SOURCE: One Horizon Group, Inc.

One  Horizon Group, Inc.

November 17, 2014 15:17 ET

One Horizon Group Announces Third Quarter 2014 Results

BAAR, SWITZERLAND--(Marketwired - Nov 17, 2014) - One Horizon Group, Inc. (NASDAQ: OHGI) ("One Horizon" or the "Company"), which develops and licenses bandwidth efficient mobile voice over Internet Protocol ("VoIP") platform for smart phones, announced financial results for the three and nine months ended September 30, 2014.

One Horizon developed a proprietary VoIP platform ("Horizon Platform") that enables wireless carriers around the world to provide customized and optimized voice and data services over any mobile, fixed and satellite network through an easy to install mobile app. Its SmartPacket™ technology underlying the Horizon Platform enables greater bandwidth efficiency by reducing IP overhead and optimizing packet flow, delivery and playback. One Horizon targets emerging markets with high population densities, high penetration of mobile phones, congested mobile networks, and high growth in smartphone adoption. It has formed several joint ventures with local partners in different countries to capitalize on those opportunities.

Mobile operators pay an annual software licensing fee to the Company and tiered user fee for each active subscriber using the white-label VoIP service powered by the Horizon Platform. As the subscribers opt in, the company receives the user fee. The Company continues to expand its revenue sources to mobile advertising and mobile payments by introducing new value-added services and features.

Recent Development Highlights:

  • Smartfren Telecom, Tbk in Indonesia commenced the rollout of a pre-paid VoIP Smartphone app using One Horizon's software platform

  • One Horizon and Singapore Telecommunications Limited ("SingTel") signed deal to deliver optimized VoIP to smartphones for mobile satellite users

  • Smart Communications, Inc., launched a pre-paid VoIP Smartphone app using One Horizon's optimized software platform.

  • Continued building up the Chinese core network rollout for the Aishou B2C service with virtual SIM solution. The service is fully integrated with Alibaba UnionPay App payment solution. 

  • Founder and CTO Brian Collins named CEO in July

  • Received approval to uplist our common stock to on NASDAQ Capital Market

"We believe that winning new business with SingTel, Smart and Smartfren demonstrates the acceptance of our carrier-grade technology by tier one operators, especially in Asia which is reported to have approximately 500 million smartphone users in a recent Frost & Sullivan report," stated Brian Collins, Founder and CEO of One Horizon. "The actual rollout of these apps over these respective carriers' networks is the culmination of years of work on our platform and a validation that we have created an added value that has passed their stringent requirements. Not only are we benefitting the carrier, we are allowing them to offer a service that gives current and prospective customers at home, out to sea, or overseas, the ability to call to and from home at great local rates." 

"Going forward, we feel that our current contract backlog of $65.81 million, of which only $9.65 million was recognized through September 30, 2014, shows the great potential of our existing contracts and our growth into 2015 and beyond. That being said, we are fully committed to adding more operators to our customer base and assisting them in the rollout of our platform," continued Mr. Collins. 

Third Quarter 2014 Financial Results

Revenues for the three months ended September 30, 2014 was approximately $1.641 million as compared to approximately $2.517 million for the three months ended September 30, 2013, a decrease of roughly $0.88 million, or 34.8%. The decrease was primarily due to revenue recognized on a Global Exchange sale to a major tier one telecommunications company based in Asia of $0.5 million and also amounts under contracts signed in prior periods which were recognized in the comparative period. Going forward, the Company expects this trend to reverse as more companies have signed up for the Horizon Platform. In addition to the sales of Master Licenses of approximately $602,000, the Company recognized approximately $1,039,000 from the sale of hardware, user licenses, consultancy and maintenance services during the three months ended September 30, 2014.

Cost of goods sold was approximately $762,000 or 46.4% of sales for the three months ended September 30, 2014, compared to cost of revenue of $543,000 or 21.6% of sales for the prior year. The increase in cost of goods was mainly attributed to an increase in sales of ancillary hardware and the associated cost of sale during the three months ended September 30, 2014 as compared to the same quarter in 2013.

Gross profit and gross margin for the three months ended September 30, 2014 was approximately $879,000 and 53.6% as compared to $1.97 million and 78% for the comparative period in 2013. The decrease was mainly due to reduced revenue. 

Operating expenses for the three months ended September 30, 2014 declined $107,000 to approximately $1.29 million from $1.39 million during the same period in the previous year.

The Company recorded a net loss of $371,000 and a net loss per share of $0.01 as compared to net income of approximately $398,000 and earnings per share of $0.01 for the same period in 2013. The decrease was primarily due to revenue recognized under amended Revenue Recognition policy on Master Licenses during the quarter ended September 30, 2013 from contracts signed in 2011, 2012 and 2013 totaling $1.55 million of which only $0.71 million related to contracts signed in the actual quarter coupled with a slight increase in cost of sales as a result of an increase in the sales of ancillary hardware and the associated cost of sale. Management believe the net loss will decrease and eventually become net income going forward with our growth in the sales and operations; provided that we are able to successfully sell Horizon Platform solution to new telecommunications companies globally.

Nine Months 2014 Financial Results

Our revenue for the nine months ended September 30, 2014 was approximately $4.13 million as compared to approximately $5.69 million in the same period a year ago. Gross profit and gross profit margins were $2.27 million and 54.9% respectively for the nine months ended September 30, 2014.

Operating expenses for the nine months ended September 30, 2014 declined to $3.70 million from $5.16 million during the same period in 2013. Net loss for the nine months ended September 30, 2014 was approximately $1.35 million as compared to net loss of approximately $1.65 million for the same period in 2013.

Net loss and net loss per share attributable to common stockholders for the nine months ended September 30, 2014 were $1.3 million and $0.04, respectively, compared to a net loss of $1.6 million and a net loss per share of $0.05 during the same period in 2013. The weighted average shares outstanding increased to 32.97 million for the nine months ended September 30, 2014 from 31.54 million as of December 31, 2013.

Financial Condition

The Company had $22.0 million of assets and $15.9 million shareholders' equity as of September 30, 2014. Cash outflows from operations were $1.3 million for the nine months ended September 30, 2014.

On July 21, 2014, One Horizon closed a private placement of $1,000,000 for a total of 10 units of securities at a purchase price of $100,000 per Unit, each consisting of (i) 17,094 shares of the Company's Series A Redeemable Convertible Preferred Stock, par value $0.0001 per share, initially convertible into 17,094 shares of the Company's common stock, par value $0.0001 per share, and (ii) 10,000 Class B Warrants, each exercisable to purchase 1 share of Common Stock at an exercise price of $4.00 per share.

Business Updates

On November 12, 2014 Smartfren Telecom, Tbk of Indonesia announced the rollout of a pre-paid smart phone app using our platform. The service, branded SmartCall, will be available in Google Play later in the year. This service rollout represents yet another tier 1 mobile carrier deployment in Asia.

During the third quarter, our One Horizon mobile VoIP app was added by SingTel to their existing One Horizon software platform for mobile satellite services. SingTel is Asia's leading communications group with over 500 million mobile customers in 25 countries, including Bangladesh, India, Indonesia, the Philippines and Thailand.

SingTel AIO Connect is a comprehensive unified communications service for both business users and crew onboard ships. It enables instant messaging, email, Internet surfing, Voice-over-IP (VoIP) and voicemail in a single, integrated application. This service has already succeeded in bringing optimized VoIP, Messaging over IP and compressed Internet surfing to SingTel's mobile satellite subscribers connected using mobile Internet over satellite; the toughest of all mobile Internet environments. This mobile VoIP app can be downloaded from the Apple App Store and Google's Play Store

Smart Communications, Inc, ("Smart") launched a pre-paid VoIP Smartphone application using our optimized software platform. Smart is the Philippines' leading wireless services provider with 57.3 million subscribers on its GSM network as of end-June 2013. Smart rolled out its smartphone mobile app, branded Link Plus, as a pre-paid Over The Top ("OTT") Android App that is available to download from the Google Play Store. Once Link Plus is installed on the smartphone, the user's app will receive a new Virtual SIM Filipino telephone number from Smart.

During the last quarter, we have completed the successful installation of eight servers in support of Chinese smart phone app with interconnects to the ALiPay and UnionPay credit card and micro-payments services in China. The smart phone app will be able to provide various optimized internet value added services to its mobile subscribers including but not limited to voice and social media services including text, picture, video and geo-location messaging. These value added services are made possible through the creation of a "Virtual SIM" and One Horizon's proprietary communication software, an industry first. Combined with One Horizon's location aware mobile advertising services, the Aishuo branded smart phone app is expected to drive multiple revenue streams from the supply of its value-added services.

We continued building up the Chinese core network rollout. The Global Exchange (network control center) was placed in a high availability Data Center in Shanghai and eight (8) Horizon line servers were connected to the telecommunications network. 

We continued to expand our Irish software development team with the addition of a new senior software developer at our recently opened software research and development office at the Nexus Innovation Center on the campus of the University of Limerick. As part of this process, we signed an agreement with the Industrial Development Agency (IDA) Ireland whereby IDA granted certain financial assistance toward the cost of establishing and carrying a service undertaking for a software development center in Ireland in connection with our VoIP software platform. The software development center is intended to give employment of 25 persons and could allow us to more quickly increase the size of this research and development team.

We expanded our software development capabilities for China by hiring 4 new junior software developers in our Horizon Nanjing JV, known as Horizon Network Technology Co. Ltd. We believe that the expansion of our software development team at our Chinese joint venture will support the company's strategy of continuing to develop our products in areas with high population density, high penetration of mobile phones, congested mobile cellular networks and high growth in the adoption of smartphones while working within the constraints of local regulations.

During the quarter we continued our research and development of the Horizon product platform. The Swiss based team made significant strides towards the next generation of the product suite with particular emphasis going to the User Interface (UI) re-engineering. Further to the UI the Research and Development for version 2.0, our Irish based team made progress on the latest multi-core solution and released this software in the third quarter of 2014. 

On July 28, 2014, we appointed Brian Collins, Vice President and the Chief Technology officer of the Company, the Chief Executive Officer of the Company. Mr. Collins is the co-inventor of the Horizon Platform, and has over 20 years' experience in the technology sector with a background in software engineering. Mr. Collins brings experience in founding and operating technology companies along with his extensive knowledge of software engineering.

One Horizon received approval to commence trading on NASDAQ Capital Markets under the same ticker symbol "OHGI" on July 9, 2014.

About One Horizon Group, Inc.

One Horizon Group Inc.'s business is to optimize communications over the Internet through its wholly owned subsidiary, Horizon Globex GmbH, Baar, which develops and markets one of the world's most bandwidth-efficient mobile voice over Internet Protocol (VoIP) platforms for smartphones, and also offers a range of other optimized data applications including messaging and mobile advertising. Horizon Globex GmbH is an ISO 9001 and ISO 20000-1 certified company. The Company has operations in Switzerland, the United Kingdom, China, India, Singapore, Hong Kong and Ireland. For more information on the Company, its products and services, please visit http://www.onehorizongroup.com.

Safe Harbor Statement

This news release may contain "forward-looking" statements. These forward-looking statements are only predictions and are subject to certain risks, uncertainties and assumptions that could cause actual results to differ from those in the forward looking-statements. Potential risks and uncertainties include such factors as uncertainty of consumer demand for the Company's products, as well as additional risks and uncertainties that are identified and described in Company's SEC reports. Actual results may differ materially from the forward-looking statements in this press release. Statements made herein are as of the date of this press release and should not be relied upon as of any subsequent date. The Company does not undertake, and it specifically disclaims, any obligation to update any forward-looking statements to reflect occurrences, developments, events or circumstances after the date of such statement.

   
   
ONE HORIZON GROUP, INC.  
Condensed Consolidated Balance Sheets  
September 30, 2014 and December 31, 2013  
(in thousands, except share data)  
(Unaudited)  
   
    September 30,     December 31,  
    2014     2013  
Assets                
                 
Current assets:                
Cash   $ 650     $ 2,070  
Accounts receivable     8,916       7,264  
Other assets     624       139  
Total current assets     10,190       9,473  
                 
Property and equipment, net     239       315  
Intangible assets, net     11,515       12,760  
Investments     20       23  
Total assets   $ 21,964     $ 22,571  
                 
Liabilities and Stockholders' Equity                
                 
Current liabilities:                
Accounts payable   $ 693     $ 661  
Accrued expenses     1,248       964  
Accrued compensation     14       59  
Income taxes     94       117  
Amounts due to related parties     3,500       3,500  
Current portion of long-term debt     72       65  
Total current liabilities     5,621       5,366  
                 
Long-term liabilities                
                 
Long term debt, net of current portion     129       184  
Deferred income taxes     235       445  
Mandatorily redeemable preferred shares     90       90  
Total liabilities     6,075       6,085  
                 
Stockholders' Equity                
Preferred stock:                
$0.0001 par value, authorized 50,000,000; issued and outstanding 170,940 shares (December 2013 nil)     1       -  
Common stock:                
$0.0001 par value, authorized 200,000,000 shares issued and outstanding 33,035,069 shares (December 2013 32,920,069)     3       3  
Additional paid-in capital     30,025       28,269  
Deferred compensation     (268 )     -  
Accumulated deficit     (14,578 )     (13,319 )
Accumulated other comprehensive income     398       1,137  
  Total One Horizon Group, Inc. stockholders' equity     15,581       16,090  
Non-controlling interest     308       396  
Total stockholders' equity     15,889       16,486  
                 
Total liabilities and stockholders' equity   $ 21,964     $ 22,571  
                 
                 
                 
ONE HORIZON GROUP, INC.  
Condensed Consolidated Statements of Operations  
For the three and Nine months ended September 30, 2014 and 2013  
(in thousands, except share data)  
(unaudited)  
   
  Three Months ended September 30,     Nine Months ended September 30,  
  2014     2013     2014     2013  
                               
Revenue $ 1,641     $ 2,517     $ 4,130     $ 5,690  
                               
Cost of revenue:                              
  Hardware   285       34       413       522  
  Amortization of software development costs   477       509       1,446       1,359  
Gross margin   879       1,974       2,271       3,809  
                               
Expenses:                              
    General and administrative   1,259       1,347       3,577       5,041  
    Depreciation   26       45       120       120  
    1,285       1,392       3,697       5,161  
                               
Income (loss) from operations   (406 )     582       (1,426 )     (1,352 )
                               
Other income and expense:                              
    Interest expense   0       (96 )     (2 )     (108 )
    Interest expense - related parties   (14 )     (50 )     (107 )     (150 )
    Foreign exchange   (5 )     (38 )     (24 )     (38 )
    Interest income   -       -       2       -  
    (19 )     (184 )     (131 )     (296 )
                               
Income (loss) before income taxes   (425 )     398       (1,557 )     (1,648 )
                               
Income taxes expense (benefit)   (54 )     -       (210 )     -  
                               
Net income (loss) for the period   (371 )     398       (1,347 )     (1,648 )
                               
Loss attributable to the non-controlling interest   (23 )     (29 )     (88 )     (73 )
                               
Net income (loss) for the period attributable to One Horizon Group, Inc. $ (348 )   $ 427     $ (1,259 )   $ (1,575 )
Less: Preferred stock dividends   (19 )     -       (19 )     -  
Net income(loss) attributable to common stockholders   (367 )     427       (1,278 )     (1,575 )
Earnings (loss) per share attributable to One Horizon Group, Inc. shareholders                              
                               
    Basic and diluted net income (loss) per share $ (0.01 )   $ 0.01     $ (0.04 )   $ (0.05 )
                               
Weighted average number of shares outstanding                              
    Basic and Diluted   33,029       31,767       32,966       31,538  
                                   
                                   
                                   
ONE HORIZON GROUP, INC.  
Condensed Consolidated Statements of Comprehensive Income (Loss)  
For the three and nine months ended September 30, 2014 and 2013  
(in thousands)  
(unaudited)  
   
  Three Months ended September 30,     Nine Months ended September 30,  
  2014     2013     2014     2013  
                               
Net income (loss) $ (371 )   $ 398     $ (1,347 )   $ (1,648 )
Other comprehensive income (loss):                              
Foreign currency translation adjustment gain (loss)   (674 )     532       (739 )     482  
Total comprehensive income (loss)   (1,045 )     930       (2,086 )     (1,166 )
                               
Comprehensive loss attributable to the non-controlling interest   (23 )     (29 )     (88 )     (73 )
                               
Comprehensive income (loss) attributable to One Horizon Group, Inc. $ (1,022 )   $ 959     $ (1,998 )   $ (1,093 )
                               
                               
                               
ONE HORIZON GROUP, INC.  
Condensed Consolidated Statements of Cash Flows  
For the nine months ended September 30, 2014 and 2013  
(in thousands)  
(unaudited)  
   
    2014     2013  
             
Cash provided by (used in) operating activities:                
                 
Net income (loss) for the period   $ (1,259 )   $ (1,575 )
                 
Adjustment to reconcile net income (loss) for the period to                
Net cash provided by (used in) operating activities:                
Depreciation of property and equipment     120       120  
Amortization of intangible assets     1,446       1,359  
Change in allowance for doubtful accounts     130       -  
Common stock issued for services received     120       643  
Options issued for services received     387       -  
Deferred income taxes     (210 )     -  
                 
Net income (loss) attributable to non-controlling interest     (88 )     (73 )
Changes in operating assets and liabilities:                
                 
  Accounts receivable     (1,782 )     (3,865 )
  Other assets     (482 )     (193 )
  Accounts payable and accrued expenses     271       997  
                 
Net cash provided by (used in) operating activities     (1,347 )     (2,587 )
                 
Cash used in investing activities:                
                 
Acquisition of intangible assets     (874 )     (831 )
Acquisition of property and equipment     (48 )     (121 )
Other assets     -       (196 )
                 
Net cash (used in) investing activities     (922 )     (1,148 )
                 
Cash provided by (used in) financing activities:                
                 
Increase (decrease) in long-term borrowing, net     (48 )     (10 )
                 
                 
Net proceeds from issuance of preferred stock     982       -  
Proceeds from issuance of common stock     -       6,000  
                 
Repurchase of common stock     -       (2 )
Advances from related parties, net of repayment     -       500  
                 
Net cash provided by (used in) financing activities     934       6,488  
                 
Increase (decrease) in cash during the period   $ (1,335 )   $ 2,753  
Foreign exchange effect on cash     (85 )     -  
                 
Cash at beginning of the period     2,070       699  
                 
Cash at end of the period   $ 650     $ 3,452  
                 

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