 

Report and financial statements 2017

 

Contents

 

Independent auditor’s report F-13
   
Consolidated income statement F-18
   
Consolidated statement of comprehensive income F-19
   
Consolidated statement of financial position F-20
   
Consolidated statement of changes in equity F-22
   
Consolidated cash flow statement F-23
   
Notes to the consolidated financial statements F-24
   
Company statement of financial position F-61
   
Company statement of changes in equity F-62
   
Company cash flow statement F-63
   
Notes to the Company financial statements F-64

 

F- 12  

 

 

Artilium plc

 

Independent auditors report to the members of Artilium plc

 

Opinion

 

We have audited the financial statements of Artilium plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 30 June 2017 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statements of Financial Position, the Consolidated and Parent Company Statements of Changes in Equity, the Consolidated and Parent Company Statements of Cash Flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 

In our opinion, the financial statements:

 

· give a true and fair view of the state of the group’s and of the parent company’s affairs as at 30 June 2017 and of the group’s loss for the year then ended;
· have been properly prepared in accordance with IFRSs as adopted by the European Union; and
· have been prepared in accordance with the requirements of the Companies Act 2006.

 

Separate opinion in relation to IFRSs as issued by the IASB

 

The group, in addition to complying with its legal requirement to apply IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB).

 

In our opinion the financial statements give a true and fair view of the financial position of the group as at 30 June 2017 and of its consolidated financial performance and its cash flows for the year then ended in accordance with IFRSs as issued by the IASB.

 

Basis for opinion

 

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group and Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Conclusions relating to going concern

 

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

 

· the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
· the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

 

F- 13  

 

 

Artilium plc

 

Independent auditors report to the members of Artilium plc

 

Our application of materiality

 

The scope of our audit was influenced by our application of materiality. The quantitative and qualitative thresholds for materiality determine the scope of our audit and the nature, timing and extent of our audit procedures. Group materiality was €120,000 based upon revenues and the result before tax. The parent company has no trading activity and materiality was €120,000 based upon the net assets and the result before tax. For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality.

 

An overview of the scope of our audit

 

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at areas involving significant accounting estimates and judgement by the Directors and considered future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. Of the 10 reporting components of the group, we selected 8 components covering entities within Belgium, Netherlands and the UK and which represent the principal business units within the group. Of the 8 components selected, a full scope audit was performed on the complete financial information of 7 components and, for the other component, we performed audit procedures on significant accounts based on size or risk profile to the Group. For the remaining 2 reporting components, audit procedures were undertaken in response to potential risks of material misstatement to the group financial statements.

 

Of the 10 reporting components of the group, 8 are located in Belgium and the Netherlands and audited by a PKF network firm operating under our instruction. The Senior Statutory Auditor interacted regularly with the component audit team during all stages of the audit and was responsible for the scope and direction of the audit process. This, in conjunction with additional procedures performed, gave us appropriate evidence for our opinion on the group and parent company financial statements.

 

Key audit matters

 

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

Key audit matter   How our audit addressed the key audit matter
     

Carrying value of goodwill and intangible assets

 

The Group carries a material amount of goodwill and separately identifiable intangible assets arising from business combinations and asset acquisitions in its Statement of Financial Position.

 

The Group has goodwill of €17.127 million and other intangible assets of €3.812 million as at 30 June 2017 principally contained within 3 cash generating units. Goodwill must be tested for impairment on at least an annual basis whilst other intangible assets are assessed for indicators of impairment.

 

The determination of recoverable amount, being the higher of value in use and fair value less disposal costs, requires judgement by management in identifying and then valuing the cash generating units. Recoverable amounts are based on management’s view of key variables such as revenue and EBITDA growth rates and the most appropriate discount rate.

 

The headroom in the 2016 and 2017 value in use calculations are sensitive to possible changes in key assumptions.

 

We reperformed management’s value in use calculations and assessed the categorisation of cash generating units, which we found to be satisfactory.

 

We discussed the basis of the key assumptions with management, in particular regarding revenue growth and EBITDA, and critically assessed the cash flow forecasts.

 

We performed sensitivity analysis on the headroom to changes in key assumptions.

 

We assessed the accuracy of management budgets and forecasts used in the prior year value in use calculations to actual results achieved in the current period.

 

F- 14  

 

 

Artilium plc

 

Independent auditors report to the members of Artilium plc

 

Key audit matter   How our audit addressed the key audit matter
     

Revenue recognition

 

The Group has numerous revenue streams comprising platform services, sale of software, professional services, sale of hardware and maintenance. Each stream has different revenue recognition criteria considerations.

 

We updated our understanding of the internal control environment in operation for the significant revenue streams and undertook a walk-through to ensure the key controls within these systems operated during the period.

 

We reviewed the key contractual terms and terms of business with customers to identify the material performance obligations.

 

We undertook substantive testing on revenue recognised in the financial statements, including deferred and accrued income recognised at the year end, to ensure revenue had been recognised in accordance with the disclosed accounting policy for revenue recognition.

 

We undertook a review of invoices, credit notes and cash receipts post year end to ensure the completeness of income recognised in the accounting period.

 

Other information

 

The other information comprises the information included in the Annual Report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

 

We have nothing to report in this regard.

 

F- 15  

 

 

Artilium plc

 

Independent auditors report to the members of Artilium plc

 

Opinions on other matters prescribed by the Companies Act 2006

 

In our opinion, based on the work undertaken in the course of the audit:

 

· the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

 

· the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

 

Matters on which we are required to report by exception

 

In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.

 

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

 

· adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

 

· the parent company financial statements are not in agreement with the accounting records and returns; or

 

· certain disclosures of directors’ remuneration specified by law are not made; or

 

· we have not received all the information and explanations we require for our audit.

 

Responsibilities of directors

 

As explained more fully in the directors’ responsibilities statement the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

 

Auditor’s responsibilities for the audit of the financial statements

 

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

 

F- 16  

 

 

Artilium plc

 

Independent auditors report to the members of Artilium plc

 

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: h ttp://www.frc.org.uk/auditors/audit-assurance/auditor-s-responsibilities-for-the-audit-of-the-fi/description-of-the-auditor%E2%80%99s-responsibilities-for . This description forms part of our auditor’s report.

 

David Thompson (Senior Statutory Auditor) 1 Westferry Circus
For and on behalf of PKF Littlejohn LLP Canary Wharf
Statutory Auditor London E14 4HD

 

30 October 2017

 

F- 17  

 

 

Artilium plc

 

Consolidated income statement

Year ended 30 June 2017

 

        2017     2016  
    Notes   Eur’000     Eur’000  
                 
Continuing Operations                    
Revenue   4     10,452       9,622  
Cost of sales         (2,716 )     (2,599 )
Gross profit         7,737       7,023  
Depreciation and amortisation   13,15     (1,768 )     (1,411 )
Administrative expenses before redundancy costs, depreciation and amortisation         (7,413 )     (6,835 )
Redundancy costs   8     (227 )     (294 )
Administrative expenses         (7,640 )     (7,129 )
Operating loss         (1,671 )     (1,517 )
Finance costs   7     (324 )     (200 )
Loss before tax         (1,995 )     (1,717 )
Tax credit   10     235       191  
Loss for the year from continuing operations   5     (1,760 )     (1,526 )
Basic & diluted  earnings per share in euro-cents from continuing operations   11     (0.58 )     (0.54 )

 

F- 18  

 

 

Artilium plc

 

Consolidated statement of comprehensive income

Year ended 30 June 2017

 

    2017     2016  
    Eur’000     Eur’000  
             
Loss for the year     (1,760 )     (1,526 )
Other comprehensive income for the year:                
Items that may be reclassified subsequently to profit or loss                
Exchange differences on translation     187       (10 )
Total comprehensive income for the year attributable to owners of the parent     (1,573 )     (1,536 )

 

F- 19  

 

 

Artilium plc

 

Registered number: 03904535

 

Consolidated statement of financial position

As at 30 June 2017

 

        2017     2016  
    Notes   Eur’000     Eur’000  
                 
Non-current assets                    
Goodwill   12     17,127       17,127  
Other intangible assets   13     3,812       4,286  
Property, plant and equipment   15     533       471  
Other receivables   18     1,000       -  
          22,472       21,884  
Current assets                    
Inventories   17     84       131  
Trade and other receivables   18     2,434       3,922  
Cash and cash equivalents         2,863       422  
          5,381       4,475  
Total assets         27,853       26,359  
Non-current liabilities                    
Deferred tax liabilities   19     385       485  
Bank loans   21     20       40  
Other loans   22     750       1,539  
Other liabilities         100       -  
          1,255       2,064  
Current liabilities                    
Trade and other payables   20     7,801       5,795  
Bank loans   21     85       254  
Other loans   22     1,308       161  
          9,194       6,210  
Total liabilities         10,449       8,274  

 

F- 20  

 

 

Artilium plc

 

Consolidated statement of financial position (continued)

As at 30 June 2017

 

        2017     2016  
    Notes   Eur’000     Eur’000  
                 
Equity attributable to owners of the parent                    
Share capital   23     20,267       19,601  
Share premium         47,480       47,379  
Shares to be issued         125       -  
Merger relief reserve         1,488       1,488  
Capital redemption reserve         6,503       6,503  
Translation reserve         (2,156 )     (2,343 )
Own shares   24     (2,336 )     (2,336 )
Retained deficit         (53,967 )     (52,207 )
Total equity         17,404       18,085  
Total liabilities and equity         27,853       26,359  

 

The financial statements were approved by the Board of Directors and authorised for issue on 30 October 2017. They were signed on its behalf by:

 

Jan Paul Menke

Director

 

F- 21  

 

 

Artilium plc

 

Consolidated statement of changes in equity

Year ended 30 June 2017

 

    Share capital     Share
premium
    Shares
to be
issued
    Merger
relief
reserve
    Capital
redemption
reserve
    Translation
reserve
    Own
shares
    Retained
deficit
    Total  
    Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000  
                                                       
Balance at 1 July 2015     15,415       46,748       -       1,488       6,503       (2,333 )     (2,336 )     (50,681 )     14,804  
                                                                         
Nominal value of shares issued     4,186       -               -       -       -       -       -       4,186  
Premium arising on issue of shares     -       631               -       -       -       -       -       631  
Total transactions with owners, recognised directly in equity     4,186       631       -       -       -       -       -       -       4,817  
Loss for the year     -       -               -       -       -       -       (1,526 )     (1,526 )
Other comprehensive income - currency translation differences     -       -               -       -       (10 )     -       -       (10 )
Total comprehensive income for the year     -       -       -       -       -       (10 )     -       (1,526 )     (1,536 )
Balance at 30 June 2016     19,601       47,379       -       1,488       6,503       (2,343 )     (2,336 )     (52,207 )     18,085  
                                                                         
Nominal value of shares issued     666       -       -       -       -       -       -       -       666  
Premium arising on issue of shares     -       101       -       -       -       -       -       -       101  
Shares to be issued     -       -       125       -       -       -       -       -       125  
Total transactions with owners, recognised directly in equity     666       101       125       -       -       -       -       -       892  
Loss for the year     -       -       -       -       -       -       -       (1,760 )     (1,760 )
Other comprehensive income - currency translation differences     -       -       -       -       -       187       -       -       187  
Total comprehensive income for the year     -       -       -       -       -       187       -       (1,760 )     (1,573 )
Balance at 30 June 2017     20,267       47,480       125       1,488       6,503       (2,156 )     (2,336 )     (53,967 )     17,404  

 

F- 22  

 

 

Artilium plc

 

Consolidated cash flow statement

Year ended 30 June 2017

 

        2017     2016  
    Notes   Eur’000     Eur’000  
                 
Net cash generated from/(used in) operating activities   25     3,858       (1,261 )
I nvesting activities                    
Acquisition of subsidiaries, net of cash acquired   14     87       (143 )
Purchase of intangible assets         (155 )     (348 )
Purchase of property, plant and equipment   15     (206 )     (40 )
Loans advanced   18     (1,000 )     -  
Net cash used in investing activities         (1,274 )     (531 )
Financing activities                    
New borrowings/loans received         1,751       2,000  
Interest paid         (312 )     (200 )
Repayment of borrowings         (1,582 )     (321 )
Net cash (used in)/generated from financing activities         (143 )     1,479  
Net increase/(decrease) in cash and cash equivalents         2,441       (313 )
Cash and cash equivalents at beginning of year         422       735  
Cash and cash equivalents at end of year         2,863       422  

 

Non-cash transactions

 

The principal non-cash transaction is the issue of shares as consideration for the acquisitions discussed in notes 14 and 23.

 

F- 23  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

1. General information

 

Artilium plc is a Company incorporated in the United Kingdom. The address of the registered office is given on page 1. The nature of the Group’s operations and its principal activities are set out in the Strategic report and Directors’ report on pages 5 to 9. The Group’s principal place of business is Belgium and the Netherlands. The ultimate parent Company of the Group is Artilium plc.

 

The consolidated financial statements were authorised for issue by the Board of Directors on 30 October 2017.

 

Standards adopted early by the Group

 

The Group has not adopted any standards or interpretations early in either the current or the preceding financial year.

 

New and amended standards and interpretations

 

Standards and interpretations effective in the current period but with no significant impact

 

No new standards and amendments to standards and interpretations effective for annual periods beginning on or after 1 July 2016 have had a material impact on the Group.

 

New and amended standards issued but not yet effective for the financial year beginning 1 July 2016 and not early adopted

 

Standard   Effective Date
IFRS 9 Financial Instruments 1 January 2018
IFRS 15 Revenue from Contracts with Customers 1 January 2018
IFRS 16 Leases *1 January 2019
IAS 7 (amendments) Disclosure Initiative *1 January 2017
IAS 12 (amendments) Recognition of Deferred Tax Assets for Unrealised Losses *1 January 2017
Annual Improvements 2014-2016 Cycle *1 January 2018

 

*Subject to EU endorsement

 

IFRS 9 and IFRS 15 are expected to be effective for the year ended 30 June 2019, with IFRS 16 expected to be effective for the year ended 30 June 2020. The impact of IFRS 9 is being assessed by management, with the main impact likely to arise from the expected credit loss model although the financial effect, if any, has not yet been quantified. The impact of IFRS 15 has begun to be assessed by management given the number of different revenue streams, and in connection with current new contracts which have a duration exceeding the date of IFRS 15 adoption. Although the assessment is ongoing, the work undertaken to date has not highlighted any potentially material adjustments. The impact of IFRS 16 has not yet been assessed.

 

Functional and presentation currency

 

The individual financial statements of each company within the Group is presented in the currency of the primary economic environment in which it operates (its functional currency). The consolidated financial statements are presented in EUR in order to reflect the economic substance the Group operates in (see also accounting policies - Note 2). These financial statements are presented in round thousand Euros.

 

F- 24  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

2. Significant accounting policies

 

Basis of preparation

 

The financial statements have been prepared in accordance with IFRSs adopted by the European Union (EU) and the Companies Act 2006 that applies to companies reporting under IFRS as adopted by the EU and IFRIC interpretations. The group, in addition to complying with its legal requirement to apply IFRSs as adopted by the European Union, has also prepared the financial statements in accordance with IFRSs as issued by the International Accounting Standards Board (IASB).

 

The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are set out below.

 

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or conformity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.

 

Basis of consolidation

 

The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company (its subsidiaries) made up to 30 June each year. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

 

The results of the subsidiaries acquired are included in the consolidated income statement from the effective date of acquisition. They are deconsolidated from the date that control ceases.

 

Where necessary, adjustments are made to the financial statements of the subsidiary to bring the accounting policies used into line with those used by the Group. Inter-company transactions and balances between group companies are eliminated.

 

Business combinations

 

The acquisition of subsidiaries is accounted for using the acquisition method. The consideration of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair value at the acquisition date

 

Goodwill arising from a business combination is determined as the difference between (I) the consideration transferred plus the amount of any non-controlling interest plus the fair value of any previously held equity interest in the acquiree, and (II) the net of the acquisition-date fair values of the identifiable assets acquired and liabilities assumed. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. Expenses incurred as part of a business combination are immediately expensed to the income statement. The consideration transferred includes the fair value of any liability resulting from a contingent consideration arrangement.

 

F- 25  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

2. Significant accounting policies (continued)

 

Goodwill

 

Goodwill that arises from the acquisition of subsidiaries is presented as part of non-current assets in the statement of financial position. Goodwill is initially recognised as an asset measured at cost. We refer to the accounting policies about business combinations for further guidance.

 

Goodwill is not amortised but tested for impairment. For the purpose of this impairment testing, goodwill is allocated to the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. 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.

 

Revenue from platform services arises from the sale of proprietary software, professional services, the re-sale of third party hardware and software, and after sale maintenance contracts.

 

Where the outcome of a contract can be estimated reliably, revenue and costs related to the sale of proprietary software and professional services are recognised by reference to the stage of completion on the contract activity at the reporting date. This is measured by the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs.

 

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

 

Sale of third party hardware and software is recognised when the goods are delivered and title has passed.

 

Maintenance revenue is recognised proportionally over the support term included in the platform contract.

 

Revenue from the sale of software licences is recognised when the following criteria are met:

 

· persuasive evidence of an arrangement exists;

 

· delivery has occurred;

 

· the vendor’s fee is fixed or determinable; and

 

· collectability is probable.

 

Perpetual licence fees are spread over the duration of the contract.

 

Subscriber fees are recognised as earned.

 

F- 26  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

2. Significant accounting policies (continued)

 

Leasing

 

Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.

 

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

 

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease.

 

Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term.

 

Foreign currencies

 

The individual financial statements of each Group company is presented in Euro, being the currency of the primary economic environment in which it operates (its functional currency), except for the parent Company and Artilium UK Limited whose functional currency is sterling. The consolidated financial statements are presented in Euro.

 

In preparing the financial statements of the individual companies, 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 reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. 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 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 and losses are recognised directly in other comprehensive income and recognised in the ‘Translation Reserve’ in equity.

 

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognised in Other Comprehensive Income and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as an expense 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. Exchange differences arising are recognised in Other Comprehensive Income.

 

F- 27  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

2. Significant accounting policies (continued)

 

Retirement benefit costs

 

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

 

Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

 

Taxation

 

The tax credit represents the sum of current and deferred tax.

 

The current tax is based on taxable profit or loss for the year. Taxable profit or loss differs from net profit or loss 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 substantively enacted by the reporting 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. Deferred tax liabilities are recognised on all taxable temporary differences with certain specific exceptions 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. However deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax 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 reporting 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 is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly in other comprehensive income or equity, in which case the deferred tax is also dealt with in other comprehensive income or equity, respectively.

 

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.

 

F- 28  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

2. Significant accounting policies (continued)

 

Property, plant and equipment

 

Property, plant and equipment is 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 per annum:

 

Leasehold improvements 10%
Fixtures and equipment 20%-33%

 

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease.

 

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 profit or loss.

 

The Directors consider the reasonableness of the useful economic life and residual value estimates on an annual basis.

 

Assets under construction

 

Assets under construction are recognized for all intangible assets which are in process of development. Assets under development are measured at the amount of cash or cash equivalents paid or the fair value of any consideration given during the time of construction. No depreciation is recognized during period of commissioning. Assets under development are impaired whenever there are indications that an impairment loss may have occurred.  When the asset is available for use it will be transferred to its appropriate classification, depending on the nature of asset.

 

Other intangible assets

 

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and install the specific software. Customer portfolios and computer software acquired in a business combination that qualify for separate recognition are recognised as intangible assets at their fair value at the acquisition date.

 

Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses.

 

All intangible assets are accounted for using the cost model whereby capitalised costs are amortised on a straight-line basis over their estimated useful lives, as these assets are considered finite. Residual values and useful lives are reviewed at each reporting date. In addition, they are subject to impairment testing. The following estimated useful lives are applied:

 

Software: 3 years

 

Customer portfolios: 5 years

 

Amortisation has been included within the heading depreciation and amortisation in the Income Statement. Subsequent expenditures on the maintenance of computer software are expensed as incurred. When an intangible asset is disposed of, the gain or loss on disposal is determined as the difference between the proceeds and the carrying amount of the asset, and is recognised in profit or loss within other income or other expenses.

 

F- 29  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

2. Significant accounting policies (continued)

 

Impairment of tangible and intangible assets excluding goodwill

 

At each reporting 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, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the smallest cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

 

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 for which the estimates of future cash flows have not been adjusted.

 

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 as an expense immediately.

 

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately. No reversal of impairment losses took place in the year.

 

Software development costs

 

Software development costs are capitalised as an intangible asset included within other intangible assets, provided that the following criteria are demonstrated:

 

· the technical feasibility of completing the intangible asset so it will be available for use or sale;

 

· the intention to complete the intangible asset for use or sale;

 

· the ability to use or sell the intangible asset;

 

· how the intangible asset will generate future economic benefits;

 

· the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

 

· the ability to measure reliably the expenditure attributable to the intangible asset during its development.

 

The costs are capitalised from the date that the above criteria are satisfied and are amortised once the intangible asset has been completed and either brought into use or released for sale. The costs will be amortised over the expected economic life of the intangible asset being three years, and included within administrative expenses. If the above criteria are not demonstrated the development costs are expensed as they are incurred. In most cases these recognition criteria are not met.

 

F- 30  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

2. Significant accounting policies (continued)

 

Financial instruments

 

Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised from the statement of financial position when the Group’s contractual rights to the cash flows expire or the Group transfers substantially all the risks and rewards of the financial asset. Financial liabilities are derecognised from the Group’s statement of financial position when the obligation specified in the contract is discharged or cancelled or expires.

 

Financial assets

 

All financial assets (loans and receivables, trade and other receivables and cash and cash equivalents) are recognised and derecognised on trade date. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned. The purchase or sale of a financial asset is initially measured at fair value, plus transaction costs.

 

Effective interest method

 

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on amounts paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

 

Trade and other receivables

 

Trade and other receivables are recognised initially at fair value, and are subsequently measured at amortised cost using the effective interest rate method. A provision for impairment is made where there is objective evidence (including customers with financial difficulties or in default on payments) that amounts will not be recovered in accordance with the original terms of the agreement. A provision for impairment is established when the carrying value of the receivable exceeds the present value of the future cash flow discounted using the original effective interest rate. The carrying value of the receivable is reduced through the use of an allowance account and any impairment loss is recognised in the income statement.

 

Cash and cash equivalents

 

Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

 

F- 31  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

2. Significant accounting policies (continued)

 

Inventories

 

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. Net realisable value is the estimated selling price in the ordinary course of business less any applicable selling expenses.

 

Financial liabilities and equity

 

Financial liabilities (trade and other payables, bank and other loans) and equity instruments are classified according to the substance of the contractual arrangements entered into. The Group's financial liabilities include borrowings and trade and other payables. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

 

Borrowings

 

Interest-bearing loans and overdrafts are recorded initially at their fair value, net of direct transaction costs. Such instruments are subsequently carried at their amortised cost and finance charges, including premiums payable on settlement or redemption, are recognised in the income statement over the term of the instrument using an effective rate of interest.

 

Trade and other payables

 

Trade and other payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating the interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

 

Share-based payments

 

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight line basis over the vesting period, based on the Group’s estimate of the shares that will eventually vest and adjusted for the effect of non-market based vesting conditions.

 

Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

 

Exceptional items

 

Exceptional items, comprising redundancy costs, are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. They are material items of expense that have been shown separately due to the significance of their nature or amount.

 

F- 32  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

2. Significant accounting policies (continued)

 

Equity

 

Equity reserves comprise:

 

Share capital

 

Share capital represents the nominal value of shares that have been issued.

 

Share premium account

 

Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.

 

Merger relief reserve

 

The merger relief reserve includes any premium on issue of share capital as part or all of the consideration in a business combination, where more than 90% of the issued share capital of the acquiree is obtained.

 

Capital redemption reserve

 

On 22 December 2005 the Company bought back all of its issued deferred share capital comprising 900,447 shares with a nominal value of £4.99 each for a total consideration of 1 pence. The effect of this transaction was to reduce issued share capital by €6,503,000 and create a capital redemption reserve of the same amount.

 

Share-based payment reserve

 

The share-based payment transaction reserve is used to recognise the value of equity-settled share-based payment transactions provided to the Directors, including key management personnel, as part of their remuneration. Refer to Note 6 for further details.

 

Translation reserve

 

The foreign-currency translation reserve is used to record exchange differences arising from the translation of Sterling £ for Artilium plc and Artilium Limited to the presentation currency of Euro.

 

Own shares

 

Own shares represents the cost of shares in Artilium plc purchased and held by the Artilium plc Employee Benefit Trust to satisfy options and share awards under the Group’s Employee Share Schemes.

 

F- 33  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

3. Critical accounting judgements and key sources of estimation uncertainty

 

Critical judgements in applying the Group’s accounting policies

 

In the process of applying the Group’s accounting policies, which are described in Note 2, management has made the following judgements that have a significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with below).

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

 

Recognition of deferred tax assets

 

The extent to which deferred tax assets can be recognised is based on an assessment of the probability of the Group’s future taxable income against which the deferred tax assets can be utilised. In addition, significant judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions.

 

Going concern

 

The directors have adopted the going concern basis in preparing the consolidated financial statements, having carried out a going concern review. Given the nature of the Group and the way in which business is managed, cash flow forecasts have been prepared for the Group's three principal cash generating units, Artilium NV, United Telecom NV and Comsys. These forecasts are considered by the directors to satisfy themselves that the going concern assumption is appropriate.

 

United Telecom NV

 

The directors have prepared and reviewed cash flow forecasts from the date of the financial statements approval to the end of December 2018. Due to the nature of the Company's customer base, contracted income and cost base the directors do not consider there to be a material uncertainty in relation to the amount of revenue that the company will generate, or costs that it will incur. This is supported by the historic experience of forecasting within the United Telecom NV business.

 

Artilium NV

 

A worst-case scenario cash flow forecast (which represents a significant downgrade compared to internal budgets and targets) has been prepared from the date of the accounts approval to end of December 2018. In carrying out the review the Directors have had to make significant assumptions about the revenue that will be generated to end of December 2018.

 

The Group has now secured 73% (€3,3m) of its expected revenue per the worst case scenario forecast, the remaining revenue for the forecast period is a combination of expected recurring revenue included within concluded contracts and proposals to existing and new customers based on the directors' assessment of the likelihood of winning these on a project by project basis, revenue has only been included in the forecasts where the directors are at least 80% certain that the revenue will be secured. Therefore the directors would like to highlight that 27% (€1,2m) of forecast revenue per the worst case scenario is not committed or contracted.

 

Comsys

 

The directors have prepared and reviewed cash flow forecasts from the date of the financial statements approval to end of December 2018. The directors do not consider there to be a material uncertainty in relation to the amount of revenue that the company will generate, or costs that it will incur. This is supported by historic data and experience of forecasting within the Comsys business.

 

F- 34  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

3. Critical accounting judgements and key sources of estimation uncertainty (continued)

 

Critical judgements in applying the Group’s accounting policies (continued)

 

The directors consider that the assumptions made are appropriate and are satisfied that the Group is a going concern. The directors monitor the cash position of the business on an ongoing basis and consider the various sources of finance available to the Group; the directors would seek to access these sources of finance as necessary.

 

Functional currency of parent Company

 

Management consider that the parent Company operates its own distinct management function, rather than being an extension of the operation of Artilium NV. The parent Company incurs expenses principally in Sterling, and funding raised by the Company to fund the Group's operations is primarily generated in Sterling. Management therefore consider the functional currency of the parent Company to be Sterling.

 

Key sources of estimation uncertainty

 

The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a risk of causing an adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

 

Carrying value of long-term assets

 

The Directors have carried out impairment tests on the carrying value of the Group’s intangible assets and goodwill and concluded that these assets are not impaired. In arriving at this conclusion the Directors have used value-in-use calculations and made assumptions about revenue and gross margins in the near and longer term, together with the discount rate (notes 12 and 13).

 

Allowance for doubtful debts

 

The Directors have carried out an assessment on the recoverability of trade receivables and concluded on a value of the provision required. In arriving at this conclusion the Directors have used their knowledge of their customer base, the market condition and the age of the outstanding receivables.

 

Estimated value and life of intangible assets acquired in a business combination (note 14)

 

Useful lives are based on industry standards and historical experience which are subjected to yearly evaluation. Management review other intangible assets at each reporting date to determine whether there are any indications of impairment. If any such indication exists, an estimate of the recoverable amount is performed, and an impairment loss is recognised to the extent that the carrying amount exceeds the recoverable amount. The Directors have reviewed the estimated value and do not consider any impairment to be necessary.

 

Separately identifiable intangible assets recognised in a business combination, comprising software and customer portfolios, is based upon the Directors’ knowledge and attribution of value to the acquired entity.

 

F- 35  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

4. Segmental information

 

Segment reporting

 

The Group identifies three reportable segments with different economic characteristics. The three reportable segments reflect the level at which the Group’s Chief Operating Decision Maker (“CODM”) reviews the financial performance of the business and makes decisions about the allocation of resources and other operational matters. The reportable segments are equal to the operating segments.

 

The three reportable segments “Artilium”, “United Telecom” and “Comsys” correspond with the three principal trading activities of the Group.

 

Artilium provides advanced mobile telecommunications software to network operators and enablers (managed services providers, systems integrators etc). Its core product is its ARTA Mobile Applications Platform which enables network operators to open networks to third party developers and launch new services which feature elements from the telecoms and web environments.

 

The business of United Telecom consists of rendering telecom services to the Belgium corporate and consumer market as well as the development and sale of advanced “carrier grade” shared services for telecom service providers (including fixed, mobile and VOIP).

 

Comsys is a specialist in interactive telephony services and provides telecommunication products, solutions and hosted services in the converging arena of IN, 3G, SIP and VOIP networks for mobile and fixed line telephone operators, MVNOs and contact centres.

 

In line with the Group’s internal reporting framework and management structure, the key strategic and operating decisions are made by the Board of Directors which is considered to be the CODM. The CODM reviews on a regular basis the following financial key data of each segment:

 

· Revenue;

 

· Recurring adjusted EBITDA = Operating result before depreciation, amortization, impairment of assets and non-recurring expenses;

 

· Recurring EBIT = Operating result before interests and taxes less non-recurring expenses;

 

· Non-recurring items;

 

· Segment profit/loss.

 

The accounting principles applied to the operating segments are the same as those described in note 2.

 

F- 36  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

4. Segmental information (continued)

 

An analysis of the Group’s result is as follows:

 

Refer to note 9 for a reconciliation of the operating result and net result to the adjusted EBITDA and above for the definition of the adjusted EBITDA.

 

Refer to ‘Principal activities’ within the strategic report for a description of revenue by type.

The acquisition of Ello Mobile during the year has been allocated to the United Telecom segment.

The acquisition of Wbase during the year has been allocated to the Artilium segment.

 

    Artilium     United Telecom     Comsys     Total  
    2017     2016     2017     2016     2017     2016     2017     2016  
    Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000  
Revenue     4,148       3,881       4,128       4,108       2,177       1,633       10,453       9,622  
                                                                 
Adjusted EBITDA     251       119       (60 )     (143 )     188       336       379       312  
Depreciation, amortisation and impairments     (118 )     (161 )     (844 )     (792 )     (861 )     (583 )     (1,823 )     (1,536 )
                                                                 
Recurring EBIT     133       (42 )     (904 )     (935 )     (673 )     (247 )     (1,444 )     (1,224 )
                                                                 
Non-recurring items     (144 )     (172 )     (73 )     (122 )     (10 )     -       (228 )     (294 )
Redundancy costs     (144 )     (172 )     (73 )     (122 )     (10 )     -       (228 )     (294 )
                                                                 
EBIT     (11 )     (214 )     (977 )     (1,057 )     (683 )     (247 )     (1,672 )     (1,518 )
                                                                 
Interest expense/other finance expense     (135 )     (69 )     (121 )     (69 )     (68 )     (62 )     (324 )     (200 )
Other finance expense including exchange differences     -       -       -       -       -       -       -       -  
Income tax     (7 )     -       66       94       177       97       236       191  
                                                                 
Segment loss     (154 )     (283 )     (1,032 )     (1,032 )     (574 )     (212 )     (1,760 )     (1,527 )

 

F- 37  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

4. Segmental information (continued)

 

An analysis of the Group’s assets and liabilities is as follows:

 

    Artilium     United Telecom     Comsys     Total  
    2017     2016     2017     2016     2017     2016     2017     2016  
Total segment assets (Eur‘000)     25,444       19,231       1,185       796       1,224       6,332       27,853       26,359  
Total segment liabilities (Eur’000)     3,976       3,288       4,429       3,112       1,975       1,874       10,380       8,274  

 

All assets and liabilities of the Group are allocated to the operating segments. Segment assets and liabilities are presented before intersegment balances. Intersegment sales and transfers are registered at arm’s length as if the sales and transfers were executed with third parties.

 

Geographical information

 

The Group revenue and location of non-current assets is derived from and located in mainland Europe. An analysis by geographical destination is as follows:

 

    2017     2016  
    Revenues     Non-
current
assets
    Revenues     Non-
current
assets
 
    Eur’000     Eur’000     Eur’000     Eur’000  
Belgium     7,698       5,514       7,182       5,167  
UK     11       10,571       -       10,571  
Holland     1,765       5,387       2,430       6,146  
Germany     6       -       -       -  
Austria     757       -       -       -  
Australia     44       -       -       -  
Sweden     157       -       -       -  
America     6       -       -       -  
India     -       -       2       -  
Hong Kong     8       -       8       -  
Total     10,452       21,472       9,622       21,884  

 

Information about major customers

 

22% of the consolidated revenue is generated by sales to an external customer within the segment “Artilium” (25% for the year ended 30 June 2016). There are no other sales to single external customers exceeding 10% of the consolidated revenue.

 

F- 38  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

5. Operating loss

 

Loss for the year has been arrived at after charging/(crediting):

 

    2017     2016  
    Eur’000     Eur’000  
Operating lease rentals – land and buildings & other     746       678  
Depreciation of property, plant and equipment     144       114  
Amortisation of intangible assets     1,624       1,297  
Staff costs     4,306       4,026  
Employee benefits     98       67  

 

Reconciliation of operating loss before redundancy costs is provided below:

 

    2017     2016  
    Eur’000     Eur’000  
             
Operating loss     (1,672 )     (1,517 )
Redundancy costs     227       294  
Operating loss before redundancy costs     (1,445 )     (1,223 )

 

A detailed analysis of auditors’ remuneration on a worldwide basis is provided below:

 

    2017     2016  
    Eur’000     Eur’000  
             
- Fees payable to the Company’s auditors and its associates for the audit of the Company and consolidated annual financial statements     42       42  
- the audit of the Company’s subsidiaries pursuant to legislation     45       45  
Total audit fees     87       87  
- Other services (*)     22       22  
Total non-audit fees     22       22  

 

(*) Other services relate to the auditor’s review of the half-yearly interim financial information.

 

F- 39  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

6. Staff costs

 

The average monthly number of employees was:

 

    2017     2016  
    Number     Number  
Administrative and development     73       69  
      Eur’000       Eur’000  
Their aggregate remuneration comprised:                
Wages and salaries     3,426       3,179  
Social security costs     752       741  
Employee benefits     98       67  
Other pension costs     128       106  
Total included within administrative expenses     4,404       4,093  

 

Remuneration of directors

 

The remuneration of directors is €0.3 million (2016: € 0.3 million). Refer to page 14. The only key management personnel are the directors.

 

7. Finance costs

 

    2017     2016  
    Eur’000     Eur’000  
             
Interest on bank loans     16       16  
Interest on other loans and other finance costs     308       184  
      324       200  

 

8. Redundancy costs

 

    2017     2016  
    Eur’000     Eur’000  
             
Redundancy costs     227       294  
      227       294  

 

The redundancy costs for the years ended 30 June 2017 and 2016 relates to severance packages for personnel and contractors that were made redundant, or have had the terms of their redundancy communicated to them.

 

F- 40  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

9. Reconciling table net result, operating result-adjusted EBITDA

 

    2017     2016  
    Eur’000     Eur’000  
             
Loss for the year from continuing operations     (1,760 )     (1,526 )
Tax credit     (235 )     (191 )
Finance costs     324       200  
Operating loss     (1,671 )     (1,517 )
Redundancy costs     227       294  
Depreciation and amortisation     1,768       1,411  
Impairment of receivables     56       125  
Adjusted EBITDA     380       313  

 

Artilium defines adjusted EBITDA as operating result before interests, taxes, depreciation and impairments of property, plant and equipment and client’s receivables and amortization and impairments of intangible assets.

 

10. Tax

 

    2017     2016  
    Eur’000     Eur’000  
Analysis of taxation credit for the year:                
Current tax:                
UK tax     -       -  
Overseas tax     -       -  
Total current tax     -       -  
Deferred tax:                
Origination and reversal of temporary differences     235       296  
Write-off deferred tax asset on fiscal losses carried forward     -       (105 )
Total deferred tax     235       191  
Total taxation credit in the income statement     235       191  

 

F- 41  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

10. Tax (continued)

 

The credit for the year can be reconciled to the loss per the income statement as follows:

 

    2017     2016  
    Eur’000     Eur’000  
             
Loss before tax from continuing operations     (1,995 )     (1,717 )
                 
Tax credit at domestic rates applicable to losses of taxable entities in the countries concerned     (559 )     (104 )
Effects of:                
Expenses not deductible for tax purposes     135       45  
Tax losses brought forward utilised in the year     (302 )     (857 )
Tax losses carried forward unutilised in the year     470       916  
Other     21       (191 )
Total taxation credit     (235 )     (191 )

 

11. Earnings per share

 

    2017     2016  
    Eur’000     Eur’000  
             
Loss from continuing operations for the purposes of basic & diluted loss per share being net losses attributable to equity holders of the parent     (1,760 )     (1,526 )
                 
      No.       No.  
Number of shares                
Weighted average number of ordinary shares                
for the purposes of basic & diluted loss per share     304,597,997       282,348,087  

 

The weighted average number of ordinary shares is calculated as follows:

 

Issued ordinary shares   2017     2016  
    No.‘000     No.‘000  
             
Start of period     282,348       228,658  
Effect of shares issued in prior period     15,505       7,458  
Effect of shares issued in the period     6,745       46,232  
Accumulated weighted average basic and diluted number of shares     304,598       282,348  
                 
Basic and diluted earnings per share is calculated as follows:                
Loss for the year attributable to the equity shareholders of the Company (Eur’000)     (1,760 )     (1,526 )
Basic and diluted earnings per share (Euro cent)     (0.58 )     (0.54 )

 

F- 42  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

12. Goodwill

 

    Eur’000  
       
Cost        
At 1 July 2015     13,726  
Acquisitions through business combinations (note 14)     3,401  
At 30 June 2016     17,127  
Carrying amount        
At 1 July 2016     17,127  
At 30 June 2017     17,127  

 

No goodwill is expected to be deductible for tax purposes.

 

The goodwill balance is allocated to the cash-generating units United Telecom (€3.1 million), Artilium (€10.6 million) and Comsys (including Livecom International) (€3.4 million).

 

The Directors have carried out impairment tests on the carrying value of the Group’s intangible assets and goodwill and concluded that these assets are not impaired. In arriving at this conclusion the Directors have used value-in-use calculations and made assumptions about revenue and gross margins in the near and longer term. The Directors consider that the assumptions made are appropriate and are satisfied that the Group’s non-current assets are not impaired.

 

Allocation of goodwill to cash-generating units

 

For the purpose of impairment testing the Group as a whole is considered as three cash-generating units because of the way it is structured, managed and measured by management. The Group tests goodwill and other intangible assets annually for impairment or more frequently if there are indications that it might be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is initially allocated to reduce the carrying amount of any goodwill. The cash generating units are Artilium NV, United Telecom NV and Comsys.

 

Artilium NV

 

The goodwill arising on acquisition of Artilium NV amounts to €10.6 million and was tested for impairment. Cash flows for the impairment tests have been formally forecast and management approved for five years and a terminal value has been calculated for the years beyond that. The terminal value is based on the average over the five year net cash flow forecast to perpetuity using a pre-tax discount rate of 16 % (2016: 16%), which is considered appropriate for the Company. The discount rate would need to increase to more than 19.9% for the goodwill to be impaired (2016:18.9%). The growth rate factor used in perpetuity in the discounted cash flow model is estimated to be 2.5% (2016:2.5%) in line with long-term forecasts for economic growth expected in Belgium, which is the company's principal market. The sales growth rate used during the five year forecast is estimated to be 5%-10% per annum (2016:5%-10%) based on management’s best estimate of the market opportunities and the existing pipeline opportunities. Based on these assumptions the recoverable amount exceeds the carrying amount by €1.7 million (2016: €2.8 million). If the net present value of forecast future cash flows decreased by 14% (2016: 21%) the recoverable amount will be less than the carrying amount. The headroom is sensitive to reasonably possible changes in the key assumptions, particularly the sales growth rate.

 

F- 43  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

12. Goodwill (continued)

 

The Group’s cost base is forecast to increase at the rate of 2% (2016:2%) per annum for the five year forecast period. This is based on management’s historic experience of cost increases, and the forecast increases in revenue.

 

United Telecom NV

 

The goodwill arising on acquisition of United Telecom on 27 June 2012 amounts to €3.155 million and was tested for impairment. Cash flows for the acquired business, for the purpose of the impairment test, have been formally forecast and management approved for five years and a terminal value has been calculated for the years beyond that. The terminal value is based on the average over the five year net cash-flow forecast for perpetuity using a pre-tax discount rate of 16.0% (2016:16.0%) which is considered appropriate for the company. The discount rate would need to increase to more than 18.9% for the goodwill to be impaired. The growth rate factor used in perpetuity in the discounted cash flow model is estimated to be 2.5% in line with long-term forecasts for economic growth expected in Belgium as this is the company's principal market. The sales growth rate used during the five year forecast is estimated to be 3% - 11% per annum based on management’s best estimate of the market opportunities. Based on these assumptions the recoverable amount exceeds the carrying amount of the goodwill and identified intangible assets by €0.5 million. If the net present value of forecast future cash flows decreased by 11% (2016:9.7%) the recoverable amount will be less than the carrying amount. The headroom is sensitive to reasonably possible changes in the key assumptions, particularly the sales growth rate.

 

Comsys

 

The goodwill arising on acquisition of Comsys on 25 September 2015 and Livecom on 1 January 2016 amounts to €3.4 million and was tested for impairment. Cash flows for the acquired business, for the purpose of impairment test, have been formally forecast and management approved for five years and a terminal value has been calculated for the years beyond that. The terminal value is based on the average over the five year net cash-flow forecast for perpetuity using a pre-tax discount rate of 16.0% (2016:16%) which is considered appropriate for the company. The growth rate factor used in perpetuity in the discounted cash flow model is estimated to be 2.5% in line with long-term forecasts for economic growth expected in the Netherlands, which is the company's principal market. The sales growth rate used during the five year forecast is estimated to be 3% - 11% per annum based on management’s best estimate of the market opportunities. Based on these assumptions the recoverable amount exceeds the carrying amount of the goodwill and identified intangible assets by €2.9 million. The headroom is sensitive to reasonably possible changes in the key assumptions, particularly the sales growth rate.

 

F- 44  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

13. Other intangible assets

 

    Assets under
construction
    Telecommunications
software platform
    Customer
portfolio
    Other
software
    Total  
    Eur'000     Eur'000     Eur'000     Eur'000     Eur'000  
                               
Cost                                        
At 1 July 2015     331       5,040       3,206       80       8,657  
Asset acquisitions     -       -       1,647       1,404       3,051  
Acquired through business combinations     -       -       519       207       726  
At 30 June 2016     331       5,040       5,372       1,691       12,434  
Asset acquisitions     20       -       250       10       280  
Acquired through business combinations     -       -       756       115       871  
Transfer to other software     (351 )     -       -       351       -  
At 30 June 2017     -       5,040       6,378       2,167       13,585  
Amortisation                                        
At 1 July 2015     -       5,040       1,753       59       6,852  
Charge in period     -       -       962       335       1,297  
At 30 June 2016     -       5,040       2,715       394       8,149  
Charge in period     -       -       1,092       532       1,624  
At 30 June 2017     -       5,040       3,807       926       9,773  
Carrying amount                                        
At 30 June 2017     -       -       2,571       1,241       3,812  
At 30 June 2016     331       -       2,657       1,297       4,285  
At 1 July 2015     331       -       1,453       21       1,805  

 

F- 45  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

14. Business Combinations

 

Ello Mobile BVBA

 

On 23 December 2016 Artilium plc acquired 100% of the share capital of Ello Mobile BVBA and thereby obtained 100% of the voting power. Ello Mobile BVBA is an MVNO based in Belgium.

 

The following summarises the details about the acquisition.

 

Consideration transferred

 

    Eur’000  
Settlement in equity instruments     300  
Total consideration     300  

 

The acquisition cost of Ello Mobile BVBA of €0.3 million was settled by the issuance of 3,823,636 new ordinary shares at 6.6 pence per share, being the market share price on the acquisition date.

 

The excess of consideration paid over net liabilities acquired, amounting to €0.756 million, has been fully attributed to the fair value of the customer base acquired, including deferred taxation at 34%.

 

Assets acquired and liabilities recognized at date of acquisition

 

    Eur’000  
Intangible assets customer portfolio     756  
Total non-current assets     756  
         
Trade and other receivables     97  
Cash and cash equivalents     175  
Total current assets     272  
         
Deferred tax liabilities     (257 )
Other non current liabilities     (100 )
Total non-current liabilities     (357 )
         
Trade and other payables     (371 )
Total current liabilities     (371 )
         
Identifiable net assets     300  

 

 

F- 46  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

14. Business Combinations (continued)

 

Goodwill arising on acquisition

 

    Eur’000  
Consideration transferred     300  
Less fair value of identifiable net assets acquired     (300 )
Goodwill arising on acquisition     -  

 

The revenue included in the Consolidated Income Statement since 23 December 2016 contributed by Ello Mobile BVBA was €259,000. Ello Mobile BVBA reported a profit of €31,000 over the same period.

 

Wbase Comm. V

 

On 12 April 2017 Artilium plc acquired 100% of the share capital of Wbase and thereby obtained 100% of the voting power. Wbase is a web development agency based in Belgium.

 

The following summarises the details about the acquisition.

 

Consideration transferred

 

    Eur’000  
Settlement in equity instruments     20  
Settlement in cash     90  
Total consideration     110  

 

The acquisition cost of Wbase Comm. V of €0.11 million was settled by the issuance of 254,776 new ordinary shares at 6.6 pence per share, being the market share price on the acquisition date and €90,000 in cash which was immediately used by the vendors to satisfy an outstanding debt owed to Wbase.

 

Under the terms of the sale and purchase agreement, additional shares up to a maximum of €0.3 million may be issued to the vendors, dependent upon Wbase achieving certain revenue targets over the next financial year. No liability has been recognised in the financial statements in respect of these contingent additional shares on the basis that the targets were not expected to be met at the date of acquisition.

 

Valuation of acquired software

 

Software with a fair value of €0.1 million was identified and separately recognised. The fair value of the acquired software was calculated on an estimated replacement cost basis.

 

F- 47  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

14. Business Combinations (continued)

 

Assets acquired and liabilities recognized at date of acquisition

 

    Eur’000  
Intangible assets software     115  
Total non-current assets     115  
         
Trade and other receivables     48  
Cash and cash equivalents     2  
Total current assets     50  
         
Deferred tax liabilities     (39 )
Total non-current liabilities     (39 )
         
Trade and other payables     (16 )
Total current liabilities     (16 )
         
Identifiable net assets     110  

 

Goodwill arising on acquisition

 

    Eur’000  
Consideration transferred     110  
Less fair value of identifiable net assets acquired     (110 )
Goodwill arising on acquisition     -  

 

No revenue or profit/(loss) has been included in the Consolidated Income Statement since 12 April 2017.

 

F- 48  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

15. Property, Plant and Equipment

 

          Fixtures        
    Leasehold     and        
    improvements     equipment     Total  
    Eur’000     Eur’000     Eur’000  
                   
Cost                        
At 1 July 2015     98       720       818  
Additions     -       40       40  
Acquired through business combinations     -       190       190  
At 30 June 2016     98       950       1,048  
Additions     -       206       206  
At 30 June 2017     98       1,156       1,254  
Accumulated depreciation                        
At 1 July 2015     56       407       463  
Charge for the year     22       92       114  
At 30 June 2016     78       499       577  
Charge for the year     2       142       144  
At 30 June 2017     80       641       721  
Carrying amount                        
At 30 June 2017     18       515       533  
At 30 June 2016     20       451       471  
At 1 July 2015     42       313       355  

 

F- 49  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

16. Subsidiaries

 

Details of the Company’s subsidiaries at 30 June 2017 are as follows:

 

    Place of
incorporation
ownership
(or registration)
and operation
  Proportion of
ownership
interest and
voting power
held
    Method used to
account for
investment
  Principal
activity
                   
Artilium N.V   **Belgium     100 %   Acquisition accounting   Telecom
United Telecom N.V   ***Belgium     100 %   Acquisition accounting   Telecom
Speak Up BVBA   ***Belgium     100 %   Acquisition accounting   Telecom
Talking Sense BVBA   ***Belgium     100 %   Acquisition accounting   Telecom
Ello Mobile BVBA   ***Belgium     100 %   Acquisition accounting   Telecom
Wbase Comm. V   **Belgium     100 %   Acquisition accounting   Telecom
Artilium UK Limited   *UK     100 %   Acquisition accounting   Telecom
Artilium Trustee Company Limited   *UK     100 %   Acquisition accounting   Dormant
Comsys Telecom & Media BV  

****The

Netherlands

    100 %   Acquisition Accounting   Telecom
Comsys Connect BV  

****The

Netherlands

    100 %   Acquisition accounting   Telecom
Portalis BV  

****The

Netherlands

    100 %   Acquisition accounting   Telecom
Livecom International BV  

****The

Netherlands

    100 %   Acquisition accounting   Telecom
Comsys Connect GMBH   **** Germany     100 %   Acquisition accounting   Telecom
Comsys Connect AG   **** Switzerland     100 %   Acquisition accounting   Telecom
United Telecom BV  

****The

Netherlands

    100 %   Acquisition accounting   Telecom

 

Unless otherwise stated all ownership relates to ordinary share capital.

 

* registered office address is Rosenblatt Solicitors, 9-13 St Andrew Street, London EC4A 3AF, United Kingdom.

 

** registered office address is Vaartdijkstraat 19, B-8200 Brugge, Belgium.

 

*** registered office address is Wingepark 5B, B-3110 Rotselaar, Belgium.

 

**** registered office address is Laan Blusse van Oud Alblas 2a, 3769 AT Soesterberg, The Netherlands

 

F- 50  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

17. Inventories

 

    2017     2016  
    Eur’000     Eur’000  
                 
Goods for resale     84       131  

 

Inventories consist of Aculab boards and mobile simcards for resale to clients. The value of the inventories is based on the cost of purchase excluding VAT, and stated at the lower of cost and resale value.

 

18. Trade and other receivables

 

    2017     2016  
    Eur’000     Eur’000  
             
Amounts receivable for the sale of goods and services     2,159       4,206  
Allowance for doubtful debts     (247 )     (1,136 )
      1,912       3,070  
Other receivables     1,263       120  
Accrued income     259       732  
      3,434       3,922  
Less non-current portion     (1,000 )     -  
Current portion     2,424       3,922  

 

Amounts receivable for the sale of goods and services are all denominated in Euros.

 

The Directors consider that the carrying amount of trade and other receivables above approximates to their fair value. The average credit period taken on sales of goods is 67 days (2016: 53 days). No interest is charged on receivables.

 

Included within trade and other receivables is an amount of €338,000 (2016: €335,000) in respect of amounts that were past due at 30 June, but not impaired. The Group believes that the balances are ultimately recoverable based on a review of past payment history and the credit quality of those customers.

 

The ageing analysis of past due but not impaired receivables are shown below:

 

    2017     2016  
    Eur’000     Eur’000  
                 
Up to three months     338       335  

 

The Group holds no collateral against these receivables at the reporting date.

 

F- 51  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

18. Trade and other receivables (continued)

 

As at 30 June 2017 €247,000 of trade receivables were impaired (2016: €1,136,000). This allowance is specific and has been determined by reference to the age of the debt or where amounts are in dispute on a customer by customer basis. To the extent they have not been specifically provided against, the trade receivables are considered to be of sound credit rating. The ageing analysis of the allowance for doubtful debts is as follows:

 

    2017     2016  
    Eur’000     Eur’000  
             
Up to three months     -       -  
Up to six months     -       -  
Older than six months     247       1,136  
      247       1,136  

 

Movement in the Group’s allowance for doubtful debt is as follows:

 

    2017     2016  
    Eur’000     Eur’000  
             
Opening balance as at 1 July     1,136       1,128  
Usage for allowance for doubtful debt     (895 )     (25 )
Receivables provided for during the year     6       28  
Doubtful debt acquired through business combinations     -       5  
Closing balance as at 30 June     247       1,136  

 

Other receivables includes a loan due to the Group of €1 million (2016:€nil). On 18 July 2016 the Group entered into a Strategic Alliance with Green IT Globe NV to launch the OneApp platform and issued a loan note for a cash amount of €1 million, financed by external investors in the Group. The loan was repayable by 26 July 2017 and interest is receivable at ten per cent per annum. During the year Green IT Globe NV assigned the loan to GIG Technology NV and, on 12 June 2017, both parties agreed to postpone the repayment date to 26 July 2018.

 

19. Deferred tax

 

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period.

 

    Total  
    Eur’000  
       
At 1 July 2015     (225 )
Acquired through business combinations - liabilities     (777 )
Acquired through business combinations - assets     302  
Credit to income statement     191  
Other movement     24  
At 30 June 2016     (485 )
Acquired through business combinations - liabilities     (296 )
Acquired-assets     161  
Credit to income statement     235  
At 30 June 2017     (385 )

 

F- 52  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

19. Deferred tax (continued)

 

    2017     2016  
    Eur’000     Eur’000  
             
Timing differences     -       (10 )
Fair value adjustments on business combinations intangible assets     (385 )     (475 )
      (385 )     (485 )

 

At the reporting date, the Group has UK unused tax losses of approximately €14,686,000 (2016: €15,740,000). No deferred tax asset has been recognised in respect of these items due to insufficient evidence of future available profits in the immediate future in the UK. The value of the deferred tax asset not recognized on the tax losses is €2,937,000 (2016: €3,148,000).

 

At the reporting date, the Group has Belgium tax losses carried forward of approximately €8,565,000 (2016: €9,023,000). No deferred tax asset has been recognised in respect of this due to insufficient evidence of future available profits in the immediate future. The value of the deferred tax asset not recognized on the tax losses is €2,911,000 (2016: €3,067,000).

 

At the reporting date, the Group has Dutch tax losses carried forward of approximately €1,508,000. No deferred tax asset has been recognised. The value of the deferred tax asset not recognized on the tax losses is €301,000.

 

Deferred tax liabilities of €385,000 (2016: €485,000) relate to intangible assets recognized on the software and customer portfolio from the Comsys acquisition in September 2015 and the Livecom acquisition in January 2016. The remaining part relates to intangible assets (customer portfolio) recognized on the customer portfolio from the SpeakUp acquisition in June 2015 and the Ello Mobile and Wbase acquisitions in December 2016 and April 2017.

 

20. Trade and other payables

 

    2017     2016  
    Eur’000     Eur’000  
             
Trade payables     1,210       1,916  
Accruals     451       298  
Other payables     1,244       1,072  
Deferred income     4,896       2,509  
      7,801       5,795  

 

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the carrying amount of trade payables approximates to their fair value.

 

F- 53  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

21. Bank Loans

 

    2017     2016  
    Eur’000     Eur’000  
             
Due within one year     85       254  
Due after more than one year     20       40  
      105       294  

 

The different bank loans are mainly secured on the trade receivables of the Group. One unsecured loan with an outstanding amount of €65,000 is repayable in 12 months on a monthly basis. Interest rates are fixed at 2.21% per annum respectively and are market conforming. The carrying amount approximates to fair values because of the short maturity of these loans. The second bank loan with a principal of €85,000 is repayable in 48 months on a monthly basis. The interest rate is fixed at 2.43% per annum.

 

22. Other loans

 

    2017     2016  
    Eur’000     Eur’000  
             
Due within one year     1,308       161  
Due after more than one year     750       1,539  
      2,058       1,700  

 

Other loans comprise loans from third parties at interest rates of between 7.5% and 10% and are repayable as follow:

 

€1,308,000 (repayable within one year)

€400,000 (repayable August 2018)

€350,000 (repayable between 2 to 5 years at €120,000 per annum)

 

23. Share capital

 

    2017     2016  
    Eur’000     Eur’000  
             
Fully paid ordinary shares:                
Authorised:                
300,000,002 (2016: 300,000,002) ordinary shares of 5p each     18,523       18,523  
Issued and fully paid:                
307,583,545 (2016: 297,853,104) ordinary shares of 5p each     20,267       19,601  
Deferred ordinary shares:                
Authorised:                
900,447 (2016: 900,447) deferred ordinary shares of £4.99 each     6,503       6,503  
                 
      2017       2016  
      No. ’000       No. ’000  
Fully paid ordinary shares:                
Balance at beginning of financial year     297,853       236,116  
Issued during the year     9,730       61,737  
Issued and fully paid at end of financial year     307,583       297,853  

 

F- 54  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

23. Share capital (continued)

 

Fully paid ordinary shares carry one vote per share and carry the rights to dividends.

 

The Company has issued 4,078,412 ordinary shares to acquire Ello Mobile and Wbase. These shares were granted to the vendors of these entities as part of the purchase consideration.

 

The Company has issued the following shares during the financial year:

 

· 3,755,170 on 25 August 2016 in settlement of liabilities for Directors and employees services

 

· 216,224 on 12 September 2016 in settlement of liabilities

 

· 596,891 on 3 November 2016 in settlement of liabilities

 

· 3,823,636 on 23 December 2016 in connection with the acquisition of Ello mobile

 

· 1,083,744 on 17 February 2017 in settlement of liabilities

 

· 254,776 on 12 April 2017 in connection with the acquisition of Wbase

 

24. Own Shares

 

    Own shares  
    Eur’000  
       
Balance at 1 July 2016     (2,336 )
Balance at 30 June 2017     (2,336 )

 

 

Own shares represents the cost of shares in Artilium plc purchased and held by the Artilium plc Employee Benefit Trust to satisfy options and share awards under the Group’s Employee Share Schemes. 3,000,000 Series 2 warrants were purchased by the Trust at a price of 10p per warrant in December 2006. These warrants were then exercised at a price of 75p and converted into ordinary 5p shares by the Trust.

 

25. Notes to the cash flow statement

 

    2017     2016  
    Eur’000     Eur’000  
             
Loss from continuing operations before tax     (1,995 )     (1,717 )
Adjustments for:                
Depreciation of property, plant and equipment     144       114  
Amortisation of intangible assets     1,625       1,297  
Share based payments     435       -  
Impairment of trade receivables     -       (6 )
Finance costs     324       200  
Unrealized exchange differences     26       (28 )
Operating cash flows before movements in working capital     559       (140 )
Decrease in receivables     1,633       1,016  
(Increase)/decrease in inventory     47       (40 )
(Decrease)/increase in payables     1,619       (2,097 )
Cash generated from/(used in) operations     3,858       (1,121 )
Income taxes paid     -       -  
Net cash inflow/(outflow) from operating activities     3,858       (1,261 )

 

F- 55  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

26. Contingent liabilities

 

The Group had no contingent liabilities as at 30 June 2017.

 

27. Operating lease arrangements

 

    2017     2016  
    Eur’000     Eur’000  
             
Minimum lease payments under operating leases recognised as an expense for the year Land and buildings     342       292  
Motor vehicles     404       386  
      746       678  

 

At the reporting date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

 

Land and buildings

 

  2017     2016  
    Eur’000     Eur’000  
             
Within one year     247       251  
In the second to fifth years inclusive     381       382  
      628       633  

 

Motor vehicles

 

  2017     2016  
    Eur’000     Eur’000  
             
Within one year     324       362  
In the second to fifth years inclusive     675       801  
      999       1,163  

 

Operating lease payments represent rentals payable by the Group for certain of its office properties and motor vehicles. Leases are negotiated for an average term of 3 years and rentals are fixed for an average of 3 years. The Group does not have an option to acquire the leased properties at expiry of the lease term.

 

28. Retirement benefit schemes

 

The Group makes payments to defined contribution retirement benefit schemes for all qualifying employees. As for all defined contribution pension plans, minimum guaranteed rates of return apply on the employee and employer contributions as from 1 January 2004. Since the guarantee is primarily provided for by an insurance company, the pension plan is accounted for as a defined contribution plan.

 

The total cost charged to income of €128,000 (2016: € 106,000) represents contributions payable to these schemes by the Group at rates specified in the rules of the plans. As at 30 June 2017, all contributions due in respect of the current reporting period had been paid over to the scheme.

 

F- 56  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

29. Events after the balance sheet date

 

On 28 August 2017 Artilium NV entered into an agreement with GIG Technology NV (“GIG NV”) and its parent undertaking, Green IT Globe Holding S.C.S (“GIG Holdings”), to replace the original loan agreement entered into on 18 July 2016. Under the original agreement, the Group had issued a loan note to Green IT Globe NV (which subsequently merged with GIG NV) for €1,000,000 which was financed by loans to the Group from external investors for an equal amount. As at 30 June 2017, the amount due from GIG NV and payable to external investors for €1,000,000 and €1,200,000 respectively was included in other receivables (note 18) and other loans (note 2). Under the new agreement, the loan to GIG NV is assigned to GIG Holdings and converted into share capital of that entity. The Group in turn has entered into agreements with the external investors dated 12 September 2017 to repay their loans using the shares of GIG Holdings.

 

On 19 October 2017 the Group opened a new office in Germany via subsidiary undertaking Artilium GmbH, to achieve revenues through IT resellers and system integrators to business customers.

 

On 16 October 2017 Artilium has entered into a strategic partnership (the "Alliance") with Pareteum Corporation (NYSE: TEUM) ("Pareteum") to jointly pursue new and developed markets. In conjunction with the Alliance, Artilium and Pareteum have also entered into a share exchange agreement whereby Artilium will issue 27,695,177 ordinary shares in the Company ("New Ordinary Shares") at a notional price of 11 pence each to Pareteum in exchange for Pareteum issuing 3,200,332 common shares in Pareteum ("New Common Shares") at a notional price of USD$1.26 each to Artilium. Following the Share Exchange, Artilium will be beneficially interested in approximately 19.9% of Pareteum's issued share capital and Pareteum will be beneficially interested in approximately 8.8% of Artilium's issued share capital. 

 

30. Related party transactions

 

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Company and its subsidiaries and other related parties are disclosed in the Company’s separate financial statements.

 

31. Transactions with Directors and key management

 

Other than those transactions disclosed on page 12, there were no other transactions with Directors and key management.

 

F- 57  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

32. Financial instruments

 

Categories of financial instruments

 

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised in respect of each class of financial asset, financial liability and equity instrument are disclosed in the accounting policies. The book value of the Group’s financial instruments at the year -end is shown below:

 

        2017     2016  
    Notes   Eur’000     Eur’000  
                 
Financial assets:                    
Loans and receivables:                    
Trade and other receivables   19     3,185       3,190  
Cash and cash equivalents         2,863       422  
          6,048       3,612  
Financial liabilities:                    
Amortised cost:                    
Trade and other payables   21     2,893       3,286  
Bank loans   22     105       294  
Other loans         2,058       1,700  
          5,056       5,280  

 

Financial risk management

 

The Group has exposure to the risks from its use of financial instruments. These risks include credit risk, liquidity and cash flow risk, interest rate risk and foreign currency risk.

 

Credit risk

 

The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the Statement of Financial Position are net of allowances for doubtful receivables. 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.

 

The Group monitors trade receivables on a regular basis to ensure that appropriate action is taken with slow paying customers. Many of the customers are large multinational companies which limits the extent of the credit risk.

 

The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

 

Of the trade receivables balance at the end of the year, €0.36 million is due from Telenet Group Belgium, the Group’s largest customer. There are no other customers who represent more than 10 per cent of the total balance of trade receivables.

 

The Group’s maximum exposure to credit risk, gross of any collateral held, relating to its financial assets is equivalent to their carrying value. All financial assets have a fair value which is equal to their carrying value.

 

There are no significant credit risks arising from financial assets that are neither past due nor impaired.

 

F- 58  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

32. Financial instruments (continued)

 

Liquidity and cash flow risk

 

The Group is principally funded by reserves, bank loans and other loans. The Group maintains its cash funds in bank accounts. The Group’s policy is to minimise the risk by placing funds in risk free cash deposits.

 

The Group closely monitors its access to bank and other credit facilities and available cash in comparison to its outstanding commitments on a regular basis to ensure that it has sufficient funds to meet the obligations of the Group as they fall due. The Board receives regular cash flow forecasts so that management can ensure that its obligations can be satisfied or financing is put in place when required.

 

As at 30 June 2017, the Group's non-derivative financial liabilities have contractual maturities (including interest payments where applicable) as summarised below:

 

30 June 2017                  
    Current     Non-current  
    within 6 months     6 to 12 months     1 to 5 years  
    Eur'000     Eur'000     Eur'000  
                   
Bank loans     75       10       20  
Other loans     54       54       1,950  
Trade and other payables     3,886       488       3,415  
      4,015       552       5,385  

 

This compares to the maturity of the Group’s non-derivative financial liabilities in the previous reporting period as follows:

 

30 June 2016                  
    Current     Non-current  
    within 6 months     6 to 12 months     1 to 5 years  
    Eur'000     Eur'000     Eur'000  
                   
Bank loans     169       85       40  
Other loans     80       81       1,539  
Trade and other payables     3,923       926       946  
      4,172       1,092       2,525  

 

Interest rate risk

 

At 30 June 2017, the Group had bank loans and other borrowings amounting to €2,163,000 (2016: €1,994,000). The Group’s borrowings are at fixed rates of interest and there is, therefore, no exposure to movements in interest rates.

 

Any surplus funds are deposited in interest bearing accounts at variable rates and are therefore exposed to movements in interest rates. Funds are deposited on a short term basis and interest rates are monitored by the Directors. The movement in interest rates would have an immaterial impact on the finances of the Group.

 

F- 59  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2017

 

32. Financial instruments (continued)

 

Foreign currency risk

 

The Group’s centre of operations is in Belgium and it is therefore exposed to currency movements of the Euro against the Pound Sterling. This is naturally hedged to some extent by the expenses incurred in Belgium. The Group does not enter into any forward exchange contracts to cover the remaining foreign exchange risk.

 

Sensitivity analysis

 

The Group faces currency exposures on the translation of the trading results and the net assets of the British subsidiaries. The year end and average exchange rates used when translating the results for the year from Pound Sterling to Euro are 1.13723 (2016: 1.2061) and 1.16290 (2016: 1.3351) respectively.

 

The following table details the sensitivity analysis of the movements of the Pound Sterling to the Euro for the Group’s results.

 

    2017     2016  
    Eur’000     Eur’000  
             
Impact on equity                
10% increase in GBP fx rate against Euro     3,385       3,177  
10% decrease in GBP fx rate against Euro     (3,385 )     (3,177 )
Impact on profit or  loss                
10% increase in  GBP fx rate against Euro     (111 )     (284 )
10% decrease in GBP fx rate against Euro     111       284  

 

Capital management

 

The Group’s main objective when managing capital is to protect returns to shareholders by ensuring the Group will continue to trade in the foreseeable future. The Group also aims to maximise its capital structure of debt and equity so as to minimise its cost of capital.

 

The Group manages its capital with regard to the risks inherent in the business and the sector within which it operates by monitoring its gearing ratio on a regular basis.

 

The Group considers its capital to include share capital, share premium, translation reserve, retained earnings, interest in own shares, capital redemption reserve, share-based payment reserve and net debt as noted below.

 

Net debt includes short and long-term borrowings (including overdrafts and lease obligations) net of cash and cash equivalents.

 

33. Safe harbour

 

This financial report contains a number of non-GAAP figures, such as adjusted EBITDA and Free cash flow. These non-GAAP figures should not be viewed as a substitute for Artilium’s GAAP figures.

 

Artilium defines adjusted EBITDA as operating result before interests, taxes, depreciation and impairments of property, plant and equipment and client’s receivables and amortization and impairments of intangible assets.

 

Artilium defines free cash flow as follows: cash flows from operating activities minus capital expenditure. The notion is used as standard for the health of the company, by showing the ability of the company to generate cash to maintain the operations.

 

F- 60  

 

 

Artilium plc

 

Registered number: 03904535

Company statement of financial position

As at 30 June 2017

 

        2017     2016  
    Notes   Eur’000     Eur’000  
                 
Non-current assets                    
Investments   38     24,917       27,106  
          24,917       27,106  
Current assets                    
Trade and other receivables   39     3,373       3,263  
Cash and cash equivalents         14       -  
          3,387       3,263  
Total assets         28,304       30,369  
Current liabilities                    
Trade and other payables   40     (4,487 )     (4,712 )
Borrowings         (350 )     (400 )
Net current liabilities         (1,449 )     (1,849 )
Net assets         23,468       25,257  
Equity                    
Share capital         20,267       19,601  
Share premium         47,480       47,379  
Merger relief reserve         1,488       1,488  
Capital redemption reserve         6,503       6,503  
Translation reserve         (5,706 )     (4,279 )
Retained deficit         (46,564 )     (45,435 )
Total equity         23,468       25,257  

 

The financial statements were approved by the Board of Directors and authorised for issue on 30 October 2017. They were signed on its behalf by:

 

Jan-Paul Menke
Director

 

F- 61  

 

 

Artilium plc

 

Company statement of changes in equity

Year ended 30 June 2017

 

    Share
capital
    Share
premium
account
    Merger
relief
reserve
    Capital
redemption
reserve
    Translation
reserve
    Retained
deficit
    Total  
    Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000  
                                           
Balance at 1 July 2015     15,415       46,748       1,488       6,503       (199 )     (42,778 )     27,177  
Nominal value of shares issued     4,186       -       -       -       -       -       4,186  
Premium arising on issue of shares     -       631       -       -       -       -       631  
Transaction with owners, recognised directly in equity     4,186       631       -       -       -       -       4,817  
Loss for the period     -       -       -       -       -       (2,657 )     (2,657 )
Other comprehensive income - currency translation differences     -       -       -       -       (4,080 )     -       (4,080 )
Total comprehensive income for the period     -       -       -       -       (4,080 )     (2,657 )     (6,737 )
Balance at 30 June 2016     19,601       47,379       1,488       6,503       (4,279 )     (45,435 )     25,257  
Nominal value of shares issued     666       -       -       -       -       -       666  
Premium arising on issue of shares     -       101       -       -       -       -       101  
Transaction with owners, recognised directly in equity     666       101       -       -       -       -       767  
Loss for the period     -       -       -       -       -       (1,129 )     (1,129 )
Other comprehensive income - currency translation differences     -       -       -       -       (1,427 )     -       (1,427 )
Total comprehensive income for the period     -       -       -       -       (1,427 )     (1,129 )     (2,556 )
Balance at 30 June 2017     20,267       47,480       1,488       6,503       (5,706 )     (46,564 )     23,468  

 

F- 62  

 

 

Artilium plc

 

Company Cash Flow Statement

Year ended 30 June 2017

 

      2017     2016  
    Notes   Eur’000     Eur’000  
                 
Net cash generated from/(used in) operating activities   41     64       (186 )
I nvesting activities                    
Acquisition of subsidiary undertakings         -       (258 )
Net used in investing activities         -       (258 )
Financing activities                    
New borrowings received         -       400  
Repayment of borrowings         (50 )     -  
Net cash (used in)/generated from financing activities         (50 )     400  
Net increase/(decrease) in cash and cash equivalents         14       (44 )
Cash and cash equivalent at  beginning of the year         -       44  
Cash and cash equivalents at end of year         14       -  

 

F- 63  

 

 

Artilium plc

 

Notes to the Company financial statements

Year ended 30 June 2017

 

34. Significant accounting policies

 

The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the separate financial statements have been prepared in accordance with International Financial Reporting Standards adopted by the European Union.

 

The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are the same as those set out in Note 2 to the consolidated financial statements except as noted below.

 

No income statement or statement of comprehensive income for the Company alone is presented as permitted by Section 408 of the Companies Act 2006.

 

Functional currency of parent Company

 

Management consider that the Company operates its own distinct management function, rather than being an extension of the operation of Artilium NV. The Company incurs expenses principally in Sterling, and funding raised by the Company to fund the Group's operations is primarily generated in Sterling. Management therefore consider the functional currency of the Company to be Sterling.

 

Receivables and payables from Group companies

 

Balances receivable and payable from Group companies are classified as loans and receivables, and carried at amortised cost.

 

Investments in subsidiaries

 

Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.

 

The recoverable amount of the investments in United Telecom NV is determined based on a value in use calculation of these entities which uses cash flow projections based on financial budgets approved by the Directors covering a five-year period and a terminal value. The terminal value is based on the year five net cash flows forecast to perpetuity using a pre-tax discount rate of 22.67%, which is appropriate for the Company. The growth rate factor in the discounted cash flow model is estimated to be 2.5% in line with long term forecasts for economic growth. The sales growth rate used during the five year forecast is estimated to be around 3%-5% based on management’s best estimate of the market opportunities.

 

The Directors have made assumptions about revenue in the near and longer term as part of this value in use calculation, which, due to the nature of the Company’s sales and the time-scales involved are not supported by sales contracts. There is thus uncertainty as to the amount of revenue that will be generated, however the Directors are confident that this calculation supports their assessment that the investment balance in Artilium NV is recoverable and not impaired.

 

Due to uncertainty over the timing of cash flows related to Artilium UK Limited, the Directors consider it to be prudent to provide in full for the investment and receivable balances related to this entity. The Directors believe these amounts will be ultimately recoverable, and the Company will continue to support this business.

 

The impairment loss has been included in the administrative expenses line item in the income statement.

 

F- 64  

 

 

Artilium plc

 

Notes to the Company financial statements

Year ended 30 June 2017

 

34. Significant accounting policies (continued)

 

Going concern

 

The Directors have adopted the going concern basis in preparing the financial statements for the Company. The Company and its subsidiaries have sufficient financial resources to continue for a period not less than one year from the date of approval of these accounts. The Directors monitor the cash position of the Group on a regular basis and consider the various sources of finance available to the Group. Further, the Directors intend to use their control of subsidiary undertakings to ensure that intergroup payables are not recalled in a way which would result in the Company not being able to meet its liabilities as they fall due.

 

35. Staff costs

 

The average monthly number of employees (including Executive Directors) was:

 

    2017     2016  
    Eur’000     Eur’000  
             
Administration     1       1  
                 
Their aggregate remuneration comprised:                
Wages and salaries     104       79  
      104       79  

 

36. Tax

 

    2017     2016  
Current tax     -       -  

 

Current tax is calculated at 20% (2016: 20%) of the estimated assessable gain for the year.

 

The charge/(credit) for the year can be reconciled to the loss per the income statement as follows:

 

    2017     2016  
    Eur’000     Eur’000  
             
Loss before tax from continuing operations     (1,129 )     (2,657 )
Tax expense at the theoretical domestic rates applicable to profits of taxable entities in the country concerned of 20% (2016: 20%)     (226 )     (531 )
Effects of:                
Tax losses carried forward unutilized in the year     226       531  
Tax credit for the year     -       -  

 

At the reporting date, the Company has unused tax losses of approximately €14,768,000 (2016: €11,751,000). No deferred tax asset has been recognised in respect of these items due to insufficient evidence of future available profits in the immediate future in the UK.

 

F- 65  

 

 

Artilium plc

 

Notes to the Company financial statements

Year ended 30 June 2017

 

37. Subsidiaries

 

Details of the Company’s subsidiaries at 30 June 2017 are as follows:

 

    Place of
incorporation
ownership
(or registration)
and operation
  Proportion of
ownership
interest and
voting power
held
    Method used
to account for
investment
  Principal
activity
                   
Artilium N.V   **Belgium     100 %   Acquisition accounting   Telecom
United Telecom N.V   ***Belgium     100 %   Acquisition accounting   Telecom
Speak Up BVBA   ***Belgium     100 %   Acquisition accounting   Telecom
Talking Sense BVBA   ***Belgium     100 %   Acquisition accounting   Telecom
Ello Mobile BVBA   ***Belgium     100 %   Acquisition accounting   Telecom
Wbase Comm. V   **Belgium     100 %   Acquisition accounting   Telecom
Artilium UK Limited   *UK     100 %   Acquisition accounting   Telecom
Artilium Trustee Company Limited   *UK     100 %   Acquisition accounting   Dormant
Comsys Telecom & Media BV  

****The

Netherlands

    100 %   Acquisition Accounting   Telecom
Comsys Connect BV  

****The

Netherlands

    100 %   Acquisition accounting   Telecom
Portalis BV  

****The

****Netherlands

    100 %   Acquisition accounting   Telecom
Livecom International BV   The Netherlands     100 %   Acquisition accounting   Telecom
Comsys Connect GMBH   ****Germany     100 %   Acquisition accounting   Telecom
Comsys Connect AG   ****Switzerland     100 %   Acquisition accounting   Telecom
United Telecom BV  

****The

Netherlands

    100 %   Acquisition accounting   Telecom

 

* registered office address is Rosenblatt Solicitors, 9-13 St Andrew Street, London EC4A 3AF, United Kingdom.

 

** registered office address is Vaartdijkstraat 19, B-8200 Brugge, Belgium.

 

*** registered office address is Wingepark 5B, B-3110 Rotselaar, Belgium.

 

**** registered office address is Laan Blusse van Oud Alblas 2a, 3769 AT Soesterberg, The Netherlands

 

F- 66  

 

 

Artilium plc

 

Notes to the Company financial statements

Year ended 30 June 2017

 

38. Investments

 

    Investment in subsidiary  
    Eur’000  
       
At 1 July 2015     31,262  
Additions     5,075  
Exchange differences     (3,796 )
At 30 June 2016     32,541  
Exchange differences     (2,072 )
At 30 June 2017     30,469  
         
Provision        
At 1 July 2015     5,116  
Exchange differences     319  
At 30 June 2016     5,435  
Exchange differences     117  
At 30 June 2017     5,552  
Carrying amount        
At 30 June 2016     27,106  
At 30 June 2017     24,917  

 

39. Trade and other receivables

 

    2017     2016  
    Eur’000     Eur’000  
             
Prepayments and deferred expenses     8       6  
Receivable from Group companies     3,365       3,257  
      3,373       3,263  

 

The Company holds no collateral against these receivables at the reporting date. The carrying amount of trade and other receivables approximates to their fair value.

 

F- 67  

 

 

Artilium plc

 

Notes to the Company financial statements

Year ended 30 June 2017

 

40. Trade and other payables

 

    2017     2016  
    Eur’000     Eur’000  
             
Trade payables     7       48  
Accruals     241       197  
Payable to Group Companies     4,239       4,467  
      4,487       4,712  

 

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the carrying amount of trade payables approximates to their fair value.

 

41. Notes to the Company cash flow statement

 

    2017     2016  
    Eur’000     Eur’000  
             
Loss for the year     (1,129 )     (2,657 )
Adjustments for:                
Share based payments     435       35  
      435       35  
Operating cash flows before movements in working capital                
Decrease in receivables     983       (140 )
(Decrease)/increase in payables     (225 )     2,576  
Cash generated from/(used in) operating activities     64       (186 )

 

F- 68  

 

 

Artilium plc

 

Notes to the Company financial statements

Year ended 30 June 2017

 

42. Related party transactions

 

Trading transactions

 

During the year, the Company entered into the following transactions with related parties:

 

    Amounts owed by
related parties
 
    2017     2016  
    Eur’000     Eur’000  
Artilium plc Employee Benefit Trust     1,611       1,749  
United Telecom     1,557       1,276  

 

The balance due from Artilium UK Limited of €2,763,000 (2016: €3,080,000) at 30 June 2017 has been fully provided for.

 

    Amounts payable to
related parties
 
    2017     2016  
    Eur’000     Eur’000  
                 
Artilium N.V     3,967       4,235  

 

Artilium NV is a subsidiary of the Company.

 

The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received.

 

Artilium plc Employee Benefit Trust purchased 3 million series 2 warrants at a price of 10 pence per warrant in December 2006. The warrants were then exercised at a price of 75 pence and converted into ordinary 5 pence shares by the Trust.

 

Remuneration of the Directors of the Company is disclosed on page 14.

 

F- 69  

 

 

Artilium plc

 

Notes to the Company financial statements

Year ended 30 June 2017

 

43. Financial instruments

 

Financial risk management

 

The Group’s risk management policies are set out in Note 32 to the consolidated financial statements. These are equally applicable to the Company.

 

The book value of the Company’s financial instruments at the year-end is shown below:

 

      2017     2016  
     Notes   Eur’000     Eur’000  
                 
Financial assets:                    
Loans and receivables:                    
Trade and other receivables   39     3,373       3,263  
Cash and cash equivalents         -       -  
          3,373       3,263  
Financial liabilities:                    
Amortised cost:                    
Trade and other payables   40     4,246       4,515  
Other borrowings         350       400  
                     
          4,596       4,915  

 

44. Events since the balance sheet date

 

On 28 August 2017 Artilium NV entered into an agreement with GIG Technology NV (“GIG NV”) and its parent undertaking, Green IT Globe Holding S.C.S (“GIG Holdings”), to replace the original loan agreement entered into on 18 July 2016. Under the original agreement, the Group had issued a loan note to Green IT Globe NV (which subsequently merged with GIG NV) for €1,000,000 which was financed by loans to the Group from external investors for an equal amount. As at 30 June 2017, the amount due from GIG NV and payable to external investors for €1,000,000 and €1,200,000 respectively was included in other receivables (note 9) and other loans (note 22). Under the new agreement, the loan to GIG NV is assigned to GIG Holdings and converted into share capital of that entity. The Group in turn has entered into agreements with the external investors dated 12 September 2017 to repay their loans using the shares of GIG Holdings.

 

On 19 October 2017 the Group opened a new office in Germany via subsidiary undertaking Artilium GmbH, to achieve revenues through IT resellers and system integrators to business customers.

 

On 16 October 2017 Artilium has entered into a strategic partnership (the "Alliance") with Pareteum Corporation (NYSE: TEUM) ("Pareteum") to jointly pursue new and developed markets. In conjunction with the Alliance, Artilium and Pareteum have also entered into a share exchange agreement whereby Artilium will issue 27,695,177 ordinary shares in the Company ("New Ordinary Shares") at a notional price of 11 pence each to Pareteum in exchange for Pareteum issuing 3,200,332 common shares in Pareteum ("New Common Shares") at a notional price of USD$1.26 each to Artilium. Following the Share Exchange, Artilium will be beneficially interested in approximately 19.9% of Pareteum's issued share capital and Pareteum will be beneficially interested in approximately 8.8% of Artilium's issued share capital. ("New Common Shares") at a notional price of USD$1.26 each to Artilium. Following the Share Exchange, Artilium will be beneficially interested in approximately 19.9% of Pareteum's issued share capital and Pareteum will be beneficially interested in approximately 8.8% of Artilium's issued share capital. 

 

F- 70  

 

 

Artilium plc

 

Report and financial statements 2016

 

Contents

 

Independent auditor’s report F-72
   
Consolidated income statement F-74
   
Consolidated statement of comprehensive income F-75
   
Consolidated statement of financial position F-76
   
Consolidated statement of changes in equity F-78
   
Consolidated cash flow statement F-79
   
Notes to the consolidated financial statements F-80
   
Company statement of financial position F-119
   
Company statement of changes in equity F-120
   
Company cash flow statement F-121
   
Notes to the Company financial statements F-122

 

F- 71  

 

 

Artilium plc

 

Independent auditors report to the members of Artilium plc

 

Independent Auditor’s report to the members of Artilium plc

 

We have audited the financial statements of Artilium plc for the year ended 30 June 2016 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statements of Financial Position, the Consolidated and Parent Company Cash Flow Statements, the Consolidated and Parent Company Statements of Changes in Equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

 

The group, in addition to complying with its legal requirement to apply IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB).

 

Respective responsibilities of directors and auditor

 

As explained more fully in the Directors’ Responsibilities Statement set out on page 13, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

 

Scope of the audit of the financial statements

 

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Financial Statement to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

 

Opinion on financial statements

 

In our opinion:

 

· the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 June 2016 and of the Group’s loss for the year then ended;

 

· the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

 

· the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and

 

· the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

 

Separate opinion in relation to IFRSs as issued by the IASB

 

In our opinion the financial statements give a true and fair view of the financial position of the group as at 30 June 2016 and of its consolidated financial performance and its cash flows for the year then ended in accordance with IFRSs as issued by the IASB.

 

F- 72  

 

 

Artilium plc

 

Independent auditors report to the members of Artilium plc

 

Opinion on other matter prescribed by the Companies Act 2006

 

In our opinion the information given in the Strategic Report and Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

 

Matters on which we are required to report by exception

 

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

 

· adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or

 

· the Parent Company financial statements are not in agreement with the accounting records and returns; or

 

· certain disclosures of directors’ remuneration specified by law are not made; or

 

· we have not received all the information and explanations we require for our audit.

 

David Thompson (Senior statutory auditor)

 

for and on behalf of PKF Littlejohn LLP, Statutory Auditor

 

London

 

3 November 2016

 

F- 73  

 

 

Artilium plc

 

Consolidated income statement

Year ended 30 June 2016

 

        2016     2015  
    Notes     Eur’000     Eur’000  
                   
Continuing Operations                        
Revenue     4       9,622       7,651  
Cost of sales             (2,599 )     (1,882 )
Gross profit             7,023       5,769  
Other operating income     10       -       73  
Depreciation and amortisation     14,16       (1,411 )     (620 )
Administrative expenses before redundancy costs             (6,835 )     (5,614 )
Redundancy costs     8       (294 )     (327 )
Administrative expenses             (7,129 )     (5,941 )
Operating loss             (1,517 )     (719 )
Finance costs     7       (200 )     (49 )
Loss before tax             (1,717 )     (768 )
Tax credit     11       191       152  
Loss for the year from continuing operations     5       (1,526 )     (616 )
Basic & diluted  earnings per share in euro-cents from continuing operations     12       (0.54 )     (0.27 )

 

F- 74  

 

 

Artilium plc

 

Consolidated statement of comprehensive income

Year ended 30 June 2016

 

    2016     2015  
    Eur’000     Eur’000  
             
Loss for the year     (1,526 )     (616 )
Other comprehensive income for the year:                
Items that may be reclassified subsequently to profit or loss                
Exchange differences on translation     (10 )     (253 )
Total comprehensive income for the year attributable to owners of the parent     (1,536 )     (869 )

F- 75  

 

 

Artilium plc

Registered number: 03904535

 

Consolidated statement of financial position

As at 30 June 2016

 

          2016     2015  
    Notes     Eur’000     Eur’000  
                   
Non-current assets                        
Goodwill     13       17,127       13,726  
Other intangible assets     14       4,286       1,805  
Property, plant and equipment     16       471       354  
Deferred tax assets     20       -       270  
              21,884       16,155  
Current assets                        
Inventories     18       131       38  
Trade and other receivables     19       3,922       5,263  
Cash and cash equivalents             422       735  
              4,475       6,036  
Total assets             26,359       22,191  
Non-current liabilities                        
Deferred tax liabilities     20       485       495  
Bank loans     22       40       60  
Other loans     23       1,539       -  
              2,064       555  
Current liabilities                        
Trade and other payables     21       5,795       6,577  
Bank loans     22       254       255  
Other loans     23       161       -  
              6,210       6,832  
Total liabilities             8,274       7,387  

 

F- 76  

 

 

Artilium plc

 

Consolidated statement of financial position (continued)

As at 30 June 2016

 

          2016     2015  
    Notes     Eur’000     Eur’000  
                   
Equity attributable to owners of the parent                        
Share capital     24       19,601       15,415  
Share premium             47,379       46,748  
Merger relief reserve             1,488       1,488  
Capital redemption reserve             6,503       6,503  
Translation reserve             (2,343 )     (2,333 )
Own shares     25       (2,336 )     (2,336 )
Retained deficit             (52,207 )     (50,681 )
Total equity             18,085       14,804  
Total liabilities and equity             26,359       22,191  

 

The financial statements were approved by the Board of Directors and authorised for issue on 3 November 2016. They were signed on its behalf by:

 

Jan Paul Menke

Director
Company No. 03904535

 

F- 77  

 

 

Artilium plc

 

Consolidated statement of changes in equity

Year ended 30 June 2016

 

    Share capital     Share
premium
    Merger
relief
reserve
    Capital
redemption
reserve
   

Share-

based
payment
reserve

    Translation
reserve
    Own
shares
    Retained
deficit
    Total  
    Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000  
                                                       
Balance at 1 July 2014     14,181       46,586       1,488       6,503       3,246       (2,080 )     (2,336 )     (53,311 )     14,277  
                                                                         
Nominal value of shares issued     1,234       -       -       -       -       -       -       -       1,234  
Premium arising on issue of shares     -       162       -       -       -       -       -       -       162  
Total transactions with owners, recognised directly in equity     1,234       162       -       -       -       -       -       -       1,396  
Loss for the year     -       -       -       -       -       -       -       (616 )     (616 )
Other comprehensive income - currency translation differences     -       -       -       -       -       (253 )     -       -       (253 )
Total comprehensive income for the year     -       -       -       -       -       (253 )     -       (616 )     (869 )
Reclassification from one caption to another     -       -       -       -       (3,246 )     -       -       3,246       -  
Balance at 30 June 2015     15,415       46,748       1,488       6,503       -       (2,333 )     (2,336 )     (50,681 )     14,804  
                                                                         
Nominal value of shares issued     4,186       -       -       -       -       -       -       -       4,186  
Premium arising on issue of shares     -       631       -       -       -       -       -       -       631  
Total transactions with owners, recognised directly in equity     4,186       631       -       -       -       -       -       -       4,817  
Loss for the year     -       -       -       -       -       -       -       (1,526 )     (1,526 )
Other comprehensive income - currency translation differences     -       -       -       -       -       (10 )     -       -       (10 )
Total comprehensive income for the year     -       -       -       -       -       (10 )     -       (1,526 )     (1,536 )
Balance at 30 June 2016     19,601       47,379       1,488       6,503       -       (2,343 )     (2,336 )     (52,207 )     18,085  

 

F- 78  

 

 

Artilium plc

 

Consolidated cash flow statement

Year ended 30 June 2016

 

          2016     2015  
    Notes     Eur’000     Eur’000  
                   
Net cash used in operating activities     26       (1,261 )     (623 )
I nvesting activities                        
Acquisition of subsidiaries, net of cash acquired     15       (143 )     (31 )
Purchase of intangible assets             (348 )     (46 )
Purchase of property, plant and equipment     16       (40 )     (279 )
Proceeds from disposal of property, plant and equipment             -       97  
Net cash used in investing activities             (531 )     (259 )
Financing activities                        
Proceeds on issue of shares             -       921  
New borrowings/loans received     23       2,000       315  
Interest paid             (200 )     (33 )
Repayment of borrowings     22       (321 )     (150 )
Net cash from financing activities             1,479       1,053  
Net (decrease)/increase in cash and cash equivalents             (313 )     171  
Cash and cash equivalents at beginning of year             735       564  
Cash and cash equivalents at end of year             422       735  

 

Non-cash transactions

 

The principal non-cash transaction is the issue of shares as consideration for the acquisitions discussed in notes 15 and 24.

 

F- 79  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

1. General information

 

Artilium plc is a Company incorporated in the United Kingdom. The address of the registered office is given on page 1. The nature of the Group’s operations and its principal activities are set out in the Strategic report and Directors’ report on pages 5 to 9. The Group’s principal place of business is Belgium and the Netherlands. The ultimate parent Company of the Group is Artilium plc.

 

The consolidated financial statements were authorised for issue by the Board of Directors on 3 November 2016.

 

Standards adopted early by the Group

 

The Group has not adopted any standards or interpretations early in either the current or the preceding financial year.

 

New and amended standards and interpretations

 

Standards and interpretations effective in the current period but with no significant impact

 

All new standards and amendments to standards and interpretations effective for annual periods beginning on or after 1 July 2015 are not material to the Group and therefore not applied in preparing these financial statements.

 

New and amended standards issued but not yet effective for the financial year beginning 1 July 2015 and not early adopted

 

Standard       Effective Date
IAS 1 (Amendments)   Presentation of Financial Statements: Disclosure Initiative   1 January 2016
IAS 7 (Amendments)   Disclosure Initiative   *1 January 2017
IAS 12 (Amendments)   Recognition of Deferred Tax   *1 January 2017
IAS 16 (Amendments)   Clarification of Acceptable Methods of Depreciation   1 January 2016
IAS 27 (Amendments)   Separate Financial Statements   1 January 2016
IAS 38 (Amendments)   Clarification of Acceptable Methods of Amortisation   1 January 2016
IFRS 9   Financial Instruments   *1 January 2018
IFRS 11 (Amendments)   Joint Arrangements: Accounting for Acquisitions of Interests in Joint Operations   1 January 2016
IFRS 14   Regulatory Deferral Accounts   *1 January 2016
IFRS 15   Revenue from Contracts with Customers   *1 January 2018
IFRS 16   Leases   *1 January 2019
Annual Improvements   2012 – 2014 Cycle   1 January 2016

 

*Subject to EU endorsement

 

The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods, except for IFRS 15 which may have an impact on revenue recognition and related disclosures. It is not currently practicable to provide a reliable estimate of the potential effect of IFRS 15 until a detailed review has been undertaken.

 

Functional and presentation currency

 

The individual financial statements of each company within the Group is presented in the currency of the primary economic environment in which it operates (its functional currency). The consolidated financial statements are presented in EUR in order to reflect the economic substance the Group operates in (see also accounting policies - Note 2). These financial statements are presented in round thousand Euros.

 

F- 80  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

2. Significant accounting policies

 

Basis of preparation

 

The financial statements have been prepared in accordance with IFRSs adopted by the European Union (EU) and the Companies Act 2006 that applies to companies reporting under IFRS as adopted by the EU and IFRIC interpretations. The group, in addition to complying with its legal requirement to apply IFRSs as adopted by the European Union, has also prepared the financial statements in accordance with IFRSs as issued by the International Accounting Standards Board (IASB).

 

The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are set out below.

 

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or conformity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.

 

Basis of consolidation

 

The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company (its subsidiaries) made up to 30 June each year. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

 

The results of the subsidiaries acquired are included in the consolidated income statement from the effective date of acquisition. They are deconsolidated from the date that control ceases.

 

Where necessary, adjustments are made to the financial statements of the subsidiary to bring the accounting policies used into line with those used by the Group. Inter-company transactions and balances between group companies are eliminated.

 

Business combinations

 

The acquisition of subsidiaries is accounted for using the acquisition method. The consideration of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair value at the acquisition date

 

Goodwill arising from a business combination is determined as the difference between (I) the consideration transferred plus the amount of any non-controlling interest plus the fair value of any previously held equity interest in the acquiree, and (II) the net of the acquisition-date fair values of the identifiable assets acquired and liabilities assumed. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. Expenses incurred as part of a business combination are immediately expensed to the income statement.

 

F- 81  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

Goodwill

 

Goodwill that arises from the acquisition of subsidiaries is presented as part of non-current assets in the statement of financial position. Goodwill is initially recognised as an asset measured at cost. We refer to the accounting policies about business combinations for further guidance.

 

Goodwill is not amortised but tested for impairment. For the purpose of this impairment testing, goodwill is allocated to the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. 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.

 

Revenue from platform services arises from the sale of proprietary software, professional services, the re-sale of third party hardware and software, and after sale maintenance contracts.

 

Where the outcome of a contract can be estimated reliably, revenue and costs related to the sale of proprietary software and professional services are recognised by reference to the stage of completion on the contract activity at the reporting date. This is measured by the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs.

 

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

 

Sale of third party hardware and software is recognised when the goods are delivered and title has passed.

 

Maintenance revenue is recognised proportionally over the support term included in the platform contract.

 

Revenue from the sale of software licences is recognised when the following criteria are met:

 

· persuasive evidence of an arrangement exists;

 

· delivery has occurred;

 

· the vendor’s fee is fixed or determinable; and

 

· collectability is probable.

 

F- 82  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

Leasing

 

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

 

Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.

 

Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.

 

Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term.

 

Foreign currencies

 

The individual financial statements of each Group company is presented in Euro, being the currency of the primary economic environment in which it operates (its functional currency), except for the parent Company and Artilium UK Limited whose functional currency is sterling. The consolidated financial statements are presented in Euro.

 

In preparing the financial statements of the individual companies, 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 reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. 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 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 and losses are recognised directly in other comprehensive income and recognised in the ‘Translation Reserve’ in equity.

 

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognised in Other Comprehensive Income and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as an expense 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. Exchange differences arising are recognised in other comprehensive income.

 

F- 83  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

Retirement benefit costs

 

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

 

Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

 

Taxation

 

The tax credit represents the sum of current and deferred tax.

 

The current tax is based on taxable profit or loss for the year. Taxable profit or loss differs from net profit or loss 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 substantively enacted by the reporting 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. Deferred tax liabilities are recognised on all taxable temporary differences with certain specific exceptions 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. However deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax 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 reporting 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 is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly in other comprehensive income or equity, in which case the deferred tax is also dealt with in other comprehensive income or equity, respectively.

 

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.

 

F- 84  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

Property, plant and equipment

 

Property, plant and equipment is 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 per annum:

 

Leasehold improvements 10%
Fixtures and equipment 20%-33%

 

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease.

 

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 profit or loss.

 

The Directors consider the reasonableness of the useful economic life and residual value estimates on an annual basis.

 

Assets under construction

 

Assets under construction are recognized for all intangible assets which are in process of development. Assets under development are measured at the amount of cash or cash equivalents paid or the fair value of any consideration given during the time of construction. No depreciation is recognized during period of commissioning. Assets under development are impaired whenever there are indications that an impairment loss may have occurred.  When the asset is available for use it will be transferred to its appropriate classification, depending on the nature of asset.

 

Other intangible assets

 

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and install the specific software. Customer portfolios and computer software acquired in a business combination that qualify for separate recognition are recognised as intangible assets at their fair value at the acquisition date. Subsequent to initial recognition, intangible assets acquired in business combinations are reported at cost less accumulated amortisation and accumulated impairment losses.

 

Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses.

 

All intangible assets are accounted for using the cost model whereby capitalised costs are amortised on a straight-line basis over their estimated useful lives, as these assets are considered finite. Residual values and useful lives are reviewed at each reporting date. In addition, they are subject to impairment testing. The following estimated useful lives are applied:

 

Software: 3 years

 

Customer portfolios: 5 years

 

Amortisation has been included within depreciation and amortisation under the heading administrative expenses. Subsequent expenditures on the maintenance of computer software are expensed as incurred. When an intangible asset is disposed of, the gain or loss on disposal is determined as the difference between the proceeds and the carrying amount of the asset, and is recognised in profit or loss within other income or other expenses.

 

F- 85  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

Impairment of tangible and intangible assets excluding goodwill

 

At each reporting 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, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the smallest cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

 

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 for which the estimates of future cash flows have not been adjusted.

 

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 as an expense immediately.

 

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately. No reversal of impairment losses took place in the year.

 

Software development costs

 

Software development costs are capitalised as an intangible asset included within other intangible assets, provided that the following criteria are demonstrated:

 

· the technical feasibility of completing the intangible asset so it will be available for use or sale;

 

· the intention to complete the intangible asset for use or sale;

 

· the ability to use or sell the intangible asset;

 

· how the intangible asset will generate future economic benefits;

 

· the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

 

· the ability to measure reliably the expenditure attributable to the intangible asset during its development.

 

The costs are capitalised from the date that the above criteria are satisfied and are amortised once the intangible asset has been completed and either brought into use or released for sale. The costs will be amortised over the expected economic life of the intangible asset being three years, and included within administrative expenses. If the above criteria are not demonstrated the development costs are expensed as they are incurred. In most cases these recognition criteria are not met.

 

F- 86  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

Financial instruments

 

Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised from the statement of financial position when the Group’s contractual rights to the cash flows expire or the Group transfers substantially all the risks and rewards of the financial asset. Financial liabilities are derecognised from the Group’s statement of financial position when the obligation specified in the contract is discharged or cancelled or expires.

 

Financial assets

 

All financial assets (loans and receivables, trade and other receivables and cash and cash equivalents) are recognised and derecognised on trade date. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned. The purchase or sale of a financial asset is initially measured at fair value, plus transaction costs.

 

Effective interest method

 

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on amounts paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

 

Trade and other receivables

 

Trade and other receivables are recognised initially at fair value, and are subsequently measured at amortised cost using the effective interest rate method. A provision for impairment is made where there is objective evidence (including customers with financial difficulties or in default on payments) that amounts will not be recovered in accordance with the original terms of the agreement. A provision for impairment is established when the carrying value of the receivable exceeds the present value of the future cash flow discounted using the original effective interest rate. The carrying value of the receivable is reduced through the use of an allowance account and any impairment loss is recognised in the income statement.

 

Cash and cash equivalents

 

Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

 

F- 87  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

Inventories

 

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. Net realisable value is the estimated selling price in the ordinary course of business less any applicable selling expenses.

 

Financial liabilities and equity

 

Financial liabilities (trade and other payables, bank and other loans) and equity instruments are classified according to the substance of the contractual arrangements entered into. The Group's financial liabilities include borrowings and trade and other payables. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

 

Borrowings

 

Interest-bearing loans and overdrafts are recorded initially at their fair value, net of direct transaction costs. Such instruments are subsequently carried at their amortised cost and finance charges, including premiums payable on settlement or redemption, are recognised in the income statement over the term of the instrument using an effective rate of interest.

 

Trade and other payables

 

Trade and other payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating the interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

 

F- 88  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

Share-based payments

 

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight line basis over the vesting period, based on the Group’s estimate of the shares that will eventually vest and adjusted for the effect of non-market based vesting conditions.

 

Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

 

Exceptional items

 

Exceptional items, comprising redundancy costs, are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. They are material items of expense that have been shown separately due to the significance of their nature or amount.

 

Equity

 

Equity reserves comprise:

 

Share capital

 

Share capital represents the nominal value of shares that have been issued.

 

Share premium account

 

Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.

 

Merger relief reserve

 

The merger relief reserve includes any premium on issue of share capital as part or all of the consideration in a business combination, where more than 90% of the issued share capital of the acquiree is obtained.

 

Capital redemption reserve

 

On 22 December 2005 the Company bought back all of its issued deferred share capital comprising 900,447 shares with a nominal value of £4.99 each for a total consideration of 1 pence. The effect of this transaction was to reduce issued share capital by €6,503,000 and create a capital redemption reserve of the same amount.

 

Share-based payment reserve

 

The share-based payment transaction reserve is used to recognise the value of equity-settled share-based payment transactions provided to the Directors, including key management personnel, as part of their remuneration. Refer to Note 6 for further details.

 

Translation reserve

 

The foreign-currency translation reserve is used to record exchange differences arising from the translation of Sterling £ for Artilium plc and Artilium Limited to the presentation currency of Euro.

 

Own shares

 

Own shares represents the cost of shares in Artilium plc purchased and held by the Artilium plc Employee Benefit Trust to satisfy options and share awards under the Group’s Employee Share Schemes.

 

F- 89  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

3. Critical accounting judgements and key sources of estimation uncertainty

 

Critical judgements in applying the Group’s accounting policies

 

In the process of applying the Group’s accounting policies, which are described in Note 2, management has made the following judgements that have a significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with below).

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

 

Recognition of deferred tax assets

 

The extent to which deferred tax assets can be recognised is based on an assessment of the probability of the Group’s future taxable income against which the deferred tax assets can be utilised. In addition, significant judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions.

 

Going concern

 

The directors have adopted the going concern basis in preparing the consolidated financial statements, having carried out a going concern review. Given the nature of the Group and the way in which business is managed, cash flow forecasts have been prepared for both of the Group's three trading companies, Artilium NV, United Telecom NV and Comsys. These forecasts are considered in conjunction for the directors to satisfy themselves that the going concern assumption is appropriate.

 

United Telecom NV

 

The directors have prepared and reviewed cash flow forecasts from the date of the accounts approval to the end of December 2017. Due to the nature of the Company's customer base, contracted income and cost base the directors do not consider there to be a material uncertainty in relation to the amount of revenue that the company will generate, or costs that it will incur. This is supported by the historic experience of forecasting within the United Telecom NV business.

 

Artilium NV

 

A worst-case scenario cash flow forecast (which represents a significant downgrade compared to internal budgets and targets) has been prepared from the date of the accounts approval to end of December 2017. In carrying out the review the Directors have had to make significant assumptions about the revenue that will be generated to end of December 2017.

 

The Group has now secured 78% (€3,5m) of its expected revenue per the worst case scenario forecast, the remaining revenue for the forecast period is a combination of expected recurring revenue included within concluded contracts and proposals to existing and new customers based on the directors' assessment of the likelihood of winning these on a project by project basis, revenue has only been included in the forecasts where the directors are at least 80% certain that the revenue will be secured. Therefore the directors would like to highlight that 22% (€1,0m) of forecast revenue per the worst case scenario is not committed or contracted.

 

Comsys

 

The directors have prepared and reviewed cash flow forecasts from the date of the financial statements approval to end of December 2017. The directors do not consider there to be a material uncertainty in relation to the amount of revenue that the company will generate, or costs that it will incur. This is supported by historic data and experience of forecasting within the Comsys business.

 

F- 90  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

3. Critical accounting judgements and key sources of estimation uncertainty

 

Critical judgements in applying the Group’s accounting policies (continued)

 

The directors consider that the assumptions made are appropriate and are satisfied that the Group is a going concern. The directors monitor the cash position of the business on an ongoing basis and consider the various sources of finance available to the Group; the directors would seek to access these sources of finance as necessary.

 

Functional currency of parent Company

 

Management consider that the parent Company operates its own distinct management function, rather than being an extension of the operation of Artilium NV. The parent Company incurs expenses principally in Sterling, and funding raised by the Company to fund the Group's operations is primarily generated in Sterling. Management therefore consider the functional currency of the parent Company to be Sterling.

 

Key sources of estimation uncertainty

 

The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a risk of causing an adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

 

Carrying value of long-term assets

 

The Directors have carried out impairment tests on the carrying value of the Group’s intangible assets and goodwill and concluded that these assets are not impaired. In arriving at this conclusion the Directors have used value-in-use calculations and made assumptions about revenue and gross margins in the near and longer term, together with the discount rate (notes 13 and 14).

 

Management has considered the recoverability of its internally generated intangible ‘assets under construction’ which are included in the Statement of Financial Position at €331,000. The development projects continue to progress in a satisfactory manner and management expects future anticipated revenues to exceed the carrying value and costs of completion.

 

Allowance for doubtful debts

 

The Directors have carried out an assessment on the recoverability of trade receivables and concluded on a value of the provision required. In arriving at this conclusion the Directors have used their knowledge of their customer base, the market condition and the age of the outstanding receivables.

 

Estimated value and life of intangible assets acquired in a business combination (note 15)

 

Useful lives are based on industry standards and historical experience which are subjected to yearly evaluation. Management review other intangible assets at each reporting date to determine whether there are any indications of impairment. If any such indication exists, an estimate of the recoverable amount is performed, and an impairment loss is recognised to the extent that the carrying amount exceeds the recoverable amount. The Directors have reviewed the estimated value and do not consider any impairment to be necessary.

 

F- 91  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

4. Segmental information

 

Segment reporting

 

The Group identifies three reportable segments with different economic characteristics. The three reportable segments reflect the level at which the Group’s Chief Operating Decision Maker (“CODM”) reviews the financial performance of the business and makes decisions about the allocation of resources and other operational matters. The reportable segments are equal to the operating segments.

 

The three reportable segments “Artilium”, “United Telecom” and “Comsys” correspond with the three trading activities of the Group.

 

Artilium provides advanced mobile telecommunications software to network operators and enablers (managed services providers, systems integrators etc). Its core product is its ARTA Mobile Applications Platform which enables network operators to open networks to third party developers and launch new services which feature elements from the telecoms and web environments.

 

The business of United Telecom consists of rendering telecom services to the Belgium corporate and consumer market as well as the development and sale of advanced “carrier grade” shared services for telecom service providers (including fixed, mobile and VOIP).

 

Comsys is a specialist in interactive telephony services and provides telecommunication products, solutions and hosted services in the converging arena of IN, 3G, SIP and VoIP networks for mobile and fixed line telephone operators, MVNOs and contact centres.

 

In line with the Group’s internal reporting framework and management structure, the key strategic and operating decisions are made by the Board of Directors which is considered to be the CODM. The CODM reviews on a regular basis the following financial key data of each segment:

 

· Revenue;

 

· Recurring adjusted EBITDA = Operating result before depreciation, amortization, impairment of assets and non-recurring expenses;

 

· Recurring EBIT = Operating result before interests and taxes less non-recurring expenses;

 

· Non-recurring items;

 

· Segment profit/loss.

 

The accounting principles applied to the operating segments are the same as those described in note 2.

 

F- 92  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

4. Segmental information (continued)

 

An analysis of the Group’s result is as follows:

 

Refer to note 9 for a reconciliation of the operating result and net result to the adjusted EBITDA and above for the definition of the adjusted EBITDA.

 

Refer to ‘Principal activities’ within the strategic report for a description of revenue by type.

 

    Artilium     United Telecom     Comsys     Total  
    2016     2015     2016     2015     2016     2016     2015  
    Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000  
Revenue     3,881       4,276       4,108       3,374       1,633       9,622       7,650  
                                                         
Adjusted EBITDA     119       (93 )     (143 )     128       336       312       35  
Depreciation, amortisation and impairments     (161 )     (67 )     (792 )     (504 )     (583 )     (1,536 )     (571 )
                                                         
Recurring EBIT     (42 )     (160 )     (935 )     (376 )     (247 )     (1,224 )     (536 )
                                                         
Non-recurring items     (172 )     (267 )     (122 )     (60 )     -       (294 )     (327 )
Redundancy costs     (172 )     (267 )     (122 )     (60 )     -       (294 )     (327 )
                                                         
EBIT     (214 )     (427 )     (1,057 )     (436 )     (247 )     (1,518 )     (863 )
                                                         
Interest expense/other finance expense     (69 )     (44 )     (69 )     (4 )     (62 )     (200 )     (48 )
Other finance expense including exchange differences     -       143       -       -       -       -       143  
Income tax     -       (8 )     94       160       97       191       152  
                                                         
Segment loss     (283 )     (336 )     (1,032 )     (280 )     (212 )     (1,526 )     (616 )

 

F- 93  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

4. Segmental information (continued)

 

An analysis of the Group’s assets and liabilities is as follows:

 

    Artilium     United Telecom     Comsys     Total  
    2016     2015     2016     2015     2016     2016     2015  
Total segment assets (Eur‘000)     19,231       16,012       796       6,179       6,332       26,359       22,191  
Total segment liabilities (Eur’000)     3,288       5,550       3,112       1,837       1,874       8,274       7,387  

 

All assets and liabilities of the Group are allocated to the operating segments. Segment assets and liabilities are presented before intersegment balances. Intersegment sales and transfers are registered at arm’s length as if the sales and transfers were executed with third parties.

 

Geographical information

 

The Group revenue and location of non-current assets is derived from and located in mainland Europe. An analysis by geographical destination is as follows:

 

    2016     2015  
    Revenues    

Non-

current
assets

    Revenues    

Non-

current
assets

 
    Eur’000     Eur’000     Eur’000     Eur’000  
Belgium     7,182       5,167       6,950       5,584  
UK     -       10,571       -       10,571  
Holland     2,430       6,146       635       -  
Germany     -       -       16       -  
India     2       -       3       -  
Hong Kong     8       -       8       -  
Total     9,622       21,884       7,612       16,155  

 

Information about major customers

 

25% of the consolidated revenue is generated by sales to an external customer within the segment “Artilium” (25% for the year ended 30 June 2015). There are no other sales to single external customers exceeding 10% of the consolidated revenue.

 

5. Operating loss

 

Loss for the year has been arrived at after charging/(crediting):

 

    2016     2015  
    Eur’000     Eur’000  
Net foreign exchange (gains)/losses     -       (143 )
Operating lease rentals – land and buildings & other     678       533  
Depreciation of property, plant and equipment     114       79  
Amortisation of intangible assets     1,297       541  
Staff costs     4,026       3,616  
Employee benefits     67       72  

 

F- 94  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

5. Operating loss (continued)

 

Reconciliation of operating loss before redundancy costs is provided below:

 

    2016     2015  
    Eur’000     Eur’000  
             
Operating loss     (1,517 )     (719 )
Redundancy costs     294       327  
Operating loss before redundancy costs     (1,223 )     (392 )

 

A detailed analysis of auditors’ remuneration on a worldwide basis is provided below:

 

    2016     2015  
    Eur’000     Eur’000  
             
- Fees payable to the Company’s auditors and its associates for the audit of the Company and consolidated annual financial statements     42       64  
- the audit of the Company’s subsidiaries pursuant to legislation     45       38  
Total audit fees     87       102  
- Other services (*)     22       31  
Total non-audit fees     22       31  

 

(*) Other services are comprised of the auditor’s review of the half-yearly interim financial information.

 

6. Staff costs

 

The average monthly number of employees was:

 

    2016     2015  
    Number     Number  
Administrative and development     69       57  

 

    Eur’000     Eur’000  
Their aggregate remuneration comprised:                
Wages and salaries     3,179       2,753  
Social security costs     741       768  
Employee benefits     67       72  
Other pension costs     106       95  
Total included within administrative expenses     4,093       3,688  

 

F- 95  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

6. Staff costs (continued)

 

Remuneration of directors

 

The remuneration of directors is €0.3 million (2015: € 0.3 million). Refer to page 14. The only key management personnel are the directors.

 

7. Finance costs

 

    2016     2015  
    Eur’000     Eur’000  
             
Interest on bank loans     16       9  
Interest on other loans and other finance costs     184       40  
      200       49  

 

8. Redundancy costs

 

    2016     2015  
    Eur’000     Eur’000  
             
Redundancy costs     294       327  
      294       327  

 

The redundancy costs for the years ended 30 June 2016 and 2015 relates to severance packages for personnel and contractors that were made redundant, or have had the terms of their redundancy communicated to them.

 

9. Reconciling table net result, operating result-adjusted EBITDA

 

    2016     2015  
    Eur’000     Eur’000  
             
Loss for the year from continuing operations     (1,526 )     (616 )
Tax credit     (191 )     (152 )
Finance costs     200       49  
Operating loss     (1,517 )     (719 )
Redundancy costs     294       327  
Depreciation and amortisation     1,411       570  
Impairment of receivables     125       -  
Exchange differences     -       (143 )
Adjusted EBITDA     313       35  

 

F- 96  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

Artilium defines adjusted EBITDA as operating result before interests, exchange result, taxes, depreciation and impairments of property, plant and equipment and client’s receivables and amortization and impairments of intangible assets.

 

10. Other operating income

 

    2016     2015  
    Eur’000     Eur’000  
Other operating income - net     -       73  
      -       73  

 

Other operating income in prior year related mainly to the write off of old balances in accordance with Belgian law, held within the accounts receivable and accounts payable ledger of United Telecom NV and dated prior to 2013.

 

11. Tax

 

    2016     2015  
    Eur’000     Eur’000  
Analysis of taxation credit for the year:                
Current tax:                
UK tax     -       -  
Overseas tax     -       -  
Total current tax     -       -  
Deferred tax:                
Origination and reversal of temporary differences     296       152  
Write-off deferred tax asset on fiscal losses carried forward     (105 )     -  
Total deferred tax     191       152  
Total taxation credit in the income statement     191       152  

 

F- 97  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

11. Tax (continued)

 

The credit for the year can be reconciled to the loss per the income statement as follows:

 

    2016     2015  
    Eur’000     Eur’000  
             
Loss before tax from continuing operations     (1,717 )     (768 )
                 
Tax credit at domestic rates applicable to losses of taxable entities in the countries concerned     (104 )     (254 )
Effects of:                
Expenses not deductible for tax purposes     45       66  
Tax losses brought forward utilised in the year     (857 )     (332 )
Tax losses carried forward unutilised in the year     916       520  
Tax credit for current tax     -       -  
Movement in deferred tax     (191 )     (152 )
Total taxation credit     (191 )     (152 )

 

The weighted average applicable tax rate was 6% (2015: 33%). The decrease is caused by the profitability of certain acquired subsidiaries during the year, giving rise to taxable profits, and offsetting the loss making entities.

 

Future

 

Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and to 20% (effective from 1 April 2015) were substantively enacted. The UK corporation tax rate will reduce to 19% from 1 April 2017 and to 17% from 1 April 2020. The change in UK’s corporate tax rate has no effect on any recognized deferred tax asset or liability.

 

12. Earnings per share

 

    2016     2015  
    Eur’000     Eur’000  
             
Loss from continuing operations for the purposes of basic & diluted loss per share being net losses attributable to equity holders of the parent     (1,526 )     (616 )
           
 

No.

 

No.

 
Number of shares                
Weighted average number of ordinary shares                
for the purposes of basic & diluted loss per share     282,348,087       228,658,004  

 

F- 98  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

12. Earnings per share (continued)

 

The weighted average number of ordinary shares is calculated as follows:

 

Issued ordinary shares

 

  2016     2015  
    No.‘000     No.‘000  
             
Start of period     228,658       218,608  
Effect of shares issued in prior period     7,458       317  
Effect of shares issued in the period     46,232       9,733  
Accumulated weighted average basic and diluted number of shares     282,348       228,658  
                 
Basic and diluted earnings per share is calculated as follows:                
                 
Loss for the year attributable to the equity shareholders of the Company (Eur’000)     (1,526 )     (616 )
Basic and diluted loss per share (Euro cent)     (0.54 )     (0.27 )

 

Refer to note 15 regarding details of the future potential issue of dilutive shares in connection with the acquisition of Comsys.

 

13. Goodwill

 

    Eur’000  
       
Cost        
At 1 July 2014     13,726  
At 30 June 2015     13,726  
Carrying amount        
At 1 July 2015     13,726  
Acquisitions through business combinations (note 15)     3,401  
At 30 June 2016     17,127  

 

No goodwill is expected to be deductible for tax purposes.

 

The goodwill balance is allocated to the cash-generating units United Telecom (€3.1 million), Artilium (€10.6 million) and Comsys (including Livecom International) (€3.4 million).

 

The Directors have carried out impairment tests on the carrying value of the Group’s intangible assets and goodwill and concluded that these assets are not impaired. In arriving at this conclusion the Directors have used value-in-use calculations and made assumptions about revenue and gross margins in the near and longer term. The Directors consider that the assumptions made are appropriate and are satisfied that the Group’s non-current assets are not impaired.

 

Allocation of goodwill to cash-generating units

 

For the purpose of impairment testing the Group as a whole is considered as three cash-generating units because of the way it is structured, managed and measured by management. The Group tests goodwill and other intangible assets annually for impairment or more frequently if there are indications that it might be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is initially allocated to reduce the carrying amount of any goodwill. The cash generating units are Artilium NV, United Telecom NV and Comsys.

 

F- 99  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

13. Goodwill (continued)

 

Artilium NV

 

Cash flows for the impairment tests have been formally forecast and management approved for five years and a terminal value has been calculated for the years beyond that. The terminal value is based on the average over the five year net cash flow forecast to perpetuity using a pre-tax discount rate of 16.0 % (2015: 18.57%), which is considered appropriate for the Company. The discount rate would need to increase to more than 18.9% for the goodwill to be impaired. The growth rate factor used in perpetuity in the discounted cash flow model is estimated to be 2.5% (2015:2.5%) in line with long-term forecasts for economic growth expected in Belgium, which is the company's principal market. The sales growth rate used during the five year forecast is estimated to be 5%-10% per annum (2015:5%-10%) based on management’s best estimate of the market opportunities and the existing pipeline opportunities. Based on these assumptions the recoverable amount exceeds the carrying amount by €2.8 million (2015: €2.7 million). If the net present value of forecast future cash flows decreased by 21% the recoverable amount will be less than the carrying amount. The headroom is sensitive to reasonably possible changes in the key assumptions.

 

The Group’s cost base is forecast to increase at the rate of 2% (2015:2%) per annum for the five year forecast period. This is based on management’s historic experience of cost increases, and the forecast increases in revenue.

 

United Telecom NV

 

The goodwill arising on acquisition of United Telecom on 27 June 2012 amounts to €3.155 million and was tested for impairment. Cash flows for the acquired business, for the purpose of the impairment test, have been formally forecast and management approved for five years and a terminal value has been calculated for the years beyond that. The terminal value is based on the average over the five year net cash-flow forecast for perpetuity using a pre-tax discount rate of 16.0% (2015:22.67%) which is considered appropriate for the company. The discount rate would need to increase to more than 17.4% for the goodwill to be impaired. The growth rate factor used in perpetuity in the discounted cash flow model is estimated to be 2.5% in line with long-term forecasts for economic growth expected in Belgium as this is the company's principal market. The sales growth rate used during the five year forecast is estimated to be 3% - 11% per annum based on management’s best estimate of the market opportunities. Based on these assumptions the recoverable amount exceeds the carrying amount of the goodwill and identified intangible assets by €0.4 million. If the net present value of forecast future cash flows decreased by 9.7% the recoverable amount will be less than the carrying amount. The headroom is sensitive to reasonably possible changes in the key assumptions.

 

Comsys

 

The goodwill arising on acquisition of Comsys on 25 September 2015 and Livecom on 1 January 2016 amounts to €3.4 million and was tested for impairment. Cash flows for the acquired business, for the purpose of impairment test, have been formally forecast and management approved for five years and a terminal value has been calculated for the years beyond that. The terminal value is based on the average over the five year net cash-flow forecast for perpetuity using a pre-tax discount rate of 16.0% which is considered appropriate for the company. The growth rate factor used in perpetuity in the discounted cash flow model is estimated to be 2.5% in line with long-term forecasts for economic growth expected in the Netherlands, which is the company's principal market. The sales growth rate used during the five year forecast is estimated to be 3% - 11% per annum based on management’s best estimate of the market opportunities. Based on these assumptions the recoverable amount exceeds the carrying amount of the goodwill and identified intangible assets by €0.5 million. The headroom is sensitive to reasonably possible changes in the key assumptions.

 

F- 100  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

14. Other intangible assets

 

    Assets under
construction
    Telecommunications
software platform
    Customer
portfolio
    Other
software
    Total  
    Eur'000     Eur'000     Eur'000     Eur'000     Eur'000  
                               
Cost                                        
At 1 July 2014     285       5,040       2,729       80       8,134  
Additions     46       -       -       -       46  
Acquired through business combinations     -       -       477       -       477  
                                         
At 30 June 2015     331       5,040       3,206       80       8,657  
Acquired through business combinations (note 15)     -       -       1,647       1,404       3,051  
Asset acquisitions     -       -       519       207       726  
At 30 June 2016     331       5,040       5,372       1,691       12,434  
Amortisation                                        
At 1 July 2014     -       5,040       1,230       41       6,311  
Charge in period     -       -       523       18       541  
At 30 June 2015     -       5,040       1,753       59       6,852  
Charge in period     -       -       962       335       1,297  
At 30 June 2016     -       5,040       2,715       394       8,149  
Carrying amount                                        
At 30 June 2016     331       -       2,657       1,297       4,285  
At 30 June 2015     331       -       1,453       21       1,805  
At 1 July 2014     285       -       1,499       39       1,823  

 

F- 101  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

15. Business Combinations

 

Talking Sense BVBA

 

On 1 July 2015 Artilium plc acquired 100% of the share capital of Talking Sense BVBA and thereby obtained 100% of the voting power. Talking Sense BVBA is a Belgian voice over internet protocol ("VoIP") telecom operator.

 

The following summarises the details about the acquisition.

 

Consideration transferred

 

    Eur’000  
Settlement in equity instruments     80  
Total consideration        80  

 

The acquisition cost of Talking Sense BVBA of €0.08 million was settled by the issuance of 939,243 new ordinary shares at 6.0 pence per share, being the market share price on the acquisition date.

 

Valuation of customer base

 

On acquisition of Talking Sense BVBA customer lists with a fair value of €0.1 million were identified and separately recognised. The fair value of the customer lists was calculated using a value in use calculation based on cash flows directly associated with the customer base as at the date of acquisition. Cash flows from the customer lists were forecast for a period of five years with a 10% reduction in the customer base each year, which has been determined to be consistent with other similar entities in the industry. A pre-tax discount rate of 16% has then been applied to determine the fair value of the customer list acquired.

 

Assets acquired and liabilities recognized at date of acquisition

 

    Eur’000  
Intangible assets customer portfolio     110  
Total non-current assets       110  
         
Trade and other receivables     6  
Cash and cash equivalents     4  
Total current assets         10  
         
Deferred tax liabilities     (40 )
Total non-current liabilities       (40 )
         
Identifiable net assets       80  

 

F- 102  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

15. Business Combinations (continued)

 

Goodwill arising on acquisition

 

    Eur’000  
Consideration transferred     80  
Less fair value of identifiable net assets acquired     (80 )
Goodwill arising on acquisition     -  

 

The revenue included in the consolidated income statement since 1 July 2015 contributed by Talking Sense BVBA was €78,000. Talking Sense BVBA incurred a loss of €14,000 over the same period.

 

Comsys Telecom and Media BV, Comsys Connect BV and Portalis BV (“Comsys”)

 

On 25 September 2015 Artilium plc acquired 100% of the share capital of Comsys Telecom & Media BV, Comsys Connect BV and Portalis BV and thereby obtained 100% of the voting power. Comsys is a Dutch specialist in interactive telephony services in the converging arena of IN, 3G, SIP and VoIP networks for mobile and fixed line telephone operators, MVNO’s and contact centers.

 

The following summarises the details about the acquisition.

 

Consideration transferred

 

    Eur’000  
Settlement in equity instruments     4,625  
Total consideration          4,625  

 

The acquisition of Comsys was settled as follows: €4.6 million was settled by the issuance of 59,332,460 new ordinary shares at 5.75 pence per share, being the market share price on the acquisition date. Under the terms of the sale and purchase agreement, additional shares up to a maximum of 41,896,673 ordinary shares will be issued to the vendors, dependent upon Comsys achieving certain revenue and gross margin targets over the next 3 financial years. No liability has been recognised in the financial statements in respect of these contingent additional shares on the basis that the targets were not expected to be met at the date of acquisition.

 

Valuation of customer base and acquired software

 

On acquisition of Comsys, customer lists with a fair value of €1.537 million were identified and separately recognised. The fair value of the customer lists was calculated using value in use calculation based on cash flows directly associated with the customer base as at the date of acquisition. Cash flows from the customer lists were forecast for a period of five years with a 20% reduction in the customer base each year, which has been determined to be consistent with other similar entities in the industry. A pre-tax discount rate of 15% has been applied to determine the fair value of the customer list acquired.

 

Software with a fair value of €1.25 million was identified and separately recognised. The fair value of the acquired software was calculated on an estimated replacement cost basis.

 

F- 103  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

15. Business Combinations (continued)

 

Assets acquired and liabilities recognized at date of acquisition

 

    Eur’000  
Intangible assets customer portfolio     1,537  
Intangible assets software     1,250  
Property, plant and equipment     190  
Deferred tax asset     302  
Financial assets     98  
Total non-current assets     3,377  
         
Inventories     53  
Trade and other receivables     325  
Cash and cash equivalents     44  
Total current assets     422  
         
Deferred tax liabilities     (697 )
Total non-current liabilities     (697 )
         
Trade and other payables     (1,528 )
Total current liabilities     (1,528 )
         
Identifiable net assets     1,574  

 

Goodwill arising on acquisition

 

    Eur’000  
Consideration transferred     4,625  
Less fair value identifiable net assets acquired     (1,574 )
Goodwill arising on acquisition     3,051  

 

The goodwill is attributable to gaining instant access to this market and to the expertise of the existing workforce. The revenue included in the consolidated income statement since 25 September 2015 contributed by Comsys was €1,258,000. Comsys also contributed a loss of €302,000 over the same period.

 

Livecom International BV

 

On 10 February 2016 Artilium plc acquired 100% of the share capital of Livecom International BV (“Livecom”) and thereby obtained 100% of the voting power. Livecom is a specialist in customer interaction management, providing a single web application that handles all customer contacts via chat, e-mail, voice as well as an expert knowledge base.

 

F- 104  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

15. Business Combinations (continued)

 

The following summarizes the details about the acquisition.

 

Consideration transferred

 

    Eur’000  
Settlement in cash     450  
Settlement in equity instruments     62  
Total consideration        512  

 

The acquisition of Livecom was settled as follows: €0.45 million was settled in cash, €0.06 million was settled with the issuance of 880,460 new ordinary shares at 5.38 pence per share.

 

Assets acquired and liabilities recognized at date of acquisition

 

    Eur’000  
Intangible assets software     154  
Total non-current assets       154  
         
Trade and other receivables     140  
Cash and cash equivalents     260  
Total current assets         400  
         
Deferred tax liabilities     (40 )
Total non-current liabilities       (40 )
         
Trade and other payables     (352 )
Total current liabilities       (352 )
         
Identifiable net assets       162  

 

Goodwill arising on acquisition

 

    Eur’000  
Consideration transferred     512  
Less fair value of identifiable net assets acquired     (162 )
Goodwill arising on acquisition     350  

 

The revenue included in the consolidated income statement since 10 February 2016 contributed by Livecom was €375,000. Livecom also contributed a profit of €90,000 over the same period.

 

F- 105  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

16. Property, Plant and Equipment

 

          Fixtures        
    Leasehold     and        
    improvements     equipment     Total  
    Eur’000     Eur’000     Eur’000  
                   
Cost                        
At 1 July 2014     73       581       654  
Additions     25       254       279  
Acquired through business combinations     -       12       12  
Disposals     -       (127 )     (127 )
At 30 June 2015     98       720       818  
Additions     -       40       40  
Acquired through business combinations (note 15)     -       190       190  
At 30 June 2016     98       950       1,048  
Accumulated depreciation                        
At 1 July 2014     54       360       414  
Disposals     -       (30 )     (30 )
Charge for the year     2       77       79  
At 30 June 2015     56       407       463  
Charge for the year     22       92       114  
At 30 June 2016     78       499       577  
Carrying amount                        
At 30 June 2016     20       451       471  
At 30 June 2015     42       331       355  
At 1 July 2014     19       221       240  

 

There were no impairment charges for the 2016 and 2015 financial years.

 

F- 106  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

17. Subsidiaries

 

Details of the Company’s subsidiaries at 30 June 2016 are as follows:

  

    Place of
incorporation
ownership 
(or registration)
and operation
  Proportion of
ownership
interest and
voting power
held
    Method used to
account for
investment
  Principal
activity
                   
Artilium N.V   Belgium     100 %   Acquisition accounting   Telecom
United Telecom N.V   Belgium     100 %   Acquisition accounting   Telecom
Speak Up BVBA   Belgium     100 %   Acquisition accounting   Telecom
Talking Sense BVBA   Belgium     100 %   Acquisition accounting   Telecom
Artilium UK Limited   UK     100 %   Acquisition accounting   Telecom
Artilium Trustee Company Limited   UK     100 %   Acquisition accounting   Dormant
Comsys Telecom & Media BV   The Netherlands     100 %   Acquisition Accounting   Telecom
Comsys Connect BV   The Netherlands     100 %   Acquisition accounting   Telecom
Portalis BV   The Netherlands     100 %   Acquisition accounting   Telecom
Livecom International BV   The Netherlands     100 %   Acquisition accounting   Telecom
Comsys Connect GMBH   Germany     100 %   Acquisition accounting   Telecom
Comsys Connect AG   Switzerland     100 %   Acquisition accounting   Telecom
United Telecom BV   The Netherlands     100 %   Acquisition accounting   Telecom

 

Unless otherwise stated all ownership relates to ordinary share capital.

 

18. Inventories

 

    2016     2015  
    Eur’000     Eur’000  
             
Goods for resale     131       38  

 

Inventories consist of Aculab boards and mobile simcards for resale to clients. The value of the inventories is based on the cost of purchase excluding VAT and stated at the lower of cost and resale value.

 

F- 107  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

19. Trade and other receivables

 

    2016     2015  
    Eur’000     Eur’000  
             
Amounts receivable for the sale of goods and services     4,206       5,838  
Allowance for doubtful debts     (1,136 )     (1,128 )
      3,070       4,710  
Other receivables     120       124  
Prepayments and accrued income     732       429  
      3,922       5,263  

 

Amounts receivable for the sale of goods and services are all denominated in Euros.

 

The Directors consider that the carrying amount of trade and other receivables above approximates to their fair value. The average credit period taken on sales of goods is 53 days (2015: 65 days). No interest is charged on receivables.

 

Included within trade and other receivables is an amount of €335,000 (2015: €279,000) in respect of amounts that were past due at 30 June, but not impaired. The Group believes that the balances are ultimately recoverable based on a review of past payment history and the credit quality of those customers.

 

The ageing analysis of past due but not impaired receivables are shown below:

 

    2016     2015  
    Eur’000     Eur’000  
             
Up to three months     335       279  

 

The Group holds no collateral against these receivables at the reporting date.

 

F- 108  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

19. Trade and other receivables (continued)

 

As at 30 June 2016 €1,136,000 of trade receivables were impaired (2015: €1,128,000). This allowance is specific and has been determined by reference to the age of the debt or where amounts are in dispute on a customer by customer basis. To the extent they have not been specifically provided against, the trade receivables are considered to be of sound credit rating. The ageing analysis of the allowance for doubtful debts is as follows:

 

    2016     2015  
    Eur’000     Eur’000  
             
Up to three months     -       -  
Up to six months     -       -  
Older than six months     1,136       1,128  
      1,136       1,128  

 

Movement in the Group’s allowance for doubtful debt is as follows:

 

    2016     2015  
    Eur’000     Eur’000  
             
Opening balance as at 1 July     1,128       1,182  
Usage for allowance for doubtful debt     (25 )     (63 )
Receivables provided for during the year     28       9  
Doubtful debt acquired through business combinations     3       -  
Closing balance as at 30 June     1,136       1,128  

 

The Group holds no collateral against these receivables at the reporting date.

 

20. Deferred tax

 

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period.

 

    Total  
    Eur’000  
       
At 1 July 2014     (227 )
Credit to income statement     164  
Acquired through business combinations     (162 )
At 30 June 2015     (225 )
Acquired through business combinations - liabilities     (777 )
Acquired through business combinations - assets     302  
Credit to income statement     191  
Other movement     24  
At 30 June 2016     (485 )

 

F- 109  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

20. Deferred tax (continued)

 

    2016     2015  
    Eur’000     Eur’000  
             
Timing differences     (10 )     (333 )
Fair value adjustments on business combinations intangible assets     (475 )     (162 )
Total deferred tax liability     (485 )     (495 )
Deferred tax asset     -       270  
Total deferred tax asset     -       270  
      (485 )     (225 )

 

At the reporting date, the Group has UK unused tax losses of approximately €15,740,000 (2015: €13,132,000). No deferred tax asset has been recognised in respect of these items due to insufficient evidence of future available profits in the immediate future in the UK. The value of the deferred tax asset not recognized on the tax losses is €3,148,000 (2015: €2,626,000).

 

At the reporting date, the Group has Belgium tax losses carried forward of approximately €9,023,000 (2015: €10,389,000). No deferred tax asset has been recognised in respect of this due to insufficient evidence of future available profits in the immediate future. The value of the deferred tax asset not recognized on the tax losses is €3,067,000 (2015: €3,531,000).

 

The Company acquired Comsys on 1 October 2015. The tax losses carried forward at the end of June 2016 amount to approximately €357,000. No deferred tax asset has been recognised. The value of the deferred tax asset not recognized on the tax losses is €89,000.

 

Deferred tax liabilities of €415,000 (2015: €495,000) relate to intangible assets (customer portfolio) through a business combination in 2015 (Comsys) for a net amount of €321,000 at the end of June 2016, and to the net amount of the deferred tax liability of €36,000 recognized on the software and customer portfolio from the Livecom acquisition in January 2016. The remaining part relates intangible assets (customer portfolio) through a business combination in 2012 (United Telecom) and to the deferred tax liability recognized on the customer portfolio from the SpeakUp acquisition in June 2015.

 

F- 110  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

21. Trade and other payables

 

    2016     2015  
    Eur’000     Eur’000  
             
Trade payables     1,916       1,514  
Accruals     298       168  
Other payables     1,072       693  
Deferred income     2,509       4,202  
      5,795       6,577  

 

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the carrying amount of trade payables approximates to their fair value.

 

22. Bank Loans

 

    2016     2015  
    Eur’000     Eur’000  
             
Due within one year     254       255  
Due after more than one year     40       60  
      294       315  

 

The different bank loans are mainly secured on the trade receivables of the Group. Two unsecured loans with an outstanding amount of €80,000 and €150,000 are repayable in 12 months on a monthly basis. Interest rates are fixed at 2.59% and 2.37% per annum respectively and are market conforming. The carrying amount approximates to fair values because of the short maturity of these loans. The third bank loan with a principal of €85,000 is repayable in 48 months on a monthly basis. The interest rate is fixed at 2.43% per annum.

 

23. Other loans

 

    2016     2015  
    Eur’000     Eur’000  
             
Due within one year     161       -  
Due after more than one year     1,539       60  
      1,700       -  

 

Other loans comprise loans from third parties at interest rates of between 7.5% and 8% and are repayable as follow:

 

€161,000 (repayable within one year)

 

€400,000 (repayable August 2018)

 

€300,000 (repayable March 2018)

 

€100,000 (repayable May 2018 )

 

€739,000 (repayable between 2 to 5 years at €161,000 per annum)

 

F- 111  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

24. Share capital

 

    2016     2015  
    Eur’000     Eur’000  
             
Fully paid ordinary shares:                
Authorised:                
300,000,002 (2015: 300,000,002) ordinary shares of 5p each     18,523       18,523  
Issued and fully paid:                
297,853,104 (2015: 236,115,941) ordinary shares of 5p each     19,601       15,415  
Deferred ordinary shares:                
Authorised:                
900,447 (2015: 900,447) deferred ordinary shares of £4.99 each     6,503       6,503  

 

    2016     2015  
    No. ’000     No. ’000  
Fully paid ordinary shares:                
Balance at beginning of financial year     236,116       218,925  
Issued during the year     61,737       17,191  
Issued and fully paid at end of financial year     297,853       236,116  

 

Fully paid ordinary shares carry one vote per share and carry the rights to dividends.

 

The Company has issued 61,737,163 ordinary shares to acquire Talking Sense, *bliep, Comsys and Livecom. These shares were granted to the vendors of these entities as part of the purchase consideration.

 

The Company has issued the following shares during the financial year:

 

· 939,243 on 1 July 2015 for the acquisition of Talking Sense BVBA

 

· 585,000 on 6 July 2015 for the acquisition Bliep

 

· 59,332,460 on 26 September 2015 for the acquisition of Comsys

 

· 880,460 on 10 February 2016 for the acquisition of Livecom

 

F- 112  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

25. Own Shares

 

    Own shares  
    Eur’000  
       
Balance at 1 July 2015     (2,336 )
Balance at 30 June 2016     (2,336 )

 

 

Own shares represents the cost of shares in Artilium plc purchased and held by the Artilium plc Employee Benefit Trust to satisfy options and share awards under the Group’s Employee Share Schemes. 3,000,000 Series 2 warrants were purchased by the Trust at a price of 10p per warrant in December 2006. These warrants were then exercised at a price of 75p and converted into ordinary 5p shares by the Trust.

 

26. Notes to the cash flow statement

 

    2016     2015  
    Eur’000     Eur’000  
             
Loss from continuing operations before tax     (1,717 )     (780 )
Adjustments for:                
Depreciation of property, plant and equipment     114       79  
Amortisation of intangible assets     1,297       541  
Impairment of trade receivables     (6 )     (54 )
Finance costs     200       -  
Unrealized exchange differences     (28 )     (230 )
Operating cash flows before movements in working capital     (140 )     (444 )
Decrease/(increase) in receivables     1,016       (2,827 )
(Increase)/decrease in inventory     (40 )     5  
(Decrease)/increase in payables     (2,991 )     2,643  
Cash used in operations     (1,261 )     (179 )
Income taxes paid     -       -  
Net cash outflow from operating activities     (1,261 )     (623 )

 

27. Contingent liabilities

 

The Group had no contingent liabilities as at 30 June 2016.

 

F- 113  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

28. Operating lease arrangements

 

    2016     2015  
    Eur’000     Eur’000  
             
Minimum lease payments under operating leases recognised as an expense for the year
Land & buildings
    292       212  
Motor vehicles     386       321  
      678       533  

 

At the reporting date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

 

Land & buildings   2016     2015  
    Eur’000     Eur’000  
             
Within one year     251       168  
In the second to fifth years inclusive     382       199  
      633       367  

 

Motor vehicles   2016     2015  
    Eur’000     Eur’000  
             
Within one year     362       321  
In the second to fifth years inclusive     801       642  
      1,163       963  

 

Operating lease payments represent rentals payable by the Group for certain of its office properties and motor vehicles. Leases are negotiated for an average term of 3 years and rentals are fixed for an average of 3 years. The Group does not have an option to acquire the leased properties at expiry of the lease term.

 

29. Retirement benefit schemes

 

The Group makes payments to defined contribution retirement benefit schemes for all qualifying employees. As for all defined contribution pension plans, minimum guaranteed rates of return apply on the employee and employer contributions as from 1 January 2004. Since the guarantee is primarily provided for by an insurance company, the pension plan is accounted for as a defined contribution plan.

 

The total cost charged to income of €106,000 (2015: € 95,000) represents contributions payable to these schemes by the Group at rates specified in the rules of the plans. As at 30 June 2016, all contributions due in respect of the current reporting period had been paid over to the scheme.

 

F- 114  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

30. Events after the balance sheet date

 

In July 2016 Artilium plc entered into a strategic alliance with Green IT Globe NV ("Green IT Globe") to launch the OneApp platform in order to enter the mobile data cloud market. Furthermore, the Company has issued a loan note to Green IT Globe for a cash amount of €1,000,000. The loan note is repayable in full in July 2017 plus interest at a rate of ten per cent per annum. The loan was financed by external parties up to an equal amount.

 

31. Related party transactions

 

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Company and its subsidiaries and other related parties are disclosed in the Company’s separate financial statements.

 

33. Transactions with Directors and key management

 

Other than those transactions disclosed on page 12, there were no other transactions with Directors and key management.

 

33. Financial instruments

 

Categories of financial instruments

 

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised in respect of each class of financial asset, financial liability and equity instrument are disclosed in the accounting policies. The book value of the Group’s financial instruments at the year -end is shown below:

 

          2016     2015  
    Notes     Eur’000     Eur’000  
                   
Financial assets:                        
Loans and receivables:                        
Trade and other receivables     19       3,190       4,834  
Cash and cash equivalents             422       735  
              3,612       5,569  
Financial liabilities:                        
Amortised cost:                        
Trade and other payables     21       3,286       2,375  
Bank loans     22       294       315  
Other loans             1,700       -  
              5,280       2,690  

 

F- 115  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

33. Financial instruments (continued)

 

Financial risk management

 

The Group has exposure to the risks from its use of financial instruments. These risks include credit risk, liquidity and cash flow risk, interest rate risk and foreign currency risk.

 

Credit risk

 

The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the Statement of Financial Position are net of allowances for doubtful receivables. 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.

 

The Group monitors trade receivables on a regular basis to ensure that appropriate action is taken with slow paying customers. Many of the customers are large multinational companies which limits the extent of the credit risk.

 

The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

 

Of the trade receivables balance at the end of the year, €1.8 million is due from Telenet Group Belgium, the Group’s largest customer. There are no other customers who represent more than 10 per cent of the total balance of trade receivables.

 

The Group’s maximum exposure to credit risk, gross of any collateral held, relating to its financial assets is equivalent to their carrying value. All financial assets have a fair value which is equal to their carrying value.

 

There are no significant credit risks arising from financial assets that are neither past due nor impaired.

 

Liquidity and cash flow risk

 

The Group is principally funded by reserves, bank loans and other loans. The Group maintains its cash funds in bank accounts. The Group’s policy is to minimise the risk by placing funds in risk free cash deposits.

 

The Group closely monitors its access to bank and other credit facilities and available cash in comparison to its outstanding commitments on a regular basis to ensure that it has sufficient funds to meet the obligations of the Group as they fall due. The Board receives regular cash flow forecasts so that management can ensure that its obligations can be satisfied or financing is put in place when required.

 

As at 30 June 2016, the Group's non-derivative financial liabilities have contractual maturities (including interest payments where applicable) as summarised below:

 

30 June 2016

 

    Current     Non-current  
    within 6 months     6 to 12 months     1 to 5 years  
    Eur'000     Eur'000     Eur'000  
                   
Bank loans     169       85       40  
Other loans     80       81       1,539  
Trade and other payables     3,923       926       946  
      4,172       1,092       2,525  

 

F- 116  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

33. Financial instruments (continued)

 

This compares to the maturity of the Group’s non-derivative financial liabilities in the previous reporting period as follows:

 

30 June 2015                  
    Current     Non-current  
    within 6 months     6 to 12 months     1 to 5 years  
    Eur'000     Eur'000     Eur'000  
                   
Bank loans     170       85       60  
Trade and other payables     3,215       840       2,522  
      3,385       925       2,582  

 

Interest rate risk

 

At 30 June 2016, the Group had bank loans and other borrowings amounting to €1,994,000 (2015: €315,000). The Group’s borrowings are at fixed rates of interest and there is, therefore, no exposure to movements in interest rates.

 

Any surplus funds are deposited in interest bearing accounts at variable rates and are therefore exposed to movements in interest rates. Funds are deposited on a short term basis and interest rates are monitored by the Directors. The movement in interest rates would have an immaterial impact on the finances of the Group.

 

Foreign currency risk

 

The Group’s centre of operations is in Belgium and it is therefore exposed to currency movements of the Euro against the Pound Sterling. This is naturally hedged to some extent by the expenses incurred in Belgium. The Group does not enter into any forward exchange contracts to cover the remaining foreign exchange risk.

 

Sensitivity analysis

 

The Group faces currency exposures on the translation of the trading results and the net assets of the British subsidiaries. The year end and average exchange rates used when translating the results for the year from Pound Sterling to Euro are 1.2061 (2015: 1.4067) and 1.3351 (2015: 1.3120) respectively.

 

The following table details the sensitivity analysis of the movements of the Pound Sterling to the Euro for the Group’s results.

 

    2016     2015  
    Eur’000     Eur’000  
             
Impact on equity                
10% increase in GBP fx rate against Euro     3,177       3,281  
10% decrease in GBP fx rate against Euro     (3,177 )     (3,281 )
Impact on profit or  loss                
10% increase in  GBP fx rate against Euro     (284 )     124  
10% decrease in GBP fx rate against Euro     284       (124 )

 

F- 117  

 

 

Artilium plc

 

Notes to the consolidated financial statements

Year ended 30 June 2016

 

33. Financial instruments (continued)

 

Capital management

 

The Group’s main objective when managing capital is to protect returns to shareholders by ensuring the Group will continue to trade in the foreseeable future. The Group also aims to maximise its capital structure of debt and equity so as to minimise its cost of capital.

 

The Group manages its capital with regard to the risks inherent in the business and the sector within which it operates by monitoring its gearing ratio on a regular basis.

 

The Group considers its capital to include share capital, share premium, translation reserve, retained earnings, interest in own shares, capital redemption reserve, share-based payment reserve and net debt as noted below.

 

Net debt includes short and long-term borrowings (including overdrafts and lease obligations) net of cash and cash equivalents.

 

34. Safe harbour

 

This financial report contains a number of non-GAAP figures, such as adjusted EBITDA and Free cash flow. These non-GAAP figures should not be viewed as a substitute for Artilium’s GAAP figures.

 

Artilium defines adjusted EBITDA as operating result before interests, exchange result, taxes, depreciation and impairments of property, plant and equipment and client’s receivables and amortization and impairments of intangible assets.

 

Artilium defines free cash flow as follows: cash flows from operating activities minus capital expenditure. The notion is used as standard for the health of the company, by showing the ability of the company to generate cash to maintain the operations.

 

F- 118  

 

 

Artilium plc

 

Registered number: 03904535

Company statement of financial position

As at 30 June 2016

 

          2016     2015  
    Notes     Eur’000     Eur’000  
                   
Non-current assets                        
Investments     38       27,106       26,146  
              27,106       26,146  
Current assets                        
Trade and other receivables     39       3,263       3,123  
Cash and cash equivalents             -       44  
                         
              3,263       3,167  
Total assets             30,369       29,313  
Current liabilities                        
Trade and other payables     40       (4,712 )     (2,136 )
Borrowings             (400 )     -  
Net current (liabilities)/assets             (1,849 )     1,031  
Net assets             25,257       27,177  
Equity                        
Share capital             19,601       15,415  
Share premium             47,379       46,748  
Merger relief reserve             1,488       1,488  
Capital redemption reserve             6,503       6,503  
Translation reserve             (4.279 )     (199 )
Retained deficit             (45,435 )     (42,778 )
Total equity             25,257       27,177  

 

The financial statements were approved by the Board of Directors and authorised for issue on 3 November 2016. They were signed on its behalf by:

 

Jan-Paul Menke
Director
Company No, 039045

 

F- 119  

 

 

Artilium plc

 

Company statement of changes in equity

Year ended 30 June 2016 

 

    Share
capital
    Share
premium
account
    Merger
relief
reserve
    Capital
redemption
reserve
    Share-based
payment
reserve
    Translation
reserve
    Retained
deficit
    Total  
    Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000     Eur’000  
                                                 
Balance at 1 July 2014     14,181       46,586       1,488       6,503       3,246       (3,362 )     (44,292 )     24,350  
Nominal value of shares issued     1,234       -       -       -       -       -       -       1,234  
Premium arising on issue of shares     -       162       -       -       -       -       -       162  
Transaction with owners, recognised directly in equity     1,234       162       -       -       -       -       -       1,396  
Gain for the period     -       -       -       -       -       -       1,218       1,218  
Impairment losses on investments     -       -       -       -       -       -       (2,950 )     (2,950 )
Other comprehensive income - currency translation differences     -       -       -       -       -       3,163       -       3,163  
Total comprehensive income for the period     -       -       -       -       -       3,163       (1,732 )     1,431  
Reclassification from one caption to another     -       -       -       -       (3,246 )     -       3,246       -  
Balance at 30 June 2015     15,415       46,748       1,488       6,503       -       (199 )     (42,778 )     27,177  
Nominal value of shares issued     4,186       -       -       -       -       -       -       4,186  
Premium arising on issue of shares     -       631       -       -       -       -       -       631  
Transaction with owners, recognised directly in equity     4,186       631       -       -       -       -       -       4,817  
Loss for the period     -       -       -       -       -       -       (2,657 )     (2,657 )
Other comprehensive income - currency translation differences     -       -       -       -       -       (4,080 )     -       (4,080 )
Total comprehensive income for the period     -       -       -       -       -       (4,080 )     (2,657 )     (6,737 )
Balance at 30 June 2016     19,601       47,379       1,488       6,503       -       (4,279 )     (45,435 )     25,257  

 

F- 120  

 

 

Artilium plc

 

Company Cash Flow Statement

Year ended 30 June 2016

 

        2016     2015  
    Notes     Eur’000     Eur’000  
                   
Net cash used in operating activities     42       (186 )     (904 )
I nvesting activities                        
Acquisition of subsidiary undertakings             (258 )     -  
Net cash used in investing activities             (258 )     -  
Financing activities                        
Proceeds on issue of shares     23       -       921  
New borrowings received             400       -  
Net cash from financing activities             400       921  
Net (decrease)/increase in cash and cash equivalents             (44 )     17  
Cash and cash equivalent at  beginning of the year             44       27  
Cash and cash equivalents at end of year             -       44  

 

F- 121  

 

 

Artilium plc

 

Notes to the Company financial statements

Year ended 30 June 2016

 

34. Significant accounting policies

 

The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the separate financial statements have been prepared in accordance with International Financial Reporting Standards adopted by the European Union.

 

The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are the same as those set out in Note 2 to the consolidated financial statements except as noted below.

 

No income statement or statement of comprehensive income for the Company alone is presented as permitted by Section 408 of the Companies Act 2006.

 

Functional currency of parent Company

 

Management consider that the Company operates its own distinct management function, rather than being an extension of the operation of Artilium NV. The Company incurs expenses principally in Sterling, and funding raised by the Company to fund the Group's operations is primarily generated in Sterling. Management therefore consider the functional currency of the Company to be Sterling.

 

Receivables and payables from Group companies

 

Balances receivable and payable from Group companies are classified as loans and receivables, and carried at amortised cost.

 

Investments in subsidiaries

 

Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.

 

Impairment losses recognised in comparative year

 

In the year ending 30 June 2015, the Group assessed the recoverable amount of the investment and receivable balance with Artilium NV, Artilium UK Limited and United Telecom NV and determined that the carrying value of the investments was impaired. The recognized impairment loss on the Artilium NV and United Telecom investment amounted to €2,950,000. The impairment on the Artilium UK Limited receivable has been increased by the amount at which the receivable itself increased over the year ended 30 June 2015. As a result the full receivable on Artilium UK Limited per 30 June 2015 has been impaired.

 

The recoverable amount of the investments in Artilium NV, Artilium UK Limited and United Telecom NV is determined based on a value in use calculation of these entities which uses cash flow projections based on financial budgets approved by the Directors covering a five-year period and a terminal value. The terminal value is based on the year five net cash flows forecast to perpetuity using a discount rate of 18.57% per annum, which is appropriate for the Company. The growth rate factor in the discounted cash flow model is estimated to be 2.5% (2014: 2.5%) in line with long term forecasts for economic growth. The sales growth rate used during the five year forecast is estimated to be around 5% based on management’s best estimate of the market opportunities.

 

F- 122  

 

 

Artilium plc

 

Notes to the Company financial statements

Year ended 30 June 2016

 

34. Significant accounting policies (continued)

 

The recoverable amount of the investments in United Telecom NV is determined based on a value in use calculation of these entities which uses cash flow projections based on financial budgets approved by the Directors covering a five-year period and a terminal value. The terminal value is based on the year five net cash flows forecast to perpetuity using a pre-tax discount rate of 22.67%, which is appropriate for the Company. The growth rate factor in the discounted cash flow model is estimated to be 2.5% in line with long term forecasts for economic growth. The sales growth rate used during the five year forecast is estimated to be around 3%-5% based on management’s best estimate of the market opportunities.

 

The Directors have made assumptions about revenue in the near and longer term as part of this value in use calculation, which, due to the nature of the Company’s sales and the time-scales involved are not supported by sales contracts. There is thus uncertainty as to the amount of revenue that will be generated, however the Directors are confident that this calculation supports their assessment that the investment balance in Artilium NV is recoverable and not impaired.

 

Due to uncertainty over the timing of cash flows related to Artilium UK Limited, the Directors consider it to be prudent to provide in full for the investment and receivable balances related to this entity. The Directors believe these amounts will be ultimately recoverable, and the Company will continue to support this business.

 

The impairment loss has been included in the administrative expenses line item in the income statement.

 

Going concern

 

The Directors have adopted the going concern basis in preparing the financial statements for the Company. The company and its subsidiaries have sufficient financial resources to continue for a period not less than one year from the date of approval of these accounts. The directors monitoring the cash position of the Group on a regular basis and consider the various sources of finance available to the Group. Further the Directors intend to use their control of subsidiary undertakings to ensure that intergroup payables are not recalled in a why which would result in the company not being able to meet their liabilities as they fall due.

 

35. Staff costs

 

The average monthly number of employees (including Executive Directors) was:

 

    2016     2015  
    Eur’000     Eur’000  
             
Administration     1       1  
                 
Their aggregate remuneration comprised:                
Wages and salaries     79       79  
      79       79  

 

F- 123  

 

 

Artilium plc

 

Notes to the Company financial statements

Year ended 30 June 2016

 

36. Tax

 

    2016     2015  
Current tax     -       -  

 

Current tax is calculated at 20% (2015: 21%) of the estimated assessable gain for the year.

 

The charge/(credit) for the year can be reconciled to the loss per the income statement as follows:

 

    2016     2015  
    Eur’000     Eur’000  
             
Loss before tax from continuing operations     (2,657 )     (1,732 )
                 
Tax expense at the theoretical domestic rates applicable to profits of taxable entities in the country concerned of 20% (2015: 21%)     (531 )     (364 )
                 
Effects of:                
Tax losses carried forward unutilized in the year     531       364  
Tax credit for the year     -       -  

 

At the balance sheet date, the Company has unused tax losses of €11,751,000 (2015: €9,299,000). No deferred tax asset has been recognised in respect of these items due to insufficient evidence of future available profits in the immediate future in the UK.

 

F- 124  

 

 

Artilium plc

 

Notes to the Company financial statements

Year ended 30 June 2016

 

37. Subsidiaries

 

Details of the Company’s subsidiaries at 30 June 2016 are as follows:

 

    Place of
incorporation
ownership (or
registration) and
operation
  Proportion of
ownership
interest and
voting power
held
    Method used to
account for
investment
  Principal
activity
                   
Artilium N.V   Belgium     100 %   Acquisition accounting   Telecom
United Telecom N.V   Belgium     100 %   Acquisition accounting   Telecom
Speak Up BVBA   Belgium     100 %   Acquisition accounting   Telecom
Talking Sense BVBA   Belgium     100 %   Acquisition accounting   Telecom
Artilium UK Limited   UK     100 %   Acquisition accounting   Telecom
Artilium Trustee Company Limited   UK     100 %   Acquisition accounting   Dormant
Comsys Telecom & Media BV   The Netherlands     100 %   Acquisition Accounting   Telecom
Comsys Connect BV   The Netherlands     100 %   Acquisition accounting   Telecom
Portalis BV   The Netherlands     100 %   Acquisition accounting   Telecom
Livecom International BV   The Netherlands     100 %   Acquisition accounting   Telecom
Comsys Connect GMBH   Germany     100 %   Acquisition accounting   Telecom
Comsys Connect AG   Switzerland     100 %   Acquisition accounting   Telecom
United Telecom BV   The Netherlands     100 %   Acquisition accounting   Telecom

 

F- 125  

 

 

Artilium plc

 

Notes to the Company financial statements

Year ended 30 June 2016

 

38. Investments

 

    Investment in subsidiary  
    Eur’000  
       
At 1 July 2014     27,748  
Exchange differences     3,514  
At 30 June 2015     31,262  
Additions     5,075  
Exchange differences     (3,796 )
At 30 June 2016     32,541  
         
Provision        
At 1 July 2014     1,922  
Impairment losses on investments     2,950  
Exchange differences     244  
At 30 June 2015     5,116  
Exchange differences     319  
At 30 June 2016     5,435  
Carrying amount        
At 30 June 2015     26,146  
At 30 June 2016     27,106  

 

39. Trade and other receivables

 

    2016     2015  
    Eur’000     Eur’000  
             
Prepayments and deferred expenses     6       6  
Receivable from Group companies     3,257       3,117  
      3,263       3,123  

 

The Company holds no collateral against these receivables at the reporting date. The carrying amount of trade and other receivables approximates to their fair value.

 

F- 126  

 

 

Artilium plc

 

Notes to the Company financial statements

Year ended 30 June 2016

 

40. Trade and other payables

 

    2016     2015  
    Eur’000     Eur’000  
             
Trade payables     48       56  
Accruals     197       146  
Payable to Group Companies     4,467       1,934  
      4,712       2,136  

 

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the carrying amount of trade payables approximates to their fair value.

 

41. Notes to the Company cash flow statement

 

    2016     2015  
    Eur’000     Eur’000  
             
Loss for the year     (2,657 )     (1,732 )
                 
Adjustments for:                
Provision for investments and receivable balances     -       3,016  
Other     35       (107 )
      (2,622 )     1,177  
Operating cash flows before movements in working capital                
Increase in receivables     (140 )     565  
Decrease in payables     2,357       (2,646 )
Cash used in operating activities     (186 )     (904 )

 

F- 127  

 

 

Artilium plc

 

Notes to the Company financial statements

Year ended 30 June 2016

 

42. Related party transactions

 

Trading transactions

 

During the year, the Company entered into the following transactions with related parties:

 

    Amounts owed by
related  parties
 
    2016     2015  
    Eur’000     Eur’000  
             
Artilium N.V     232       270  
Artilium plc Employee Benefit Trust     1,749       2,055  
United Telecom     1,276       792  

 

The balance due from Artilium UK Limited of €3,080,000 (2015: €3,595,000) at 30 June 2016 has been fully provided for.

 

    Amounts payable to
related parties
 
    2016     2015  
    Eur’000     Eur’000  
             
Artilium N.V     4,467       1,934  

 

Artilium NV is a subsidiary of the Company.

 

The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received.

 

Artilium plc Employee Benefit Trust purchased 3 million series 2 warrants at a price of 10 pence per warrant in December 2006. The warrants were then exercised at a price of 75 pence and converted into ordinary 5 pence shares by the Trust.

 

Remuneration of the Directors of the Company is disclosed on page 14.

 

F- 128  

 

 

Artilium plc

 

Notes to the Company financial statements

Year ended 30 June 2016

 

43. Financial instruments

 

Financial risk management

 

The Group’s risk management policies are set out in Note 34 to the consolidated financial statements. These are equally applicable to the Company.

 

The book value of the Company’s financial instruments at the year-end is shown below:

 

      2016     2015  
    Notes   Eur’000     Eur’000  
                 
Financial assets:                    
Loans and receivables:                    
Trade and other receivables   41     3,263       3,123  
Cash and cash equivalents         -       44  
          3,263       3,167  
Financial liabilities:                    
Amortised cost:                    
Trade and other payables   42     4,515       1,990  
Other borrowings         400       -  
                     
          4,515       1,990  

 

44. Events since the balance sheet date

 

In July 2016 Artilium plc entered into a strategic alliance with Green IT Globe NV ("Green IT Globe") to launch the OneApp platform in order to capture the mobile data cloud market. Furthermore, the Company has issued a loan note to Green IT Globe for a cash amount of €1,000,000. The loan note is repayable in full in July 2017 at a rate of ten per cent per annum and was financed by external parties.

 

F- 129  

  

 

Exhibit 99.3

 

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF ARTILIUM

(in Euros, except per share information)

 

The following tables set forth certain selected consolidated financial data of Artilium as of and for the fiscal years ended June 30, 2017 and 2016 and certain selected consolidated financial data of Artilium as of and for the nine-month periods ended March 31, 2018 and 2017. The information for the fiscal years ended June 30, 2017 and 2016 was derived from Artilium’s consolidated financial statements which were prepared in accordance with IFRS, as adopted by the European Union and IFRS as issued by the International Accounting Standards Board (“IASB”). The information as of the nine-month periods ended March 31, 2018 and 2017 was derived from Artilium’s consolidated financial statements. These financial statements have been prepared on a basis consistent with the consolidated financial statements of Artilium. The operating results for the nine months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the full fiscal year. The information set forth below is a summary that should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Artilium” and the historical consolidated financial statements and related notes included in this proxy statement. Historical results are not necessarily indicative of the results to be expected in the future.

 

    For the Nine Months
Ended March 31
   

For the Fiscal Year

Ended June 30

 
    2018     2017     2017     2016  
Statement of Operations Data                                  

 

    31 March     31 March     30 June     30 June  
    2018     2017     2017     2016  
    €’000     €’000     €’000     €’000  
Continuing Operations                                
Revenue     10,675       8,103       10,452       9,622  
Cost of sales     (3,908 )     (2,025 )     (2,716 )     (2,599 )
Gross profit     6,767       6,078       7,737       7,023  
Depreciation and amortization     (1,251 )     (1,324 )     (1,768 )     (1,411 )
Administrative expenses before redundancy costs     (6,333 )     (5,859 )     (7,413 )     (6,835 )
Redundancy costs     (131 )     (287 )     (227 )     (294 )
Operating loss     (948 )     (1,392 )     (1,671 )     (1,517 )
Finance costs     (87 )     (352 )     (324 )     (200 )
Loss before tax     (1,035 )     (1,744 )     (1,995 )     (1,717 )
Tax credit     169       170       235       191  
Loss for the period from continuing operations attributable to owners of the Company     (866 )     (1,574 )     (1,760 )     (1,526 )

 

1  

 

 

    As of March 31 €000     As of June 30 €000  
    2018     2017     2017     2016  
Balance Sheet Data                                
Cash and cash equivalents     2,220       3,531       2,863       422  
Total assets     36,066       28,891       27,853       26,359  
Total long-term liabilities     3,980       5,842       1,255       2,064  
Total equity     26,465       17,246       17,404       18,085  

 

2  

 

Exhibit 99.4

 

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

(in Dollars)

 

On June 7, 2018, pursuant to Rule 2.7 of the Takeover Code, Pareteum and Artilium released the Offer Announcement disclosing the terms on which Pareteum intends to make a recommended offer to acquire the issued and to be issued ordinary shares of Artilium in a cash and stock transaction. Under the terms of the Offer, Artilium shareholders will be entitled to receive, for each Artilium ordinary share held by such shareholders, 1.9 pence in cash and 0.1016 new shares of Pareteum common stock. The Acquisition is to be effected by means of a court-sanctioned scheme of arrangement between Artilium and Artilium shareholders under the UK Companies Act 2006, as amended.

 

The following selected unaudited pro forma condensed combined financial data gives effect to the Acquisition, 4 which includes adjustments for the following:

 

· the conversion of Artilium’s historical financial statements from Euros to U.S. Dollars;

 

· the conversion of Artilium’s historical financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) to accounting principles generally accepted in the United States of America (“U.S. GAAP”);

 

· certain reclassifications to conform Artilium’s historical financial statement presentation to Pareteum’s, presentation; and

  

·

transaction costs in connection with the Acquisition.

 

The following selected unaudited pro forma condensed combined financial data are based on and should be read in conjunction with (i) the historical consolidated financial statements of Pareteum and the related notes included in Pareteum’s Annual Report on Form 10-K for the year ended December 31, 2017 which was filed with the SEC on March 30, 2018 and the historical unaudited consolidated financial statements of Pareteum and related notes included in Pareteum’s Quarterly report on Form 10-Q for the period ended March 31, 2018 which was filed with the SEC on May 11, 2018, each of which is incorporated by reference in this document, and (ii) the audited consolidated financial statements of Artilium for the years ended June 30, 2017 and 2016 and the related notes and the unaudited condensed consolidated financial statements of Artilium for each of the nine months ended March 31, 2018 and March 31, 2017, and related notes contained therein.

 

The selected unaudited pro forma condensed combined financial data combines the historical consolidated statements of income of Pareteum and Artilium, giving effect to the Acquisition as if it had been completed on January 1, 2017. The selected unaudited pro forma condensed combined balance sheet data combines the historical condensed combined statements of financial position of Pareteum and Artilium, giving effect to the Acquisition as if it had been completed on March 31, 2018.

 

The historical consolidated financial information has been adjusted in the pro forma financial data to give effect to pro forma events that are (i) directly attributable to the Acquisition, (ii) factually supportable and (iii) with respect to the unaudited pro forma condensed combined statements of income, expected to have a continuing effect on the combined results of Pareteum and Artilium.

 

 

 

1  

 

 

The selected unaudited pro forma condensed combined financial data is being provided for illustrative purposes only and do not purport to represent what the combined company’s actual results of operations or financial position would have been had the Acquisition been completed on the dates indicated, nor are they necessarily indicative of the combined company’s future results of operations or financial position for any future period.

 

The pro forma adjustments are based upon available information and certain assumptions as described in the accompanying notes to the unaudited pro forma condensed combined financial information which management believes are reasonable under the circumstances. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information.

   

Selected Unaudited Pro Forma Condensed Combined Statement of Operations Data

(in Dollars)

 

    Unaudited Combined
Condensed Pro Forma
 
    For the three
months ended
March 31,
2018
    For the
year ended
December 31,
2017
 
Statement of Operations Data            
Revenue   $ 10,496,004       25,793,993  
Network fees and other costs     4,521,400       6,627,528  
Selling, general and administrative     15,404,437       36,183,682  
                 
                 
Loss from operations     (9,429,833 )     (17,017,217 )
Interest expense – net     (74,666 )     (5,134,505 )
Non-operating income (expense)     (250,330 )     1,322,312  
                 
Loss before taxes     (9,754,830 )     (20,829,411 )
Provision (benefit) for income taxes     (61,653 )     (193,803 )
                 
Net Loss     (9,693,177 )     (20,635,608 )
Other Gains/Losses     (934,959 )     1,921,499  
                 
Comprehensive loss attributable to Pareteum Corporation     (10,628,136 )     (18,714,109 )

 

Selected Unaudited Pro Forma Condensed Combined Balance Sheet Data

(in Dollars)

 

    Unaudited
Combined
Condensed Pro
Forma
    Unaudited
Combined
Condensed
Pro Forma
 
    As of 
March 31,
2018
    As of
December 31,
2017
 
             
Cash and cash equivalents     3,257,874       1,769,540  
Total assets     128,215,464       124,064,848  
Total long-term liabilities     7,274,664       7,252,753  
Total equity     106,171,028       104,605,910  

 

2