COMS PLC Annual Report 2015 Contents Financial indicators Chairman’s statement Strategic report Directors and officers Company information and advisers Directors’ report Auditor’s report Consolidated income statement Consolidated statement of financial position Consolidated statement of cash flows Consolidated statement of changes in equity Company statement of financial position Company statement of cash flows Company statement of changes in equity Notes to the financial statements 3 4 6 16 17 18 23 25 26 27 28 29 30 31 32 ©2015 Coms PLC | www.comsplc.com 2 Financial indicators Revenue Growth in revenue Adjusted (LBITDA)/EBITDA* Operating (loss)/profit Total (loss)/profit for the year Net (overdraft)/cash balances Consolidated net assets (Loss)/earnings per share - basic (Loss)/earnings per share - diluted 2015 £000 45,954 228% (3,448) (14,653) (15,070) (386) 8,978 (1.57p) (1.57p) 2014 £000 14,003 763% 1,045 826 1,014 999 15,991 0.24p 0.22p * Before net finance costs, depreciation, amortisation, integration costs and transactional items, impairment charge and share based payments. ©2015 Coms PLC | www.comsplc.com 3 Chairman’s statement Dear Shareholder This past year has proved to be an exceedingly difficult year for the Group. Having seen rapid change through the previous year and into 2014/15, through a number of acquisitions, the expectations for the business were high, however, over the course of the year, and despite several attempts to integrate the telecoms assets which the Company had acquired, the management team was not able to secure the necessary anticipated savings. With the continued poor trading, in addition to the losses which we identified in the trading update at the end of February, we have also had to recognise the impairment of most of the goodwill, intangible and fixed assets and certain other assets associated with the Telephony Services division as none of the investments made in telecoms assets have generated any value for the Company. The costs associated with the closure of the Brentwood office have also been recognised as integration and transactional items. The operating loss before integration and transactional items and impairment costs amounted to £4.7m and the impairment charges, integration and transactional items amounted to a further £10.0m of write downs. Further detail is provided in the Strategic report. Board matters Dave Breith resigned as CEO in March 2015 and since his departure the Non-Executive Directors have been responsible for running the Company, with myself leading the business and Diana Dyer Bartlett working full-time as interim Chief Financial Officer. We were also very fortunate to secure the services of Mark Braund and Guy van Zwanenberg as new Non-Executive Directors in March 2015 at a time when the Company was facing difficult financial decisions. As announced on 14 July 2015, Mark Braund has now agreed to be appointed Chief Executive of the Company and Spencer Dredge will be appointed Chief Financial Officer. Having had the benefit of working with Mark as a Non-Executive Director, and Spencer as Interim Finance Director supporting Diana, over the last few months, I am delighted that both Mark and Spencer are taking over the operational management of the business. I am confident that, with the Board’s support, the Company’s recent problems will soon be put behind us. Dave Breith has intimated to the Company that he is intending to make an employment claim against the Company. The Board is additionally looking at what sums are owed to the Group by Mr Breith and companies associated with Mr Breith. Further information is set out in the Strategic report. Sale of the Telephony Services division After a detailed review of the finances of the Telephony Services business, the Board concluded that the Telephony Services overhead structure was such that it would take significant further investment and considerable management focus for the business to achieve profitability. The Company did not have the capital required to achieve this and, in any case, the risk involved in such a process was such that the Board did not think it wise to continue with such investment. As a consequence, a decision was taken to sell the Telephony Services businesses and we announced the sale of their trade and assets to Timico Limited on 26 May 2015. Timico has assumed some of the liabilities of the Telephony Services businesses but we are left to deal with certain other liabilities, in particular, the two leasehold properties - at Brentwood and Stokenchurch. Further information concerning the disposal is contained in the Strategic report. ©2015 Coms PLC | www.comsplc.com 4 The Group’s future Following the disposals of the telecoms assets, the Group now comprises Redstone’s infrastructure business and Darkside Studios. It is the Board’s intention to focus our efforts on growing our core infrastructure business, Redstone, by developing our leading Smart Buildings product offering and expanding further our successful managed services business. The Board intends to capitalise on accelerating growth in the construction industry and, in particular, the fast growing Smart Buildings sector where Redstone has already delivered solutions to a number of landmark projects. The Board believes that there is significant potential in these markets as they go through both structural and technological change. Redstone is well positioned to service this opportunity and our focus is to develop this capability through a combination of product development, organic growth and acquisitions. One of the new management team’s jobs will be to rebrand the organisation to reflect the focus, going forward, on Redstone’s business. To assist the Company in developing this new strategy and to provide some additional working capital to the business, the Company announced a placing and open offer on 29 May 2015 which raised £2.0m net of expenses. The losses incurred by the Telephony Services division continued until the end of May and, as a consequence, we will report another operating loss for the first half of 2016. However, the Board anticipates that the Group’s trading will improve thereafter. With additional capital injected into the business, the disposal of all of the Group’s loss-making businesses and the appointment of a new management team, my Board colleagues and I are confident that the Group is now better placed to embark on a more successful period of stability and growth. I would like to take this opportunity to thank all the staff who have worked tirelessly to get us through what has been a very difficult period. I would like to thank my fellow Non-Executive Directors for their support and commitment and those shareholders who have continued to support us. Frank Beechinor Chairman ©2015 Coms PLC | www.comsplc.com 5 Strategic report Strategy, business model, risks and KPIs Strategy The focus of Coms Group is based around its Redstone business which aims to be a leader in infrastructure, Smart Buildings and IT Managed Services. This business is currently based in the UK but has also operated in some overseas locations to support existing clients. Key priorities to develop Redstone’s business include: n To maintain Redstone’s reputation as a market leader for service excellence and technical competence in its field. We will focus on continuing to provide high quality services to Redstone’s clients by employing expert staff who are well versed in the Company’s products and our clients’ needs and continuing to maintain our multiple ISO and vendor accreditations. n To grow the Smart Buildings offering through a combination of organic growth and acquisition. n To focus on developing technology led intellectual property. The Group has already delivered exciting solutions in a number of landmark projects and has successfully productised some of its offerings. n To grow the already successful Managed Services business through a combination of organic growth and, where possible, acquisition. n To grow the annuity revenue in the business. n To deliver improving profitability and cash generation. Darkside Studios was acquired by the Group with a view to promoting the services which the Telephony Services business was able to provide to its resellers and thereby assist in growing that business. It currently also undertakes some internal work for Redstone and the Board will review how best to create value through this business in the coming months, now that the Telephony Services businesses have been sold. Business model and risk profile The Group’s business model is to generate a return by providing an excellent service to its customers primarily in the UK but also in certain circumstances in overseas locations to support UK clients. Redstone’s business focuses on higher value added products and services and to this end, it maintains the highest manufacturer accreditations. Redstone’s main activities are: Managed Services: Around 45% of Redstone’s revenue is derived from Managed Services. Managed Services encompasses the provision of outsourcing services spanning network infrastructure management, Smart Buildings support services, desktop and data centre support services and move, add and change services. Staff are normally based permanently on a client site. Contracts are generally on a long-term basis which allows services to be tailor- made and continuity of service in what are key support functions for our clients. Services are generally invoiced monthly in arrears. Implementation: This comprises Smart Buildings and Cabling which contributes 55% of Redstone’s revenues. Smart Buildings, at 6%, is small but has the potential for significant growth. The services range from adhoc intelligent solutions such as lighting projects to control energy costs to a full holistic integrated platform that offers better economic, social and environmental performance for buildings and their occupants. Systems incorporated may include LAN, One Space (Redstone branded desk utilisation and power management system), Energy Management, BIM, CCTV, ACS, Pull Printing, Cashless vending and intelligent lighting. Cabling involves design and installation of structured cabling systems and intelligent infrastructure management systems. Cabling has historically been the mainstay of Redstone’s business and in 2015 accounted for some 49% of its revenue. As with Smart Buildings, revenue is project based and revenue recognition and invoicing tends to be on a staged basis. ©2015 Coms PLC | www.comsplc.com 6 The Group’s business gives rise to various operational risks which are described in the Risk management section below. KPI’s There are a number of KPI’s which the Board uses to measure the Group’s progress against the business plan: n Growth in revenue and gross margin performance n Proportion of revenue which is recurring income n EBITDA n Cashflow generated by operations and by the Group as well as the net cash/overdraft position. The KPI’s above are discussed in the Strategic report. Risk management The senior management is responsible for managing risk and assessing how this might prevent the Company from delivering its strategy. During 2014/15, the Board requested the production of a risk matrix by senior management to ensure that all material risks had been identified and were being managed. This exercise was not completed during the last financial year but has since been completed by the Non-Executive Directors with the assistance of Redstone management. The key risks faced by the Group will continue to be reviewed at Board level in future to ensure risk management is monitored and implemented effectively. The policy is to identify the key risks which could affect the Group and to assess the appropriate mitigation, including use of insurance policies. The Group could potentially be affected by a number of uncertainties and risks that are not wholly within its control. Some of the key risks and uncertainties are as follows: n Potential deterioration of the UK economy n Regulatory changes n Maintaining and ensuring that the Group continues to attract and retain the right calibre of staff n Controlling projects within their budgets including delivering the services in accordance with the project specifications and to the required standards n Maintaining ISO and vendor accreditations n Maintaining robust health and safety procedures to safeguard staff and clients n Maintaining proper accounting and fiscal records to ensure the business is properly controlled n Managing the Group’s working capital requirements on big construction projects. ©2015 Coms PLC | www.comsplc.com 7 Operational review The Coms Group now comprises Redstone and Darkside Studios, each of which developed their respective businesses during the course of the year ended 31 January 2015, referred to throughout this report as financial year 2015 or 2015. An overview of the Telephony Services business and the reasons why it was unable to stem its losses and was sold is also set out below. Redstone Redstone had a busy year in its first year of Group ownership and saw considerable investment by the Group both in terms of specialist cable testing equipment and fitting out the new office to which it relocated in June 2014 (which it shares with Darkside Studios). Despite the uncertainties surrounding the Group as a result of the trading difficulties in the Telephony Services business, Redstone nevertheless made creditable progress in securing new contracts. Below are just a few of the contracts won in 2015 which give a flavour of both scale and breadth of Redstone’s product offering: n February 2014: £1.5 million contract for the design, and delivery of an integrated building for a leading insurer; n March 2014: £0.8m contract with a leading university for the design, and delivery of a new mission critical data centre; n April 2014: £1.1m contract to deliver structured cabling for a major sporting venue; n May 2014: £0.5m contract to deliver structured cabling for a leading online retailer across Europe; n June 2014: £6.0m 3 year contract with a major international financial services client to provide managed services across critical IT infrastructure throughout the UK; n August 2014: £0.5m contract to deliver ICT services to a major commercial property company; n November 2014: £1.8m contract with a leading international financial services client for the design, and delivery of a new mission critical data centre; n January 2015: £0.8m one year contract with a major petroleum client to provide managed services across IT infrastructure throughout the UK. The Smart Buildings offering in 2015 was slow to develop but towards the end of the year, a large contract was secured which will be implemented during 2016. This landmark project will no doubt help Redstone market further Smart Buildings projects. Darkside Studios With its motto of “Come over to the Darkside”, Darkside is a world-class animation studio, producing beautifully crafted, computer generated, moving imagery. Character animation is the studio’s main specialism and the business has talented animators creating a wide range of CGI, 3D and 2D animation projects for cinema, television and corporate clients, working for, amongst others, the BBC, Sky and Disney. Having been acquired in December 2013 as part of a strategy to work with Coms’ telecoms reseller customers to promote the Telephony Services business, Darkside Studios has re-established its market and towards the end of the year secured some substantial external contracts with TV and corporate clients and built a pipeline of new business. ©2015 Coms PLC | www.comsplc.com 8 Telephony Services The division’s story for 2015 is one of unfulfilled promise. Fundamentally there was investment in infrastructure predicated on a much larger business, which the division was unable to support. Much of this investment was undertaken in the 2014 financial year but the problems were further exacerbated during 2015. The Group invested a significant amount of capital in the division, nearly all of which will be written off in connection with the sale of the division’s business and assets to Timico. The impairment charges, integration costs and transactional items in 2015 totalled some £10.0m. The Telephony Services division comprised three main elements: n An Indirect channel which provided services to wholesale telecoms distributors and resellers largely supplying small businesses. It also included Premium O which was a business supplying non-geographic and premium numbers to business users; n The Direct channel, created with the acquisition of the Actimax companies in February 2014, serving larger corporates directly; and n A Mobile offering which had a variety of product delivery channels including retail and “MVNO” whereby Coms Mobile was a mobile operator rather than a supplier. The Indirect channel was part of the original Coms business and although it grew its revenues by 444% per cent in 2015, it nevertheless lacked the scale to cover its overheads. This was exacerbated by the investments in financial year 2014 on a new broadband network. The Direct channel was formed in February 2014 following the acquisition of the Actimax companies from administrators for a cash consideration of £2.4m. The £1.0m contingent consideration payable in respect of the following twelve months’ trading, was not paid as the business did not meet its targets. Having emerged from administration, Actimax had suffered from a period of instability and it suffered considerable attrition in its customer base soon after acquisition. However, this stabilised in the second half until the announcement of the restructuring and closure of the Brentwood office in early 2015. The business had an impressive client base of medium sized companies for whom it provided and maintained VOIP phone systems. Having acquired Actimax, the Board expected there to be a consolidation of the Telephony Services division’s business to reduce costs. However, management was of the view that this was not appropriate, given the different nature of the Direct and Indirect channels. As a consequence, management relocated the Actimax business to a new office in Brentwood in April 2014, closing the business’s existing offices. A ten year lease was taken out on the Brentwood office along with investment of capital expenditure of £0.3m. With the restructuring and closure announced in January 2015, this investment was impaired. At the same time as the new Brentwood offices were being taken on, management also signed a 5 year lease on an office in Stokenchurch. This building was, with hindsight, too large for the business at this stage of its development and although it had always been expected that acquisitions of further businesses would be made, there was no certainty that they would have needed new offices. The offices were in good order but a further £0.2m was invested in furniture and setting up a specialist facility to facilitate the testing of equipment to be installed by Redstone at customer sites. Along with the Brentwood property this lease also needs to be disposed of, once Timico have relocated the Telephony Services business to their own facilities. ©2015 Coms PLC | www.comsplc.com 9 In addition to setting up offices in preparation for expansion, the Group also established telecoms infrastructure to handle large volumes of business. In anticipation of securing what was hoped would be a significant trading relationship with MITIE, a new broadband network was built. A relationship was entered into with TFM Networks in June 2013 to provide a network capable of handling 20,000 users with the capability of expanding this to 250,000 users. As part of this relationship, an asset purchase agreement was signed and £0.5m shares issued to fund the purchase of equipment as the basis for the network. In addition, Dave Breith transferred a further £0.2m assets to the Group in consideration for which 6.7m shares were issued to him. These additional network assets were to provide a third line of resilience to cope with expected very large volumes of business. There is currently a dispute with TFM Networks as to whether title to the assets passed to the Telephony Services division at the time that they were paid for or whether a multi-year support contract (which was never signed) with TFM Networks had to be completed before the Group was entitled to the assets for which it had expended over £0.5m. Since installation of the network, the Group incurred charges totalling £1.2m with TFM Networks relating to the network. Because there were only 5,000 users on the network, this is one of the reasons why the division was unable to achieve profitability. Broadband customers which had generated a profit for the business while being managed on a smaller platform, generated losses as soon as the new platform was set up. The anticipated MITIE business never materialised and indeed the total revenue generated by that relationship amounted to £51,000. The Group paid an introduction fee of £0.2m plus VAT in May 2013 to an intermediary in connection with the MITIE contract and accordingly steps are to be taken to recover this money. The Mobile business had a variety of product offerings encompassing a wide range of different markets. Before the sale of its trade and assets to Timico, this business focused on developing as a mobile operator, using one of the national networks. Although it had formed relationships with a number of prospective customers, the pricing was such that no customer contracts could be signed until a new supplier agreement had been signed with the network operator, as existing supplier agreements would have resulted in considerable losses. The proposed new network contract had onerous guarantees and commitments and as such the Board concluded that it could not be signed in light of the trading difficulties in the Telephony Services division. As a consequence, this division, in the absence of the new contract with the network operator, would not have been viable. In total Coms invested over £1.0m in the Mobile business including funding losses and acquiring businesses to give it scale. Most of this investment has been written off following the disposal to Timico. The sale of the business and assets of all of the Telephony Services subsidiaries to Timico Limited at the end of May 2015 brings to a close the Group’s activities in the telecoms sector. The Group is left to wind up the operating companies and deal with the property leases and certain other liabilities. Nevertheless, in the circumstances, the sale represents a good solution for the Group’s stakeholders, including its customers, suppliers and staff. Disputes and potential litigation The Company has been notified of a number of potential claims and disputes, all of which relate to the Telephony Services division. The Board has considered the basis for these claims and made provision, where appropriate, for such sums, if any, which it believes might be payable. ©2015 Coms PLC | www.comsplc.com 10 Outstanding issues between the Company and Dave Breith and companies associated with Dave Breith There are a number of unresolved issues between the Company and its former CEO, Dave Breith and between the Company and parties associated with Mr Breith, which the Company is attempting to resolve. In this context “Company” includes the parent company and any of the Company’s subsidiaries. The outstanding issues include: n An employment related claim threatened by Mr Breith, which the Company disputes. n A further claim for payments under a consultancy agreement, offered to Mr Breith by the Company, the terms of which were not agreed & no material work has been completed, although the Company did pay Mr Breith the first monthly payment of £20,000 under the draft agreement. n A claim by Mr Breith in respect of office furniture and equipment, which he claims are his personal property. n A claim by Blabbermouth Marketing Limited, a company in which Mr Breith is believed to have a minority shareholding, claiming monies under a terminated contract. n A claim by Mr Breith in relation to the payment of a deposit to the Company made by Sugar Cube Animation, a company in which Mr Breith is believed to be a shareholder, in connection with an ongoing project for Sugar Cube Animation. n A claim by the Company relating to payments made to develop the AskMerlin Telephony Services billing platform understood to be owned by Mr Breith. n A claim by the Company to recover moneys from The Payment Centre, a company of which Mr Breith is the chief executive. The Payment Centre has withheld moneys collected on the Company’s behalf from Telephony Services customers. n A claim by the Company seeking repayment of moneys expended on Mr Breith’s car. The Board believes the settlement of the above issues will result in moneys being recovered by the Company of approximately £0.1m. Financial review Set out below is an overview of the trading results for the year ended 31 January 2015, This includes the results of the Telephony Services companies whose business and assets were sold at the end of May 2015, following continuing losses throughout the period under review. Revenue and gross margin The revenue and gross margin generated by the Group’s three principal activities was as follows: Revenue Redstone Darkside Studios Telephony Services Gross contribution Redstone Darkside Studios Telephony Services ©2015 Coms PLC | www.comsplc.com 2015 £000 29,468 1,099 15,387 45,954 5,158 463 3,300 8,921 % 27.9 35.0 42.1 34.0 % 17.5 42.1 21.4 19.4 2014 £000 8,020 60 5,923 14,003 2,241 21 2,493 4,755 11 Redstone Redstone was acquired in November 2013 and accordingly only three months trading were included in 2014. Redstone’s 2014 results also benefited from the reversal of provisions made on amounts recoverable on contracts which were deemed to be at risk at the time of Redstone’s acquisition. This resulted in an improvement in the gross contribution of £0.6m, equivalent to 8 percentage points. Excluding this adjustment, Redstone’s gross margin for 2014 would have been 20.5%. During 2015 one of the matters for which the provision was released in 2014 was not resolved as management had anticipated, and as result a charge of £0.2m in relation to a pre-acquisition contract was made. Year on year there is a small decline in gross margin which is attributable to a higher proportion of revenue being generated by the lower value added cabling installation projects and the charge in relation to the pre-acquisition contract. Darkside Studios Darkside Studios was acquired in December 2013 and accordingly only one month’s trading results are included in the comparative information. Darkside is a high value added business which enjoys higher gross margins than other parts of the business. However, it also has to invest significant funds in IT and studio equipment to stay at the cutting edge of its industry. As reported in the Operational review, the business was originally acquired to supply services primarily to Coms’ customers but this strategy was changed midway through the year. Although Darkside Studios reported a creditable revenue and gross margin performance, at the operating level it produced a small profit of £0.1m. This was largely thanks to overheads taken on to refocus the business on external sales. It has, nevertheless, built a solid pipeline of new business which, it is hoped, will allow Darkside Studios to generate an improved operating profit in 2016. Telephony Services The Telephony Services division revenue in financial year 2015 developed through a combination of organic growth and acquisition. In 2015 two new businesses were acquired: the Actimax companies were acquired in February 2014 and contributed £8.2m to revenue and Smarter Mobile UK was acquired in March 2014 and contributed £0.1m to revenue. The divisional margin was impacted by the exceptionally low margin Coms Carrier business referred to below, the costs associated with the new networks acquired during financial year 2014 but only operational in financial year 2015 (and which led to a gross loss on the broadband activities of £0.2m compared with a gross contribution of £0.2m in 2014). Premium O’s profitability also declined significantly in 2015, as reported below. Actimax margins were lower than the divisional reported margins in 2014, thus also contributing to the decline in gross margins as a percentage of revenue. Mobile’s results include £1.2m revenue generated by the Coms Carrier Services business which the Group commenced in October 2014. This was a new business and Coms Carrier Services was identified as an immediate problem. Although it was expected to generate a very low gross margin of some 3%, it involved some unanticipated risks and operational problems which meant that it lost approximately £0.1m in the brief time that it operated. This business was terminated at the end of November 2014. Premium O, which was acquired in May 2013, had a poor year. Having generated revenue of £3.0m in the 8 months post its acquisition in financial year 2014 (a run rate of some £4.5m per annum), its revenue dropped to £1.6m for the year to 31 January 2015 and its gross margin fell from 34% in 2014 to 19% in 2015. This trend continued into financial year 2016 such that in the last month before the business was sold, its revenue was less than £20,000. Income from non-geographic numbers is variable but this business was never integrated into the Group which contributed to its poor performance. Operating costs As reported in the Operational review, although there were cost reductions, there was little or no integration of any of the Group’s businesses during 2015 and accordingly limited cost savings on overheads were secured following the various acquisitions. Overheads as a percentage of revenue amounted to 26% in 2015 compared with 28% in 2014, although 2014 benefited from the profit on sale of fixed assets so 2014 overheads were actually running at 30% of revenue. The 2015 operating costs included £0.9m costs associated with the offices occupied by the Telephony Services division and as reported in the Operational review above, the Group now needs to exit the leases on the Telephony Services offices. They also included £0.5m charges in relation to the broadband network (2014: £0.1m). ©2015 Coms PLC | www.comsplc.com 12 Depreciation and amortisation The charges for depreciation and amortisation, together £1.2m (2014: £0.3m) were the result of the significant investments made in 2014 and 2015 on leasehold improvements, Redstone’s specialist testing equipment as well as the intangible assets acquired with the Actimax companies. In addition to these in-use charges, the Company impaired a substantial proportion of the investments in the Telephony Services division made in 2014 and 2015 (other than the Actimax intangible asset). Net finance costs The net finance costs for the year of £0.2m (2014: £0.4m net income) comprised interest which accrued on utilisation of the Group’s bank facilities and the unwinding of the discount related to the deferred consideration on the acquisition of Redstone. In 2014 the net income related to the release of an accrual held in Redstone’s balance sheet on acquisition in respect of interest owed to former affiliated companies. Integration costs, transactional items and impairment charges The following integration costs, transactional items and impairment charges have been recognised in the 2015 financial statements: Integration and transactional items Integration costs Transactional items Impairment charges Goodwill Other intangible assets Property, plant and equipment 2015 £000 2,252 (977) 1,275 6,907 1,360 416 8,683 Integration costs: During 2015, as previously reported, the Group carried out some cost reduction initiatives in the Telephony Services division following the various acquisitions. This initially largely involved consolidating management of the various businesses and culminated in January 2015 with the announcement of the proposed closure of the Brentwood office. The integration costs include the redundancy costs associated with these exercises and provisions for onerous contracts. Transactional items: Included within transactional items is a £1.0m gain recognised in the Consolidated income statement relating to the release of the provision for contingent consideration in relation of the acquisition of the Actimax companies. The expectation that no performance related contingent consideration would be payable in relation to the Actimax companies was reported at the interim stage and confirmed following completion of the performance period at the end of February 2015. ©2015 Coms PLC | www.comsplc.com 13 Impairment charges There were a number of impairment charges in 2015, all of which related to the Telephony Services division. Goodwill: The Group had goodwill balances at the prior year end of £12.9m. During the year following the acquisition of the Actimax companies and Smarter Mobile UK the Group added £3.7m of goodwill. At the year end the Group recorded a £6.9m impairment charge as a consequence of the performance of the Telephony Services division. Other intangible assets: Included on the Group balance sheet were the following intangible assets: n Database and customers of World Telecom, acquired from Dave Breith for £50,000 in February 2013 n Network assets of £480,000 acquired from TFM Networks Limited in June 2013 n Other network assets amounting to £200,000 acquired from Dave Breith in June 2013 n ADSL broadband customer base acquired in May 2013 from So Purple Limited for a consideration of £800,000 At the year end, the Board concluded that none of these assets would generate any value for the Group and agreed that they should all be written down to nil. Property, plant & equipment: As reported in the Operational review, management took out leases on new offices for the Telephony Services division and incurred £0.4m in leasehold improvements and furniture and fittings. Some of this expenditure was depreciated during the course of 2015 and a £0.4m impairment charge was recorded in light of the proposed closure of these offices. Taxation The losses incurred by the Telephony Services division have been available to relieve any profits made by Redstone and Darkside Studios. As a consequence, there is no corporation tax charge in respect of 2015 (2014: £0.1m). Redstone has the benefit of brought forward trading losses in its ICT business amounting to approximately £7.0m which will be available to relieve future profits in that business. Although the Telephony Services division had substantial losses brought forward, all of these will be lost following the sale of the business and assets of the Telephony Services division to Timico. The £0.3m taxation charge in 2015 (2014: £0.2m credit) related to the reversal of a deferred tax asset in the Mobile business which related to trading losses which will also not be utilised. ©2015 Coms PLC | www.comsplc.com 14 Cash flow statement During the year the Group had a net outflow of £1.4m (2014: £0.8m inflow) giving rise to a net overdraft at the end of the year of £0.4m (2014: net cash of £1.0m). The £1.0m brought forward balance plus £8.0m of cash raised from share issues was spent on funding operations (£3.4m) and investing in subsidiary companies and fixed assets (£5.9m). The Loss before tax of £14.9m (2014: profit of £1.2m) translated into an operational cash outflow of £3.4m (2014: £0.4m). Some £8.7m of the 2015 operating loss related to the impairment of assets in the Telephony Services division prior to its sale to Timico in May 2015 and accordingly this did not relate to the movement of cash. Similarly in 2014, there were a number of fair value adjustments and provision unwinds which did not involve cash. The operating cash outflow therefore reflects the fact that the Group was trading at a loss in both years. During the year, the Group spent £5.9m cash in acquiring businesses and fixed assets. Some £2.2m was spent on property, plant and equipment, £0.4m of which related to fitting out the offices in Stokenchurch and Brentwood which have now been impaired following the sale of the business and assets of the Telephony Services division. £1.1m was also spent on leasehold improvements, furnishings and office equipment in Redstone’s new Holborn office and £0.7m replacing specialist testing equipment used by Redstone. Approximately £3.8m cash (net of cash acquired) was also expended on the acquisition of Actimax, Smarter Mobile UK Limited and deferred consideration in respect of Redstone. With regard to Redstone, the sum due had been £1.8m but this was reduced to £1.6m by settling the sums due early and by settling a number of potential claims. A further £0.2m deferred cash consideration in respect of Redstone is due to be settled in 2016. The share issues comprised: n The placing of 138,333,333 shares at 6p per share at the time of the acquisition of the Actimax companies raising £7.9m net of expenses in February 2014; and n 13,130,952 shares in relation to the exercise of warrants and share options which raised £0.1m. Diana Dyer Bartlett Director 31 July 2015 ©2015 Coms PLC | www.comsplc.com 15 Directors and officers Frank Beechinor (Chairman) Frank was appointed Chairman of the Board on 11 July 2014 and is Chairman of the Nominations Committee. He has significant corporate experience, particularly of IT and Software services and is also currently Non-Executive Chairman of dotDigital Group plc and CEO of Cadence Performance Limited. Frank was previously founder and CEO of OneClick HR plc from 1997 to 2011. Diana Dyer Bartlett (Non-Executive Director, acting Chief Financial Officer and Company Secretary) Diana was appointed to the Board in October 2013 and is a member of the Audit and Nominations Committees. With 30 years’ experience in accountancy, investment banking and finance, Diana has an impressive track record in investments, mergers and acquisitions, corporate governance and business transformation in publicly quoted, venture capital and private equity backed companies. Her recent roles include Company Secretary for Tullett Prebon plc, Finance Director of Pelamis Wave Power Limited and Chairman and Honorary Treasurer for BreastCancer Haven. Diana is an Associate of the Institute of Chartered Accountants in England and Wales. Mark Braund (Non-Executive Director) Mark joined the Board on 9 March 2015 and is Chairman of the Remuneration Committee and a member of the Audit Committee and the Nominations Committee. He is a former director of IBM (EMEA) and an experienced technology and business services executive with a proven ability to turn around and grow businesses. He founded, developed and then sold Barker Personnel Services to Carlisle Holdings plc and subsequently led the turnarounds of TAC Europe, Lorien plc and First Advantage Inc., all of which saw rapid increases in market share and profitability before being sold to private investors. Mark joined InterQuest Group plc as Chief Executive Officer in April 2011; since then he has transformed the Company into one of the leading digital technology contract services and recruitment specialists in the UK. Guy van Zwanenberg (Non-Executive Director) Guy joined the Board on 9 March 2015 and is Chairman of the Audit Committee and a member of the Remuneration Committee and the Nominations Committee. Guy has 40 years’ experience in industry and practice. He qualified as a Chartered Accountant with Grant Thornton and then spent three years working with James Gulliver. Guy subsequently moved to become UK Finance Director of an American computer accessory company which was taken public in 1989. In 1991, he established his own interim financial management business and has since been involved in a number of SME businesses providing strategic and financial help. Guy joined Gamingking PLC in 1998 on a part time basis as Finance Director and became Company Secretary and Non-Executive Director in 2006, remaining until May 2013. He joined Quixant plc as a Non-Executive in March 2013 as part of the float team. Guy is both a Fellow of The Institute of Chartered Accountants in England and Wales and a Chartered Director. ©2015 Coms PLC | www.comsplc.com 16 Company information and advisers Registered office Beacon House Stokenchurch Business Park Ibstone Road Stokenchurch Buckinghamshire HP14 3FE Coms plc Company Number 5332126 Company advisers Nominated adviser and broker Charles Stanley 131 Finsbury Square London EC2A 1NT Auditors KPMG LLP Chartered Accountants & Statutory Auditors Arlington Business Park Theale Reading Berkshire RG7 4SD Registrars Share Registrars Ltd Craven House West Street Farnham Surrey GU9 7EN Bankers Barclays Bank plc 1 Churchill Place London E14 5HP ©2015 Coms PLC | www.comsplc.com 17 Directors’ report The Directors submit this report together with the accounts of Coms plc (‘the Company’) and its subsidiary undertakings (together ‘the Group’) for the year ended 31 January 2015. Principal activities During the year the Group’s principal activities were infrastructure services (Redstone), animation and CGI special effects services provided by Darkside Studios and the development and commercialisation of telecommunication services. In May 2015 the Company announced that it had sold the business and assets of all of its telecommunication subsidiaries and accordingly the Group now comprises Redstone and Darkside Studios. Results and dividend The results for the year are set out in the Consolidated income statement on page 25. The Directors do not recommend payment of a dividend (2014: nil). Review of the business A review of the business of the Group, together with comments on future developments is given in the Strategic report. Directors and their interests The Directors who held office during the year were as follows: Frank Beechinor Dave Breith Diana Dyer Bartlett Stephen Foster Iain Ross Sue Alexander Graham Herring Chairman (appointed 11 July 2014) Chief Executive Officer (resigned 1 March 2015) Non-Executive Director, currently acting Chief Financial Officer Non-Executive Director (resigned 29 May 2015) Chairman (resigned 11 July 2014) Finance Director (resigned 11 July 2014) Non-Executive Director (resigned 16 April 2014) Since the year end Mark Braund and Guy van Zwanenberg were appointed Directors of the Company on 9 March 2015. On 14 July 2015, it was further announced that Mark Braund would be appointed Chief Executive of the Company as soon as he could leave his current executive role and that Spencer Dredge had been appointed Chief Financial Officer. The remuneration of the Directors who held office during the year was as follows: Directors’ remuneration Share based payment charge Frank Beechinor (1) Dave Breith Diana Dyer Bartlett Stephen Foster Iain Ross (2) Sue Alexander (2) Graham Herring (3) (1) Appointed 11 July 2014 (2) Resigned 11 July 2014 (3) Resigned 16 April 2014 ©2015 Coms PLC | www.comsplc.com 2015 £ 30,000 190,000 71,500 45,800 109,400 33,333 7,250 2014 £ - 200,769 7,414 61,996 39,000 53,333 8,333 2015 £ 126 1,921 4,041 31 126 1,921 (4,041) 2014 £ - 1,921 4,041 31 1,211 3,010 4,041 18 The interests of those Directors serving during the year ended 31 January 2015, as at the year end or the date of resignation, all of which are beneficial, in the share capital of the Company, were as follows: Director Frank Beechinor (1) Dave Breith Diana Dyer Bartlett Sue Alexander (2) Iain Ross (2) Stephen Foster Graham Herring (3) (1) Appointed 11 July 2014 (2) Resigned 11 July 2014 (3) Resigned 16 April 2014 Ordinary shares of 0.1p each 2015 No. - 2014 No. - 138,876,454 138,856,455 - - - - 2,331,550 2,331,550 - - - - Since the year end Frank Beechinor and Diana Dyer Bartlett subscribed for 9,000,000 shares and 4,000,000 shares respectively in the placing undertaken on 29 May 2015. Mark Braund and Guy van Zwanenberg, who were appointed as Directors since the year end, also subscribed for 4,000,000 and 3,000,000 ordinary shares in the placing and open offer of 29 May 2015. Dave Breith has notified the Company that he no longer holds a notifiable interest in the Company’s shares. The beneficial holdings include, where applicable, the holdings of connected parties. Directors’ share warrants and options As at 31 January 2015 the Company had granted the following warrants and share options to Directors and past Directors of the Company which remained outstanding at the year end or at the date of resignation: Director Frank Beechinor Dave Breith Diana Dyer Bartlett Stephen Foster Iain Ross Instrument Warrant Warrant Share option Warrant Warrant Warrant Warrant Sue Alexander Share option Number of ordinary shares of 0.1p each Exercise price Grant date 1,000,000 3,000,000 4,000,000 2,000,000 1,000,000 2,380,952 4,000,000 4,000,000 6p 7p 10/07/2014 10/07/2014 0.825p 20/03/2013 5p 5p 0.84p 5p 0.825p 30/09/2013 10/06/2013 25/02/2013 10/06/2013 20/03/2013 Mr Ross exercised a warrant granted to him subsequent to his resignation over 2,380,952 ordinary shares at an exercise price of 0.84p per share in November 2014. None of the Directors had any beneficial interest in the shares of any subsidiary companies. ©2015 Coms PLC | www.comsplc.com 19 Share capital Details of the Company’s share capital are disclosed in note 22 to the financial statements. Financial instruments Details of the use of financial instruments by the Company and its subsidiary undertakings are disclosed in note 26 to the financial statements. Statement to auditor So far as the Directors are aware, there is no relevant audit information (as defined by section 418 of the Companies Act 2006) of which the Company’s auditor is unaware, and each Director has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. Corporate governance Achieving good governance is key to the long term success of the business. It ensures we remain a responsible Company and underpins our culture and reputation as an organisation. As a Board we are conscious of our obligations to think deeply, thoroughly and on a continuing basis regarding our duties. Coms plc has Non-Executive Board members with extensive experience in areas critical to the long term future success of the Company, covering a deep understanding of technology, corporate strategy, finance and investment. This experience enables the Non-Executives to add entrepreneurial leadership, with open and rigorous debate that provides a valuable external and balanced perspective to the proceedings. We believe that our Board complement each other, delivering a broad and appropriate balance of skills. In the absence of a Chief Executive and Finance Director, Frank Beechinor and Diana Dyer Bartlett have been required to take on responsibility for the leadership of the business and oversight of its finances until the new senior management take office, after which time both Directors will resume their more normal duties. Board of Directors At the year end the Board consisted of a Chairman, Chief Executive and two Non-Executive Directors. Since the year end the Board has consisted of a Chairman and three Non-Executive Directors, although Diana Dyer Bartlett has assumed executive responsibility on an interim basis. Once the new Chief Executive and Chief Financial Officer take up their appointments it is expected that the Board will comprise a Chairman, two Executive Directors and two Non-Executive Directors. The Board meets on a regular basis and the agenda of matters discussed and approved consists of matters concerned with the future direction of the business. Remuneration Committee The Remuneration Committee agrees the terms and conditions, including annual remuneration, of Executive Directors and reviews such matters for other senior personnel including their participation in long term incentive schemes. Audit Committee The Audit Committee recommends the appointment, scope and fees of the external auditor, discusses issues that arise from the audit, reviews reports of the external auditors and internal control procedures and considers any financial statements before their publication. The auditor also attends meetings of the Audit Committee as required by the Committee to consider any issues arising from the audit and their work. Nominations Committee The Nominations Committee makes recommendations to the Board for all Board appointments and succession planning. ©2015 Coms PLC | www.comsplc.com 20 Employees The Group has continued to give full and fair consideration to applications made by disabled persons, having regard to their respective aptitudes and abilities, and to ensure that they benefit from training and career development programmes in common with all employees. The Group has continued its policy of employee involvement by making information available to employees through the medium of frequent staff meetings, together with personal appraisals and feedback sessions. Share options The Company’s policy is to reward and provide long-term incentives to employees by granting them share options. Substantial shareholdings As at the year end and 29 July 2015, being the latest practicable date before the signing of these accounts, the following interests in 3% or more of the issued ordinary share capital had been notified to the Company: Shareholder Dave Breith Helium Special Situations Fund 31 January 2015 29 July 2015 138,876,454 87,025,000 14.3% 8.9% N/A 177,025,000 N/A 12.7% Post balance sheet events On 26 May 2015 the Company announced that it had agreed to sell the business and assets of all its Telephony Services companies to Timico Limited for an initial cash consideration of £2.5m, with a further payment of up to £1.0m depending on performance in the period to 30 November 2015. Further details of post-balance sheet events are disclosed in note 28 to the financial statements. On 29 May 2015 the Company announced a placing and open offer of ordinary shares at 0.5p per share. The open offer was oversubscribed by 50% and the gross proceeds received by the Company amounted to £2.1m. Directors’ responsibilities The Directors are responsible for preparing the Annual Report and the financial statements, the Directors’ report in accordance with applicable law and regulations. Company law requires the Directors to prepare group and parent company financial statements for each financial year. Under that law they have elected to prepare both the group and the parent company financial statements in accordance with IFRSs as adopted by the EU and applicable law. As required by the AIM Rules of the London Stock Exchange they are required to prepare the group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements on the same basis. Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss. In preparing each of the group and parent company financial statements, the Directors are required to: n select suitable accounting policies and then apply them consistently; n make judgements and estimates that are reasonable and prudent; n state whether they have been prepared in accordance with IFRSs as adopted by the EU; and n prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. ©2015 Coms PLC | www.comsplc.com 21 The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Listing The Company’s ordinary shares have been traded on London’s AIM Market since 6 September 2006. Charles Stanley are the Company’s Nominated Advisor and Broker. The closing mid-market share price at 31 January 2015 was 0.52p (31 January 2014: 9.5p). Publication of financial statements The Company’s financial statements will be made available on the Company’s website www.comsplc.com. The maintenance and integrity of the website is the responsibility of the Directors. The Directors’ responsibility also extends to the financial statements contained therein. Going concern The Group’s business activities and performance, and the financial position of the Group, its cash flows and borrowing facilities, together with the factors likely to affect its future development, performance and position, are explained in the Strategic report. Analysis of the Group’s key risks is also set out in the Strategic report. Further information regarding the assessment of going concern is in note 1 to the financial statements. After making appropriate enquiries, the Directors consider that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements. Auditor In accordance with section 485 of the Companies Act 2006, a resolution proposing that KPMG LLP be re-appointed as auditor will be put to the Annual General Meeting. The Report of the Directors was approved by the Board on 31 July 2015 and signed on its behalf by: Diana Dyer Bartlett Director 31 July 2015 ©2015 Coms PLC | www.comsplc.com 22 Auditor’s report Independent Auditor’s report to the Members of Coms Plc We have audited the financial statements of Coms Plc for the year ended 31 January 2015 set out on pages 25 to 58. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 21, 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 A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. Opinion on financial statements In our opinion: n 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 31 January 2015 and of the group’s loss for the year then ended; n the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; n the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and n the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion 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. ©2015 Coms PLC | www.comsplc.com 23 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: n 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 n the parent company financial statements are not in agreement with the accounting records and returns; or n certain disclosures of directors’ remuneration specified by law are not made; or n we have not received all the information and explanations we require for our audit. Derek McAllan (Senior Statutory Auditor) for and on behalf of KPMG LLP Chartered Accountants & Statutory Auditors Arlington Business Park Theale Reading Berkshire RG7 4SD 31 July 2015 ©2015 Coms PLC | www.comsplc.com 24 Consolidated income statement For the year ended 31 January 2015 Revenue Cost of sales Gross profit Administrative expenses Adjusted (LBITDA)/EBITDA* Integration and transactional costs included within administrative expenses Depreciation Amortisation Share based payment charge Impairment charge Operating (loss)/profit Net finance costs (Loss)/profit before tax Taxation (Loss)/profit for the year after tax Discontinued operations (Loss)/profit for the year Total comprehensive (loss)/income for the year attributable to equity holders Basic and diluted (loss)/earnings per share Continuing operations - Basic Discontinued operations - Basic Total Continuing operations - Diluted Discontinued operations - Diluted Total Note 5 6 8 8 8 7 8 10 11c 12 12 12 12 12 12 2015 £000 45,954 (37,033) 8,921 (12,369) (3,448) (1,275) (820) (373) (54) (8,683) (14,653) (245) (14,898) (172) (15,070) - (15,070) (15,070) (1.57p) - (1.57p) (1.57p) - (1.57p) 2014 £000 14,003 (9,247) 4,756 (3,711) 1,045 - (81) (111) (27) - 826 415 1,241 118 1,359 (345) 1,014 1,014 0.24p (0.06p) 0.18p 0.22p (0.05p) 0.17p * Result for the year from continuing operations before net finance costs, depreciation, amortisation, integration and transactional items, impairment charges and share based payment charge. The (loss)/profit for the period equates to the Comprehensive (expense)/income for the year. The notes on pages 32 to 58 are an integral part of these consolidated financial statements. ©2015 Coms PLC | www.comsplc.com 25 Consolidated statement of financial position As at 31 January 2015 ASSETS Non-current assets Goodwill Other Intangible assets Property, plant and equipment Deferred tax asset Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets EQUITY and LIABILITIES Capital and reserves attributable to equity shareholders Share capital Share premium Merger reserve Reverse acquisition reserve Accumulated deficit Total equity Current liabilities Overdraft Trade and other payables Provisions Non-current liabilities Deferred tax Total liabilities Total equity and liabilities Note 2015 £000 2014 £000 13 14 15 16 17 18 22 22 22 18 19 20 21 9,651 1,718 1,798 - 13,167 305 10,658 492 11,455 24,622 3,015 27,816 1,911 (4,236) (19,528) 8,978 878 13,603 878 15,359 285 15,644 24,622 12,885 1,851 1,031 204 15,971 364 8,704 999 10,067 26,038 2,864 19,965 1,911 (4,236) (4,513) 15,991 - 9,996 - 9,996 51 10,047 26,038 The financial statements were approved by the Board of Directors and authorised for issue on 31 July 2015. They were signed on its behalf by: Diana Dyer Bartlett Director 31 July 2015 Company Number: 5332126 ©2015 Coms PLC | www.comsplc.com 26 Consolidated statement of cash flows For the year ended 31 January 2015 Cash flows from operating activities (Loss)/profit before taxation Depreciation Amortisation Share based payment charge Release of deferred consideration Net finance costs Intangible asset impairment Property, plant and equipment impairment Goodwill impairment Movement in provisions Loss/(profit) on sale of fixed assets Operating cashflows before movements in working capital Decrease/(increase) in inventories Increase in receivables Increase in payables Net cash used in operating activities Cash flows from investing activities Acquisition of subsidiaries (net of cash acquired) Acquisition of intangible assets Proceeds from sale of property, plant and equipment Acquisition of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issues of share capital (net of issue costs) Net finance costs Repayment of finance leases Net cash from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year Note 7 7 7 2015 £000 (14,898) 820 373 54 (1,294) 245 1,360 416 6,907 878 21 (5,118) 101 (325) 1,944 (3,398) (3,770) (15) 54 (2,206) (5,937) 8,003 (53) - 7,950 (1,385) 999 (386) 2014 £000 896 117 146 27 - (415) - - - (594) (225) (48) (63) (940) 675 (376) (7,309) (312) - (470) (8,091) 9,358 (63) (1) 9,294 827 172 999 Cash and cash equivalents comprise cash at bank and other short-term highly liquid investments with maturity of three months or less, as adjusted for any bank overdrafts. 27 ©2015 Coms PLC | www.comsplc.com Consolidated statement of changes in equity Attributable to equity holders of the Company Note Share capital £000 2,363 At 1 February 2013 Profit for the year Total comprehensive income for the year Transactions with the owners: Proceeds from shares issued Share issue costs Share based payment charge At 31 January 2014 At 1 February 2014 Loss for the year Total comprehensive loss for the year Transactions with the owners: Proceeds from shares issued 22 Share issue costs Share based payment charge At 31 January 2015 - - 501 - - 2,864 2,864 - - 151 - - Share premium/ merger reserve Reverse acquisition reserve Accumulated deficit £000 9,497 - - 12,877 (499) - 21,875 21,875 - - 8,267 (415) - £000 (4,236) - - - - - (4,236) (4,236) - - - - - Total £000 2,071 1,014 1,014 13,378 (499) 27 15,991 15,991 £000 (5,553) 1,014 1,014 - - 27 (4,512) (4,512) (15,070) (15,070) (15,070) (15,070) - 54 8,418 (415) 54 3,015 29,727 (4,236) (19,528) 8,978 ©2015 Coms PLC | www.comsplc.com 28 Company statement of financial position As at 31 January 2015 ASSETS Non-current assets Investment in subsidiaries Intangible assets Amounts due from subsidiaries Current assets Trade and other receivables Cash and cash equivalents Total assets EQUITY AND LIABILITIES Capital and reserves attributable to equity shareholders Share capital Share premium Merger reserve Accumulated deficit Total equity Current liabilities Trade and other payables Total equity and liabilities Note 2015 £000 2014 £000 27 14 17 17 18 22 9,247 - - 9,247 2,876 5 2,881 12,128 3,015 27,816 1,911 (21,303) 11,439 11,947 58 5,064 17,069 60 85 145 17,214 2,864 19,965 1,911 (9,366) 15,374 19 689 1,840 12,128 17,214 The financial statements were approved by the Board of Directors and authorised for issue on 31 July 2015. They were signed on its behalf by: Diana Dyer Bartlett Director 31 July 2015 Company Number: 5332126 ©2015 Coms PLC | www.comsplc.com 29 Company statement of cash flows For the year ended 31 January 2015 Cash flows from operating activities Loss before taxation Depreciation and amortisation Impairment provision Gain on deferred consideration Share based payment charge Net finance costs Operating cashflow before working capital movement Increase in receivables Increase in payables Net cash used in operating activities Cash flows from investing activities Acquisition of subsidiary (net of cash acquired) Net cash used in investing activities Cash flows from financing activities Proceeds from issues of share capital (net of issue costs) Net finance costs Repayment of loan Net cash from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year 2015 £000 2014 £000 (11,992) (649) 58 2,700 (219) 54 203 (9,196) (231) 2,738 (6,689) 46 - - 27 63 (513) (2,865) 1,683 (1,695) (1,385) (1,385) (7,650) (7,650) 8,003 (9) - 7,994 (80) 85 5 9,358 (62) 10 9,306 (39) 124 85 ©2015 Coms PLC | www.comsplc.com 30 Company statement of changes in equity Attributable to equity holders of the Company Note Share capital Share premium/ merger reserve Accumulated deficit At 1 February 2013 Loss for the year Total comprehensive loss for the year Transactions with the owners: Proceeds from shares issued Share issue costs Share based payment charge At 31 January 2014 At 1 February 2014 Loss for the year Total comprehensive loss for the year Transactions with the owners: Proceeds from shares issued 22 Share issue costs Share based payment charge At 31 January 2015 £000 2,363 - - 501 - - 2,864 2,864 151 - - £000 9,497 - - 12,877 (499) - 21,875 21,875 8,267 (415) - £000 (8,743) (649) (649) - - 27 (9,365) (9,365) (11,992) (11,992) - - 54 Total £000 3,117 (649) (649) 13,378 (499) 27 15,374 15,374 (11,992) (11,992) 8,418 (415) 54 3,015 29,727 (21,303) 11,439 ©2015 Coms PLC | www.comsplc.com 31 Notes to the financial statements 1 General information Coms plc is a company incorporated in England and Wales under the Companies Act 2006 and listed on the AIM market. The address of the registered office is given on page 17. The nature of the Group’s operations and its principal activities are set out in the Directors’ report and in the Operational review in the Strategic report. These financial statements are presented in pounds sterling as that is the currency of the primary economic environment in which the Group operates. There are no foreign subsidiaries in the Group. Going concern As detailed in the Directors’ report, the Directors consider that the Company and the Group have adequate resources to continue in existence for the foreseeable future. In assessing the outlook for the Company and Group, the Board took account of the Group’s new £2.0m overdraft facility and certain events after the balance sheet date which have materially strengthened the financial position: n The disposal of the loss-making Telephony Services division in May 2015 for £2.5m in cash, with the potential of up to another £1.0m cash, conditional on required levels of revenue at a future date. n The completion in June 2015 of a placing and open offer, raising a further £2.1m in cash before expenses. The open offer to existing shareholders, was more than 50% oversubscribed. The Directors have assessed the Group’s current forecasts, taking into account reasonable changes in trading performance. The assessment considered stress tests and mitigating actions available to the Group. On the basis of this review, the Directors believe that the Group will continue to operate within the resources currently available to it. The Directors accordingly continue to adopt the going concern basis in preparing these financial statements. 2 Basis of preparation and significant accounting policies The consolidated financial statements of Coms plc have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS’s as adopted by the EU), IFRS Interpretations Committee and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention. 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 complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3. Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the period ended 31 January 2014 as described in those annual financial statements. Standards, amendments to and interpretation of existing standards not yet effective At the date of approval of these financial statements, the following standards, interpretations and amendments were issued but not yet mandatory for the Group and early adoption has not been applied: International Financial reporting Standards (IFRS) n IFRS 2 Share based payment amendments n IFRS 3 Business combinations amendments n IFRS 8 Operating segments amendments n IFRS 13 Fair value measurement amendments n IAS 16 Property, plant and equipment amendments n IAS 19 Employee benefits amendments n IAS 24 Related party disclosures amendments n IAS 38 Intangible assets amendments n IAS 40 Investment property amendments All other amendments to existing standards are not yet endorsed by the EU at the date of approval of these financial statements. It is considered that the above mentioned standards, amendments and interpretations will not have a significant effect on the results of the Group. ©2015 Coms PLC | www.comsplc.com 32 Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 January each year. Control is achieved when the Company 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. On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. Reverse acquisition accounting The acquisition of Coms.com Limited in the year ended 31 January 2007 was accounted for as a reverse acquisition of Coms plc by Coms.com Limited. The consolidated financial statements prepared following the reverse takeover were issued in the name of Coms plc, but they are a continuance of the financial statements of Coms.Com Limited. Therefore the assets and liabilities of Coms.Com Limited were recognised and measured in the consolidated financial statements at their pre-combination carrying values. The financial statements reflect the continuance of the financial statements of Coms.com Limited. The retained earnings and other equity balances recognised in these consolidated financial statements at the time of the acquisition were the retained earnings and other equity balances of Coms.Com Limited immediately before the business combination. Under reverse acquisition accounting: n an adjustment within shareholders’ funds is required to eliminate the cost of acquisition in the issuing Company’s books, and introduce a notional cost of acquiring the smaller issuing Company based on the fair value of its shares. n an adjustment is required to show the share capital of the legal parent in the consolidated balance sheet rather than that of the deemed acquirer. Both adjustments have been included in the reverse acquisition reserve. Merger reserve The merger reserve is used when a share issue is undertaken and merger relief is available. The conditions for merger relief are when the consideration for shares in another company includes issued shares of the acquirer and on completion of the transaction, the company issuing the shares will have secured at least 90% equity holding in the acquiree. ©2015 Coms PLC | www.comsplc.com 33 Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefit will flow to the Group and can be reliably measured. Revenue is measured at the fair value of the consideration received, net of discounts, VAT and other sales duty. The following specific recognition criteria must also be met before revenue is recognised: Services – the Group provides a number of services including provision of telephony calls and minutes; revenue is recognised as services are performed. Maintenance – the Group provides maintenance to corporate customers. Revenue is recognised evenly over the maintenance contract. Hardware – revenue is recognised on the delivery of goods. Consultancy – consultancy is typically invoiced based on a daily value, revenue is recognised as the consultancy services are delivered. Installation – revenue is recognised at the point of installation. Projects – revenue from fixed price contracts is recognised on the percentage of completion method, to the extent that the level of completion for a contract can be reliably measured. Where the percentage of completion cannot be reliably measured, revenue is recognised when specified contractual milestones are met or on project completion. When it is probable that total contract costs will exceed total revenue, the expected loss is recognised immediately. Revenue relating to contracted maintenance is recognised evenly over the period of the agreement. Where costs incurred plus recognised profits less recognised losses exceed progress billings, the balance is shown as “amounts recoverable on contracts” within trade and other receivables. Where progress billings exceed costs incurred plus recognised profits less recognised losses, the balance is shown as deferred income within creditors. Property, plant and equipment Property, plant and equipment are stated at cost of acquisition less accumulated depreciation and impairment losses. Depreciation is provided on a straight-line basis at rates calculated to write off the cost less the estimated residual value of each asset over its expected useful economic life. The residual value is the estimated amount that would currently be obtained from disposal of the asset if the asset were already of the age and in the condition expected at the end of its useful life. Depreciation Property, plant and equipment are depreciated using the straight-line method based on estimated useful lives. The annual rates of depreciation for each class of depreciable asset across the Company are: Fixtures and fittings – 20-25% straight line Office equipment – 25-33.3% straight line Leasehold improvements – 20% straight line The carrying value is assessed annually and any impairment is charged to the income statement. ©2015 Coms PLC | www.comsplc.com 34 Financial assets The Group classifies its financial assets into one of the categories below, depending on the purpose for which the asset was acquired. Trade receivables and other debtors: These are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services but also incorporate other types of contractual monetary assets. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Cash and cash equivalents: These include cash in hand, deposits held at call with banks and bank overdrafts. The Company had an overdraft facility of £3m with its main bank at the year end, which was reduced to £2m following the disposal of the trade and assets of the Telphony Services division in May 2015. Financial liabilities The Group’s financial liabilities are trade payables and other financial liabilities.These are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method. Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessment of the time value of money and, where appropriate, the risks specific to the liability. Corporation tax The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. ©2015 Coms PLC | www.comsplc.com 35 Other intangible assets All intangible assets excluding goodwill are stated at cost less accumulated amortisation and any accumulated impairment losses. Goodwill Goodwill represents the amount by which the fair value of the cost of a business combination exceeds the fair value of net assets acquired. Goodwill is not amortised and is stated at cost less any accumulated impairment losses. The recoverable amount of goodwill is tested for impairment annually or when events or changes in circumstance indicate that it might be impaired. Impairment charges are deducted from the carrying value and recognised immediately in the income statement. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash generating units expected to benefit from the synergies of the combination. 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. Research and development Expenditure on research activities is recognised as an expense in the year in which it is incurred. An internally-generated intangible asset arising from the development of the Group’s VOIP system, the Company’s core technology, is recognised only if all of the following conditions are met: n an asset is created that can be identified (such as software and new processes); n it is probable that the asset created will generate future economic benefits; and n the development cost of the asset can be measured reliably. n an intention to complete the intangible asset and use or sell it, and n ability to use or sell the intangible asset, and n the availability of adequate technical financial and other resources to complete the development and to use or sell the intangible asset. Acquired intangible assets Following business combinations (see note 4) the assets acquired are classified into tangible and intangible assets and fair values applied using the principles of IFRS 3. This leads to creation of intangible assets recognised on the balance sheet. Amortisation Internally-generated intangible assets are amortised on a straight-line basis over their estimated useful lives of 10 years. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the year in which it is incurred. ©2015 Coms PLC | www.comsplc.com 36 Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, 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 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, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease. 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 that would have been determined 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, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Share based payments Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the income statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at the balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Fair value is measured using an appropriate option pricing model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Where equity instruments are granted to persons other than employees, the consolidated income statement is charged with the fair value of goods and services received. ©2015 Coms PLC | www.comsplc.com 37 Foreign currency The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in pounds sterling which is also the presentation currency for the consolidated and Company financial statements. The functional currency of the Company is pounds sterling. In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are re-translated at the rates prevailing at the balance sheet date. Exchange differences arising on the settlement of monetary items and on the re-translation of monetary items are included in the income statement. Investments in subsidiaries Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment. Leases Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are treated as a reduction of the lease obligation on the remaining balance of the liability. Finance expenses are recognised immediately in the income statement, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs. Contingent rentals are recognised as expenses in the periods in which they are incurred. Rental leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement. 3 Critical accounting estimates and judgements The Group makes estimates and assumptions concerning the future, which may differ from the actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are set out below. Revenue recognition Revenue and expenses on fixed price contracts are recognised using the percentage-of-completion method. Revenue, expenses, and ultimately profit are therefore recognised over the life of the activity of the contract. When the outcome of a contract cannot be reliably estimated then revenue can only be recognised to the extent that it is recoverable. When total expected costs exceed the total contract value the expected loss is recognised immediately. As revenue is therefore recognised on a percentage-of-completion basis which will be based on management’s best estimate of expected total contract revenue and expected total contract costs it is an area that requires critical estimation and judgement. Impairment of goodwill The Group is required to test goodwill for potential impairment on an annual basis. The recoverable amount of goodwill relating to continuing activities is determined based on the value in use calculations which require the estimation of future cash flows and the selection of a discount rate. Actual outcomes of this calculation may vary, further information concerning issues affecting the carrying values is given in note 7. Acquired intangible assets On acquisition of a business, the Group is required to value the assets acquired and recognise intangible assets on the balance sheet. The valuation of these assets relies on various assumptions, including future revenues and costs derived from those assets and the selection of an appropriate discount rate in order to calculate the present values of those cash flows. Further information concerning intangible assets acquired during the year is given in note 4. 38 ©2015 Coms PLC | www.comsplc.com Provisions The Group has made a number of provisions in the financial statements to deal with claims, disputes and onerous contracts. The actual outcome of such matters may differ from the Directors’ assessment of the likely outcome. 4 Business combinations On 7 February 2014 Coms acquired certain subsidiaries of Actimax Acquisitions Limited for initial cash consideration of £2.4m. The cash consideration was funded by the Company placing 138,333,333 new ordinary shares at 6p per share, with certain institutional and other investors to raise £7.9m net of expenses. Further consideration of up to £1.0m in cash was payable 13 months from completion of the acquisition, conditional upon the billings achieved for the 12 months following completion, exceeding £7.6m. The performance target was not met and accordingly no further consideration was payable. This resulted in a gain of £1.0m being recognised on the release of the provision for contingent consideration. The Actimax acquisition consists of a number of related companies, servicing approximately 800 customers, delivering managed network, unified communications and data services. On 10 March 2014 Coms acquired 100% of the issued share capital of Smarter Mobile UK Limited for a total cash consideration of £0.2m. Smarter Mobile UK Ltd is a mobile service provider, specialising in a family mobile offering. Both acquisitions were a continuation of the then strategy to build a Telephony Services provider of scale, building on prior year related acquisitions. During the period these acquisitions contributed £8.3m revenue and £0.4m loss before tax, which is also equivalent to the full year result had the Group owned both businesses since 1 February 2014. Goodwill recognised on these acquisitions has been impaired at the year end see note 7. Actimax and Smarter Mobile UK Limited Intangible assets Property, plant and equipment Current assets Current liabilities Deferred tax liability Net assets acquired Goodwill Total consideration Satisfied by: Cash Contingent consideration Less cash acquired Total cash consideration Book values £000 167 621 2,332 (5,712) - (2,592) Fair value adjustments Fair values £000 1,417 - (414) 1,858 ( 317) 2,544 £000 1,584 621 1,918 (3,854) (317) (48) (48) 3,673 3,625 2,625 1,000 3,625 (240) 2,385 Included within the fair value adjustments is a reduction in current liability of £1.9m which reflects the waiving of Actimax Group intercompany balances. On the acquisition of Actimax and Smarter Mobile UK Ltd, all aspects were fair valued and customer contracts and relationships were recognised as intangible assets. The customer contracts and relationships were valued on an income basis. The value is the present value of projected cash flows in excess of returns on contributory assets during the life of the relationship with customers. Management assessed that these customer contracts and relationships would have a useful economic life of at least ten years and therefore the intangible assets recognised would be amortised over this period. 39 ©2015 Coms PLC | www.comsplc.com 5 Segmental reporting In the opinion of the Directors the Group’s activities comprise three material business segments which reflect the profiles of the risks, rewards and internal reporting structures within the Group. These are as follows: n Redstone n Darkside Studios n Telephony Services All activities were conducted within the United Kingdom and it is the opinion of the Directors that this represents one geographical segment. Revenue Redstone Darkside Studios Telephony Services (Loss)/profit for the year Redstone Darkside Studios Telephony Services Central administration costs Discontinued operations Balance Sheet analysis by segment Redstone Darkside Studios Telephony Services Central administration costs Discontinued operations 2015 £000 29,468 1,099 15,387 45,954 2015 £000 246 51 (13,597) (1,770) - (15,070) 2014 £000 8,020 60 5,923 14,003 2014 £000 1,537 (115) 586 (649) (345) 1,014 2015 2014 Assets Liabilities Assets Liabilities £000 17,458 944 5,923 297 - £000 (8,259) (303) (6,646) (436) - £000 8,053 151 8,894 8,928 12 £000 (6,351) (80) (1,721) (1,839) (56) 24,622 (15,644) 26,038 (10,047) Included in the above table are non-current assets of £9,781,000 (2014: 711,000) for Redstone, £655,000 (2014: 108,000) for Darkside Studios, and £2,731,000 (2014: 6,165,000) for Telephony Services. 40 ©2015 Coms PLC | www.comsplc.com 6 Integration and transactional items Integration costs Transactional items 2015 £000 2,252 (977) 1,275 2014 £000 - - - The integration costs include both employee and other restructuring costs such as provisions in respect of onerous contracts. Employee costs include salary, redundancy and other exit costs. Included in transactional items is the £1,000,000 release of the provision for the Actimax contingent consideration. The performance conditions for the Actimax contingent consideration were not met and accordingly no consideration was paid. 7 Impairment charge The impairment charge comprises the following: Goodwill Other intangible assets Property, plant and equipment Note 13 14 15 2015 £000 6,907 1,360 416 8,683 2014 £000 - - - - Goodwill Goodwill has been impaired as a consequence of the performance of the Telephony Services division, which was sold on 31 May 2015 to Timico Ltd. Other intangible assets During the year, the Board conducted a review of the carrying value of the Group’s other intangible assets. As a result, the Group recorded a £1,360,000 impairment charge for the period, specific to the following: n ADSL 24, a retail customer base acquired in May 2013 for £800,000, was fully written down generating an impairment charge of £794,000. The impairment charge was recognised as the customer base was loss making with no expectation of future profits. n World Telecom, a corporate customer base, acquired in February 2013 for £50,000 was fully written down, generating an impairment charge of £46,000. The impairment charge was recognised as the customer base was loss making with no expectation of future profits. n The network assets purchased in June 2013 from TFM Networks Ltd for £480,000 were fully written down in the period, generating an impairment charge of £480,000. The cost of running the network far exceeds the profitability of the ‘on network’ customer traffic and therefore the Directors took the view that there is no value in this investment. n In August 2013 the Group made an investment of £40,000 to obtain a G-Cloud license (UK Government procurement). Since obtaining the licence, the Group has failed to sign any significant customers and therefore the Board has taken the decision to impair the asset in full, generating an impairment charge in the period of £40,000. Property, plant and equipment During the year, the Directors concluded a review of the carrying value of the Group’s property, plant and equipment, specifically in light of the Board’s decision to vacate certain Group office locations. An impairment charge of £416,000 has been recorded in the consolidated income statement in the period and relates to £264,000 of leasehold improvements and £152,000 of other office equipment. 41 ©2015 Coms PLC | www.comsplc.com 8 Operating (loss)/profit Operating (loss)/profit from continuing operations is arrived at after charging: Cost of Inventory is recognised as an expense Amortisation of intangibles Depreciation of property, plant and equipment Loss/(profit) on disposal of property, plant and equipment Loss on disposal of intangible asset Staff costs (see note 9) Share based payment charge Loss/(gain) on foreign exchange Rentals under operating leases Impairment charge (see note 7) Integration and transactional costs (see note 6) Audit fees -audit of the Company’s financial statements -audit of the Company’s subsidiaries pursuant to legislation Group 2015 £000 15,526 373 820 21 - 16,542 54 40 673 8,683 1,275 52 20 2014 £000 3,845 117 146 (225) 36 4,616 27 - 233 - - 40 5 The analysis of administrative expenses in the consolidated income statement by nature of expense is as follows:- n Administrative staff costs £7,295,000 (2014: £2,264,000) n Operating leases - £673,000 (2014: £233,000) n Depreciation and amortisation - £1,193,000 (2014: £263,000) n Other operating expenses - £3,208,000 (2014: £950,000) ©2015 Coms PLC | www.comsplc.com 42 9 Staff costs The average number of employees was: Sales Technical support Administrative Their aggregate remuneration comprised: Wages and salaries Social security costs Pension costs Group 2015 No. 29 274 56 359 £000 14,908 1,229 405 16,542 2014 No. 12 65 31 108 £000 4,075 485 56 4,616 £9,518,000 (2014: £2,253,000) of the above staff costs were included in cost of sales in the consolidated income statement. 10 Net finance costs Net finance costs Group 2015 £000 245 2014 £000 (415) Included within net finance costs is an amount of £189,000 (2014: £63,000) relating to the unwinding of the discount on the deferred consideration for Redstone. The credit in 2014 relates to a write back of an interest accrual in relation to the Redstone acquisition. ©2015 Coms PLC | www.comsplc.com 43 11a Taxation The Group tax charge for the year can be reconciled to the loss as disclosed in the statement of comprehensive (loss)/income as follows: (Loss)/profit before taxation Tax at the UK corporation tax rate of 21.33% (2014: 23.75%) Discontinued operations Depreciation in excess of capital allowances Items not deductible for tax purposes Capital allowances/profit on disposal Utilisation of losses brought forward Losses carried forward Tax charge for period Deferred taxation Taxation Group 2015 £000 (14,898) (3,178) - 469 18 (98) - 2,789 - 172 172 2014 £000 1,241 295 (82) 54 20 (176) (109) 60 62 (180) (118) At 31 January 2015 the Group had estimated tax losses of £16,648,000 (2014: £5,228,000) to carry forward against future profits. These losses have not been recognised as a deferred tax asset owing to the Directors’ assessment of recoverability in the short term. A reduction in the UK corporation tax rate from 24% to 23% (effective 1 April 2013) was substantively enacted on 3 July 2012. Further reductions to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. In the Budget on 8 July 2015, the Chancellor announced additional planned reductions to 18% by 2020. This will reduce the Company’s future current tax charge accordingly. The deferred tax liability at 31 January 2015 has been calculated based on the rate of 20% substantively enacted at the balance sheet date. ©2015 Coms PLC | www.comsplc.com 44 11b Deferred taxation The analysis of deferred tax assets and deferred tax liabilities is as follows:- Deferred tax assets Deferred tax liabilities Deferred tax (liability)/asset Deferred tax assets comprised of: Trading losses carried forward Group 2015 £000 - (285) (285) - 2014 £000 204 (51) 153 204 The 2015 deferred tax liability of £285,000 relates to the intangible asset acquired during the year. 11c Taxation charge The taxation charge for the year of £172,000 (2014: credit of £118,000) includes a write down of the £204,000 deferred tax asset which was recognised in 2014. The Directors believe that this is not recoverable in light of current trading forecasts. This has been offset by a credit of £32,000 relating to the unwinding of the deferred tax liability recognised on the acquisition of Actimax. 12 Earnings per share Earnings per share data is based on the Group (loss)/profit for the year and the weighted average number of ordinary shares in issue. 2015 2014 Continuing operations Continuing operations Discontinued operations Basic (loss)/profit per share Diluted (loss)/profit per share (Loss)/profit for the year attributable to owners of the parent company (£000) (1.57p) (1.57p) (15,070) 0.24p 0.22p 1,359 Number of shares Total 0.18p 0.17p (0.06p) (0.05p) (345) 1,014 2015 No. 2014 No. Weighted average number of ordinary shares in issue 957,474,129 559,408,855 Weighted average number of potentially dilutive ordinary shares in issue 957,474,129 612,427,892 Warrants and employee share options are non-dilutive in loss making periods. ©2015 Coms PLC | www.comsplc.com 45 13 Goodwill Cost At 1 January 2013 Additions At 31 January 2014 Additions At 31 January 2015 Accumulated impairment charge At 1 January 2013 and 2014 Impairment charge At 31 January 2015 Carrying value at 31 January 2015 Carrying value at 31 January 2014 Carrying value at 31 January 2013 Carrying value of goodwill is allocated as follows: Redstone Darkside Studios Telephony Services Group Note 4 2015 £000 8,724 350 577 9,651 £000 1,952 10,933 12,885 3,673 16,558 - 6,907 6,907 9,651 12,885 1,952 2014 £000 8,724 - 4,161 12,885 During the year the Group acquired 100% of the issued share capital of Actimax and Smarter Mobile UK which gave rise to goodwill of £3,673,000. At the year end the Group recorded an impairment charge in relation to goodwill of £6,907,000. The Impairment charge relates to the Telephony Services division, which was sold post year end on 31 May 2015 to Timico Ltd. Goodwill reported in 2014 included Darkside Studios in Telephony Services. Following the review of strategy Darkside is no longer only used for internal Group purposes, generating its own independent cashflows therefore goodwill is separately identified. Fair value Goodwill on consolidation has been allocated for impairment testing purposes to three cash-generating units (“CGUs”). The CGUs are Redstone, Darkside Studios and the Telephony Services division. The recoverable amount of the Redstone and Darkside Studios CGUs is based on value in use calculations using cash flow projections approved by the Directors covering a three year period. The recoverable amount for the Telephony Services has been based on the post year end disposal of this business unit allowing for post year end losses. The projections for Redstone and Darkside Studios are based on the assumption that the Group can realise projected sales. If the projected sales do not materialise there is a risk that the total value of the intangible assets shown above would be impaired. The Company, in its prudent approach has based its projections on key assumptions of annualised incremental growth in revenue and cost of sales of 5% with 2% attributed to administrative costs. The calculation of residual value has utilised 2% growth rates. Sensitivity analysis indicates that if revenues declined by 10% or administrative expenses increased by 10%, this would not give rise to an impairment charge. Each CGU has its own pre-tax discount rate: 12% has been used for Redstone and 15% for Darkside Studios. These rates take into consideration the Group’s cost of capital, the expected rate of return and various risks relating to the relevant CGU. At the year end, based on these assumptions there is no indication of impairment in the value of the remaining goodwill. 46 ©2015 Coms PLC | www.comsplc.com 14 Other intangible assets Group Development costs Other intangible assets Cost or valuation At 1 February 2013 Additions At 31 January 2014 Additions Acquisition of subsidiaries At 31 January 2015 Accumulated amortisation and impairment At 1 February 2013 Charge for the year At 31 January 2014 Charge for the year Impairment (see note 7) At 31 January 2015 Carrying value At 31 January 2015 At 31 January 2014 At 31 January 2013 £000 216 222 438 - - 438 150 55 205 128 - 333 105 233 66 £000 138 1,570 1,708 16 1,584 3,308 34 56 90 245 1,360 1,695 1,613 1,618 104 Company Other intangible assets £000 138 - 138 - - 138 35 45 80 58 - 138 - 58 103 Total £000 354 1,792 2,146 16 1,584 3,746 184 111 295 373 1,360 2,028 1,718 1,851 170 During the year, the Board conducted a review of the carrying value of the Group’s intangible assets. As a result, the Group recorded a £1,360,000 impairment charge for the period, as detailed in note 7. ©2015 Coms PLC | www.comsplc.com 47 15 Property, plant and equipment Plant & machinery Leasehold improvements Fixtures & fittings Computer equipment Group Cost At 1 February 2013 Acquisition of subsidiaries Additions Disposals At 31 January 2014 Acquisition of subsidiaries Additions Disposals At 31 January 2015 Accumulated depreciation and impairment At 1 February 2013 Acquisition of subsidiaries Charge for the year Disposals At 31 January 2014 Charge for the year Impairment (see note 7) Disposals At 31 January 2015 Carrying value At 31 January 2015 At 31 January 2014 At 31 January 2013 £000 £000 £000 136 13 84 - 233 231 69 (177) 356 108 10 23 - 141 212 - (104) 249 107 92 28 - 633 34 - 667 27 961 (656) 999 - 598 20 - 618 171 264 (656) 397 602 49 - 29 86 84 - 199 114 101 (53) 361 25 62 13 - 100 52 152 (53) 251 110 99 4 £000 85 1,724 661 (488) 1,982 249 324 (2) Total £000 250 2,456 863 (488) 3,081 621 1,455 (888) 2,553 4,269 86 1,568 25 (488) 1,191 385 - (2) 1,574 979 791 - 219 2,238 81 (488) 2,050 820 416 (815) 2,471 1,798 1,031 32 During the year, the Directors concluded a review of the Group’s property, plant and equipment carrying values, specifically in light of the Board’s decision to vacate certain Group office locations. An impairment charge £416,000 has been recorded in the consolidated income statement in the period and relates to leasehold improvements (£264,000) and fixtures & fittings (£152,000). ©2015 Coms PLC | www.comsplc.com 48 16 Inventories Finished goods 17 Trade and other receivables Current Financial assets Trade receivables Amounts recoverable on contracts Other receivables Amounts due from subsidiaries less impairment provisions Taxes and social security costs Accrued income Non-financial assets - prepayments Non-current Group 2015 £000 305 Group Company 2015 £000 5,617 2,773 423 - 96 523 2014 £000 4,255 2,981 568 - 42 121 2015 £000 - - 201 2,585 54 - 9,432 7,967 2,840 1,226 10,658 737 8,704 36 2,876 2014 £000 364 2014 £000 - - 14 - 41 - 55 5 60 Amounts due from subsidiaries less impairment provisions - - - 5,064 The Directors consider that the carrying amount of trade and other receivables equals their fair value. Included within other debtors is an amount of £nil (2014: £401,000) that comprises monies secured against an operating lease. The amounts owed by subsidiary companies are non-interest bearing and repayable on demand. Amounts recoverable on contracts includes contract costs plus recognised profits of £9,239,000 (2014: £8,402,000) less progress billings of £6,869,000 (2014: £5,885,000) and retention monies. 18 Cash and cash equivalents Bank current account Bank current account - overdraft Group Company 2015 £000 492 (878) (386) 2014 £000 999 - 999 2015 £000 5 - 5 2014 £000 85 - 85 The carrying amount of these assets approximates their fair value. The Group’s banking arrangements are secured by a debenture over the assets of the principle operating businesses and cross guarantees. Interest is variable and payable on demand. 49 ©2015 Coms PLC | www.comsplc.com 19 Trade and other payables Current Financial liabilities Trade payables Social security and other taxes Other payables Accruals Deferred consideration Amounts owed to subsidiary company Non-financial liabilities Deferred income Group 2015 £000 5,957 2,030 405 3,207 171 - 11,770 1,833 13,603 2014 £000 3,148 1,296 656 2,806 1,661 - 9,567 429 9,996 Company 2015 £000 177 - - 87 171 254 689 - 689 2014 £000 - - 1,661 179 - - 1,840 - 1,840 The amounts owed to subsidiary companies are non-interest bearing and repayable on demand. The Directors consider that the carrying amount of trade and other payables equals their fair value. During the year a further £1,385,000 deferred consideration was paid to settle the outstanding consideration payable in respect of Redstone which generated a gain of £298,000, leaving £172,000 outstanding at the year end . 20 Provisions Current Onerous contracts Other provisions Group 2015 £000 400 478 878 2014 £000 - - - The Directors have made provision for certain Group offices where the lease is deemed to be onerous, negotiations are on going, however, the Board has made provision for £400,000 as a best estimate. Other provisions relate to customers and supplier issues where the Directors believe that there is a likely cash outflow. 21 Deferred tax liability Non-current Deferred tax liability ©2015 Coms PLC | www.comsplc.com Group 2015 £000 285 285 2014 £000 51 51 50 22 Share capital and reserves The Company’s share capital comprises: Allotted, called up and fully paid: Ordinary shares of 0.1p each Deferred shares of 1p each Deferred shares of 0.1p each 2015 Number 2014 Number 973,254,149 127,144,044 821,789,864 127,144,044 770,714,046 770,714,046 2015 £000 973 1,271 771 3,015 Movements in issued and fully paid ordinary shares capital Placing Placing fee EMI Share exercise Warrant Exercise MI Share exercise Total movement In the year At 31 January 2014 At 31 January 2015 Number 138,333,333 - Issue price 6p - 10,250,000 0.825p 2.7p 0.84p 500,000 2,380,952 151,464,285 821,789,864 973,254,149 Share capital £000 138 - 10 1 2 151 822 973 Share premium £000 8,162 (415) 74 13 18 7,852 19,964 27,816 Merger reserve £000 - - - - - - 1,911 1,911 2014 £000 822 1,271 771 2,864 Total £000 8,300 (415) 84 14 20 8,003 22,697 30,700 The share premium account comprises the amount subscribed for share capital in excess of nominal value. The merger reserve arose where equity shares were allotted on the acquisition of subsidiaries and represents the difference between the fair value attributed to the share allotment in excess of the nominal value of the shares allotted. The reverse acquisition reserve arose on the acquisition of Coms.com Limited which was accounted for as a reverse acquisition. Under IFRS the consolidated accounts of Coms plc are treated as though they are a continuation of the consolidated accounts of Coms.com Limited. The reverse acquisition reserve represents the difference between the initial equity share capital of Coms plc and the share capital and share premium of Coms.com Limited at the date of acquisition. The accumulated deficit represents the cumulative loss of the Group attributable to equity shareholders of Coms plc. ©2015 Coms PLC | www.comsplc.com 51 23 Retirement benefit schemes The Group operates a defined contribution company pension scheme for the Directors and employees. The assets of the scheme are held separately from those of the Company. The annual contributions payable are charged to the income statement. For the period, pension costs incurred were £405,000 (2014: 56,000) with £293,000 (2014: £35,000) being included in cost of sales. 24 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. Remuneration of key management personnel During the year there were a number of transactions between the Company and its Directors. Directors’ fees Director’s fees of £91,000 (2014: £39,000) were paid to Gladstone Consultancy Partnership, of which Iain Ross is a partner, in respect of services provided by Iain Ross; £18,000 (2014: £9,000) was outstanding at the year end. Director’s fees of £49,000 (2014: £7,000) were paid to Warspite Limited, a company connected to Diana Dyer Bartlett, in respect of services provided by Diana Dyer Bartlett; £23,000 (2014: £2,000) was outstanding at the year end. Director’s fees of £43,000 (2014: £62,000) were paid to Iridian Consulting Services Limited, a company connected to Stephen Foster, in respect of services provided by Stephen Foster; £3,000 (2014: £2,000) was outstanding at the year end. Graham Herring provided services totalling £7,000 (2014: £8,000) during the year; at the year end nil was outstanding (2014: £2,000). Directors’ transactions Products and services During the year the Company entered into the following trading activities with companies or partnerships connected with Dave Breith: n The Group utilised the billing platform, Ask Merlin, and the associated direct debit services provided by Payment Centre for which it paid licence fees of £105,000 (2014: £63,000). In addition, the Group incurred £304,000 (2014: £157,000) maintenance and development costs in relation to Ask Merlin. n The Group sourced hardware from Vitrx Limited on arm’s-length terms. During the year, purchases amounting to £135,000 (2014: £118,000) were made and the balance outstanding at 31 January 2015 to Vitrx was £36,000 (2014: £2,000). n The Group purchased marketing and website services from Blabbermouth Marketing Limited on arm’s length terms. During the year services provided amounted to £158,000 (2014: £53,000) and the amount due to Blabbermouth at the period end was £15,000 (2014: £2,000). n During the year the Group supplied services to Sugar Cube Animation amounting to £92,000 (2014: £nil). At the year end the Group held a deposit from Sugar Cube Animation of £108,000 (2014: £nil). ©2015 Coms PLC | www.comsplc.com 52 25 Commitments a) Capital commitments There were no capital commitments at 31 January 2015 (2014: £nil). b) Operating lease commitments The Group leases office buildings and warehousing under licences/leases to occupy. Lease 1 – has a life of 57 months terminating in September 2018. Lease 2 – has a life of 5 years terminating in September 2018. Lease 3 – has a life of 10 years terminating in June 2024. Future minimum lease payments under non-cancellable operating leases are as follows: 2015 Property Within one year After one year but not more than 5 years After 5 years 26 Financial instruments £000 263 1,901 848 3,012 2015 Vehicles £000 99 103 - 202 2014 Property £000 245 1,701 - 1,946 2014 Vehicles £000 73 59 - 132 Financial instruments In common with other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. The significant accounting policies regarding financial instruments are disclosed in the section ‘Financial assets and liabilities in note 2’. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows: Financial assets Financial liabilities Group Company Note 17 19 2015 £000 9,432 11,770 2014 £000 7,967 9,567 2015 £000 2,840 689 2014 £000 55 1,840 There were no material differences between the fair value and the carrying amounts of the Group’s financial instruments. ©2015 Coms PLC | www.comsplc.com 53 Financial risk management The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, while retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s finance function. The overall objective of the Board is to set polices that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below: Credit risk Credit risk is the risk that a counterparty to a transaction with the Group fails to discharge its obligations in respect of the instrument. The Group’s credit risk arises on (i) transactions with customers in connection with delivery of products or services (ii) cash and cash equivalents placed with banks and financial institutions Management focuses strongly on working capital management and the collection of due invoices. Regular reports of overdue invoices are circulated amongst senior management and the Board reviews debtor days each month as part of the monthly reporting cycle. The risk with any one customer is limited by constant review of debtor balances and amounts receivable on contracts and action to resolve any issues preventing discharge of obligations. As at 31 January 2015 the ageing analysis of trade receivables of the Group is as follows: Total £000 5,617 4,255 2015 2014 Not yet due 0-60 days 60-90 days >90 days £000 2,197 1,907 £000 2,004 1,457 £000 620 432 £000 796 459 Credit risk on cash and cash equivalents is reduced by placing funds with banks with high credit ratings. Liquidity risk Liquidity risk is the risk that the Group cannot meet financial liabilities when they fall due. The Group’s policy for managing liquidity risk is to ensure that the business has enough financial resources to carry out its day-to-day activities at any point in time. Management believes that the cash resources on hand, together with the profits of the business, more than cover the resources needed to meet the financial liabilities of the Group. Interest rate risk The Group has no interest-bearing liabilities in the form of long-term bank borrowings and accordingly there is no associated interest rate risk. There is no significant interest rate risk in respect of temporary surplus funds invested in deposits and other interest-bearing accounts with financial institutions as the operations of the Group are not dependent on the finance income received. However it is the Group’s policy to manage the interest rate risk over the cash flows on its invested surplus funds by using only substantial financial institutions when such funds are invested. ©2015 Coms PLC | www.comsplc.com 54 Capital The Group considers its capital to comprise its ordinary share capital, deferred share capital, share premium, merger reserve, reverse acquisition reserve and accumulated retained deficit as its capital reserves. A summary of the amounts of capital in each of these categories is shown in the consolidated statement of changes in equity on page 28. In managing its capital, the Group’s primary objective is to provide a return for its equity shareholders through capital growth. Going forward the Group will seek to maintain a gearing ratio that balances risks and returns at an acceptable level and also to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs. In making decisions to adjust its capital structure to achieve these aims, either through new share issues or the issue of debt, the Group considers not only its short-term position but also its long-term operational and strategic objectives. There have been no other significant changes to the Group’s management objectives, policies and processes in the year nor has there been any change in what the Group considers to be capital. Currency risk The Group occasionally provides services in markets outside the UK. All material equity and financial liabilities are contracted in Sterling and hence there is no significant currency risk. ©2015 Coms PLC | www.comsplc.com 55 27 Fixed asset investments Details of the Company’s subsidiaries at 31 January 2015 are as follows: Subsidiary Comunica Holdings Limited Redstone Converged Solutions Limited 3 Coms Media Limited 6 CloudXL Limited 6 CloudXL Networks Limited 6 CloudXL Support Limited 6 Coms.Com Limited Coms Enterprise Limited Coms Mobile Ltd Premium O Limited 5 Superline Telecommunications Limited 1 Smarter Mobile UK Limited 7 Systems Online Limited 6 Actimax 1 Limited 6 Universal Office Automation Limited 6 Network Resource Limited 6 Network Resource Group Limited 6 Darkside Animation Limited 2 Clicks Media Limited 2 Cominica Group Limited 4 Place of incorporation and operation Proportion of ownership interest Proportion of voting power held % % England England England England England England England England England England England England England England England England England England England England 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Nature of business Holding company Infrastructure Media Telecommunications Telecommunications Telecommunications Telecommunications Telecommunications Telecommunications Telecommunications Telecommunications Telecommunications Telecommunications Dormant Dormant Dormant Dormant Dormant Dormant Dormant 1 Superline Telecommunications Limited is a wholly-owned subsidiary of Coms Mobile Limited (formerly ExchangeXT Limited) 2 Darkside Animation Limited and Clicks Media Limited are wholly-owned subsidiaries of Coms Media Limited 3 Redstone Converged Solutions Limited is a wholly-owned subsidiary of Comunica Holdings Limited 4 Comunica Group Limited is a wholly-owned subsidiary of Redstone Converged Solutions Limited 5 Premium-O Limited and Coms Media Limited are wholly owned by Coms.com Limited 6 All Actimax entities are owned by Coms Enterprise Limited. 7 Smarter Mobile UK Limited is owned by Coms Mobile Limited. ©2015 Coms PLC | www.comsplc.com 56 Investment in subsidiaries Cost At 31 January 2013 Additions At 1 February 2014 At 31 January 2015 Accumulated amortisation and impairment At 1 February 2013 and 2014 Impairment charge At 31 January 2015 Carrying value At 31 January 2015 At 31 January 2014 At 31 January 2013 Total £000 5,989 9,247 15,236 15,236 3,289 2,700 5,989 9,247 11,947 2,700 The carrying value of the investment at the year end represents Redstone, a wholly owned subsidiary. The impairment charge recorded in the year of £2,700,000 reflects the write down in the carrying value of investment in the Telephony Services businesses. 28 Post balance sheet events On 26 May 2015 the Group announced the disposal of the business and certain assets of its Telephony Services companies to Timico Limited for an initial consideration of £2.5m payable in cash and contingent consideration of up to a further £1.0m payable in cash, based on the trading performance in the period to 30 November 2015. Completion of the disposal took place on 31 May 2015. The Group retained the benefit of its trade debtors; Timico assumed responsibility for all key supplier arrangements in respect of trading following completion, however, the Group will retain certain liabilities, including the two leasehold properties occupied by the Telephony Services businesses. Under a transitional services agreement, the Group is required to retain the Stokenchurch office for up to six months post completion. Following the disposal, the Group comprises Redstone and Darkside Studios. After the sale of the Telephony Services businesses, the Group raised an additional £2.1m through a placing and open offer before expenses. The placing issued 2,000,000 new ordinary shares at 0.5p per share with certain institutional and other investors,including the Directors of Coms Plc, to raise approximately £1.0m before expenses. The open offer involved the issue of 216,278,646 new ordinary shares at 0.5p per share to raise £1.1m before expenses. ©2015 Coms PLC | www.comsplc.com 57 29 Options and warrants The Company had the following share options and warrants outstanding at 31 January 2015: Warrants Unapproved options Warrants EMI options Warrants Warrants Warrants Warrants Warrants Warrants EMI options Number 100,000 260,000 5,000,000 11,500,000 1,000,000 4,000,000 1,000,000 2,000,000 1,000,000 3,000,000 3,333,333 Unapproved options 23,040,000 Date granted Price per share Vesting period 20 May 08 20 May 08 18 Jan 13 20 Mar 13 10 Jun 14 12 Jun 13 12 Jun 13 30 Sept 13 10 July 14 10 July 14 1 Oct 13 1 Nov 13 50p 50p 0.75p 0.825p 5.0p 5.0p 5.0p 5.0p 6.0p 7.0p 3.0p 3.5p 20 May 08 – 19 May 18 20 May 08 – 19 May 18 18 Jan 13 – 17 Jan 15 20 Mar 13 - 19 Mar 15 10 June 14 - 09 Jun 23 12 Jun 13 - 11 Jun 23 12 Jun 13 - 11 Jun 23 30 Sept 14 - 29 Sept 23 10 July 14 - 09-July 24 10 July14 - 09 July 24 01 Oct 13- 30 Sept 15 01 Nov 13 - 31 Oct 15 30 Share based payments The Company has issued warrants and options enabling the holders to subscribe for ordinary shares of 0.1p each. Outstanding at start of year Restated EMI Options Granted during the year Lapsed during the year Forfeited during the year Exercised during the year Outstanding at end of year Exercisable at end of year 2015 2014 Number 110,805,641 - 4,000,000 (1,814,689) (44,626,667) (13,130,952) 55,233,333 28,360,000 Weighted average exercise price 1.80p - 6.75p 5.00p 3.28p 0.90p 3.38p 2.74p Number 29,450,876 (6,682,857) 187,712,033 - - (99,674,411) 110,805,641 17,269,927 Weighted average exercise price 1.80p 1.80p 2.86p - - 3.22p 1.80p 3.90p A charge of £54,000 (2014: £27,000) has been made for the share based payments. The weighted average remaining contractual life of outstanding share options is 1005 days (2014: 608). ©2015 Coms PLC | www.comsplc.com 58 If you would like to find out more. Contact us: Redstone t: 0845 201 0000 e: salesenquiries@redstone.com w: redstone.com ©2015 Coms PLC | www.coms.com Darkside Studios t: 020 7148 1500 e: sayhello@darksidestudios.uk w: darksidestudios.uk 59
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