Telit Communications Plc
AIM : TCM

Telit Communications Plc

September 19, 2005 02:04 ET

Telit Communications PLC: Interim Results for six months ended 30 June 2005

LONDON, UNITED KINGDOM--(CCNMatthews - Sept. 19, 2005) - Telit Communications PLC ("Telit" or "the Company")(AIM:TCM), the global wireless communications developer and distributor, today announces its maiden Interim Results for the six months ended 30 June 2005.

Highlights

- Turnover increased 23% to EUR 36.6 million (2004: EUR 29.9 million on a proforma basis).

- Gross profit increased 40% to EUR 6.6 million (2004: EUR 4.7 million).

- Gross profit margins increased to 18.04% in the first half of 2005 against 15.8% in the corresponding period of 2004.

- Operating loss decreased by 45% to EUR 1.2 million (2004: EUR 2.2 million).

- Pre-tax loss decreased 45% to EUR 0.9 million (2004: EUR 1.8 million loss excluding exceptional income from the write off of a loan made in the first half of 2004 of EUR 12.1).

- Significant growth achieved in the Branded EVAR Business Unit with sales increasing by 31.5% coupled with growth in gross profits. This division increased operating profits by 118% over the comparative period of 2004.

- In the Data Products Business Unit, turnover increased 7.3% compared to the first half of 2004, leading to a 12% decrease in operating losses. The comparative results in the first half of 2004 are excluding technology licensing and module sales agreements of EUR 1.2 million to a customer based in the Far East as this contract was terminated by Telit at the beginning of 2005.

- Continued investment in the Data Products Business Unit, with particular emphasis on expansion of the sales network, through distribution agreements in 44 countries and through the opening of sales offices in a number of countries in order to establish and expand the Company's future sales.

Commenting on the results, Oozi Cats, Chief Executive Officer of Telit, said:

"Following Telit's successful admission to AIM, we have made significant progress over the corresponding period in 2004.

"We have significantly developed the Branded EVAR Business Unit, our cash generator, with direct sales to operators in Italy and Israel as well as sales in the open market. In addition, we have expanded our offering and now offer a comprehensive line of products to the market.

"In the Data Products Business Unit, our future value creator, we have continued to invest in research and development of new products with our customers. We have seen a significant expansion in the infrastructure of this division with particular emphasis on the development of a global sales network.

"We have significantly increased our marketing and distribution organization by entering into distribution agreements with 22 distributors in 44 countries.

"In addition, we have continued our development of a direct sales organisation in new markets by opening sales offices in a number of countries.

"We are very encouraged by our first half results, and we expect growth to continue."



For further information:

Telit Communications plc
Oozi Cats, Chief Executive Tel: 00 39 040 419 2491
www.telit.com

Media enquiries:

Abchurch
Chris Lane / Katherine Murphy Tel: +44 (0) 20 7398 7700
chris.lane@abchurch-group.com www.abchurch-group.com


CHIEF EXECUTIVE'S STATEMENT AND REVIEW

Introduction

We are pleased to present Telit Communications PLC's first Interim Report since the Company's successful flotation on AIM in April this year and I am delighted to be able to inform shareholders that we achieved strong growth for the six month period ended 30 June 2005.

During the first half of the year we completed our listing on AIM raising Pounds Sterling 23 million to invest in our two main business units and in our expansion strategy. At the same time, we have continued revenue and profit growth.

Corporate governance

We are seeking to establish Telit as a U.K. company with high levels of corporate governance, financial reporting and controls, and investor relations. At Telit we have put in place a professional and experienced board, with two independent directors as well as remuneration and audit committees. We report under International Financial Reporting Standards, and we have recently launched a new investor relation's web site at www.telit.com.

Financial results

In line with the indications we provided in our trading update on 13 July 2005, the results for the first half of the year have been consistent with our expectations and demonstrate significant improvement in the Company's performance.

Sales reached EUR 36.6 million in the first half of the year, an increase of 23%, with the gross profit margin reaching a level of 18%, an increase of 14% against the first half of 2004.

These improvements in sales and gross profit margin have led to a 45% decrease in operating losses.

Branded EVAR Business Unit

The Branded EVAR business unit is currently Telit's main revenue and profit generator.

The Branded EVAR division develops software and hardware in its laboratories located in Trieste, Italy and Tel Aviv, Israel for integration into cellular phones as well as other cellular-communication-based devices. We offer a comprehensive product portfolio that includes several different types of mobile handsets, including CDMA, GSM, Smartphones and UMTS phones. Telit incorporates its own comprehensive design and then distributes the products to the main mobile operators and independent resellers under the well-known brand Telit.

During the first half of 2005 sales from Branded EVAR increased by approximately 31.5% compared to the first half of the prior year. In addition to the increase in sales, the gross profit margin increased by 29% reaching a level of 17% in the first half of 2005.

These solid results have led to a 118% increase in operating profits for the Branded EVAR Business Unit compared to the corresponding period last year.

We have significantly increased sales to operators particularly in Israel and Italy.

During this period, the Company appointed Renato Tomasini as head of Branded EVAR for Italy. Mr. Tomasini brings 15 years of experience with Telit, Motorola, Siemens and Mobile Italia, and as General Manager of the mobile phone division of LG Electronics Italy.

The Company has increased its number of suppliers from three in 2004 to seven in 2005. New agreements with cellular equipment suppliers from the Far East, including Bellwave, Amoi and ZTE will enable us to broaden our line of products, as well as to offer a full range of devices to the market from entry level to UMTS phones. In addition, we have maintained our strong relationship with Curitel, a Korean supplier, in the CDMA market and expanded our cooperation with a new line of UMTS devices.

The new supplier agreements will allow Telit's Branded EVAR division to introduce a total of twelve new handsets this year compared with the five handsets that we introduced in 2004.

Our sales in the open market in Italy were generated by distribution agreements with some of the largest distributors in Italy. We have continued our productive relationship with ADR throughout Italy, and we are finalizing an agreement with three additional distributors to cover 70% of the retail stores throughout Italy.

As a result of these sales activities, we expect to be able to sustain our growth rates in this highly profitable and cash generative business. Customer satisfaction with our Company's products is encouraging, and we expect sales to increase as customers experience Telit's quality of service.

Data Products Business Unit

The development of the Data Products business unit is the key to our future value creation, and we have invested heavily in it.

The Data Products division conducts broad research and development to enable the Company to offer an advanced and diverse array of product models. We have a full line of machine-to-machine (m2m) GSM/GPRS products based on our proprietary technology. Our data products are suitable for a variety of applications, including remote metering and monitoring, vending machines, security systems, fleet management and point of sales terminals.

Our offering contained two products in 2004 and has grown to six products in the first half of 2005. During the first half of 2005, our sales were focused on existing products as well as new models including Trizium. Telit's GSM/GPRS products, Trizium-Quad and GM862-Quad modules, provide GPRS Class 10 capability and are now certified as "RoHS compliant". This certification conforms to the European Union Restriction of Hazardous Substances (RoHS) directive (EU Directive 2002/95/EG).

The Data Products division achieved sales growth of 7.3% compared to the first half of 2004, and this has led to a 12% decrease in operating loss. The comparative results in the first half of 2004 exclude sales of EUR 1.2 million for licensing of technology and modules sales agreements to a customer based in the Far East. These licensing and sales agreements were terminated by Telit at the beginning of 2005.

Performance in the year to date, along with our reinforced focus on the m2m business, has positioned Telit as a leading supplier in the Italian market.

We have significantly expanded the infrastructure of the Data Products division with particular emphasis on the development of a global sales network.

During the first half of the year, we intensified marketing efforts in this field demonstrated by our participation in international exhibitions including the 3GSM World Congress in Cannes, France and CeBit 2005 in Hanover, Germany. By displaying Telit's portfolio of products in this way, we have generated a network of connections, and have developed processes and customisations for future customers, which we expect to yield significant benefits in terms of increased sales over the next two years.

In addition, we have significantly increased our marketing and distribution channels by entering into distribution agreements in 44 countries, including agreements with:

- Microdis covering Turkey, Poland, Czech Republic, Slovakia, Hungary, Baltic States and CIS countries,

- Azzurri Technologies covering Germany, Austria and Switzerland,

- Sequoia covering UK and Ireland, and

- Elektroinvest covering Bulgaria

We also have initiated a marketing campaign with our existing distributor, Arrow Southern Europe, to strengthen our market position in Spain and Portugal.

In addition to the development of indirect sales via distributors, we have continued the development of a direct sales network in new markets by opening satellite sales offices in Denmark, UK, Spain and Israel. In the second half of the year, we anticipate opening further satellite sales offices in Germany and Italy. During the period, we sold wireless data cards to cellular operators Wind (Italy) and KPN (Netherlands) and signed agreements with Base (Belgium) and Eplus (Germany) for future sales.

The potential growth of the Data Products division depends on our continuing successful development of state of the art products as well as on securing the necessary distribution agreements. At this point, our team of engineers are supporting up to 500 new customer designs in progress.

We are pleased to report a number of developments, which we believe will significantly develop future sales over the next two years. These developments include:

- Selection by DKTS, a leading systems integrator, to supply GPRS modules for the connection of cash registers in Serbia and Montenegro. IR Electronic, an Arrow company, will act as Telit's distribution partner for this transaction. We expect the Company's participation in this new application field to lead to significant future sales.

- Signing a Memorandum of Understanding with the European Commission's Emergency Call initiative ("eCall") in order to secure an EU-wide commitment to creating an in-vehicle emergency call service to help reduce the number of fatalities and accidents on European roads. An on-board GSM-based emergency call system can significantly shorten the time it takes emergency services to be deployed. The consequence of the eCall campaign is that all cars sold from 2009 will be equipped with GPRS modules. Telit will be at the forefront of this campaign and we will be able to position ourselves as a key supplier.

- Appointment of Chicco Testa as a member of the Board of Directors of our Italian subsidiary. Mr. Testa served as Chairman of the Board at ENEL SpA (the Italian provider of power and gas) and was a founder and member of the Board of Directors at WIND SpA. Mr. Testa is currently a member of the Board of Directors of Rothschild SpA, Executive President at Roma Metropolitane SpA (the company building the new underground lines in Rome), Vice Chairman of the World Energy Council and Senior Partner of the Franco Bernabe Group, which owns several investments in the IT sector.

Signing an agreement with the Fondazione Ugo Bordoni ("FUB"), a foundation under the control of the Italian Ministry of Communications. FUB is a non-profit organisation, which has sole responsibility for implementing the Italian government's strategy to switch from analogue to Digital Terrestrial Television (DTT) nationally commencing in February 2006. FUB and Telit have agreed to jointly develop a new concept for interactive TV services. The new concept is based on a universal remote control incorporating a GSM/GPRS module and a basic Set-Top Box. Telit will provide to the market the universal remote control, which contains a patented wireless module technology designed by Telit. Prior to a rollout in Italy nationally, an initial government backed rollout is expected to commence next February in Sardinia, a region in Italy with an estimated 500,000 households.

Outlook

I am encouraged by our first half results and expect growth to continue.

We are progressing with our strategy of expanding our product lines, entering into new markets and further developing marketing and sales capability in both the Branded EVAR and in the Data Products markets.

Telit will continue to be alert to new opportunities. We look to the future with confidence.

Oozi Cats

Chief Executive Officer



CONSOLIDATED INCOME STATEMENT
(Euro in thousands)

Six months Six months Year ended
ended ended
30 30 31
June June December
2005 2004 2004
Unaudited Unaudited Audited
-----------------------------------

Revenues 36,624 29,877 75,343
Cost of sales 30,018 25,159 63,174
-----------------------------------
Gross profit 6,606 4,718 12,169

Research and development expenses (1,843) (2,482) (4,201)
Selling and marketing expenses (2,193) (1,267) (2,143)
General and administrative expenses (3,760) (3,146) (7,602)
-----------------------------------
Operating loss (1,190) (2,177) (1,777)

Financial expenses, net (338) (315) (650)
-----------------------------------
Operating loss after financial
expenses, net (1,528) (2,492) (2,427)

Other income 583 12,814 12,093
-----------------------------------
(Loss) income before income taxes (945) 10,322 9,666

Income taxes (494) (126) (327)
-----------------------------------
(Loss) income after income taxes (1,439) 10,196 9,339

Equity in results of investees,
net (87) (75) (321)
-----------------------------------
Net (loss) income for the period
from continuing operations (1,526) 10,121 9,018

Loss for the period from
discontinued operations (391) (298) (596)
-----------------------------------

(Loss) income for the period (1,917) 9,823 8,422
-----------------------------------
-----------------------------------

Basic (loss) earnings per share
(in Cents) (6.27) 54.87 47.05
-----------------------------------
-----------------------------------
Diluted (loss) earnings per share
(in Cents) (6.27) 54.87 47.05
-----------------------------------
-----------------------------------

The accompanying notes are an integral part of the financial
statements.


CONSOLIDATED BALANCE SHEET
(Euro in thousands)

30 June 30 June 31 December
2005 2004 2004
Unaudited Unaudited Audited
-----------------------------------

ASSETS

Current assets
Cash and cash equivalents 24,871 1,119 582
Trade accounts receivable 22,431 18,767 34,777
Receivables and other current
assets 5,820 3,026 8,400
Inventory 9,615 12,971 6,093
-----------------------------------
62,737 35,883 49,852
-----------------------------------

Non-current assets
Investment in associate 716 1,034 746
Deferred expenses 56 40 46
Property, plant and equipment 1,353 1,654 1,558
Intangible assets 574 158 86
Deferred income tax asset 3,678 3,674 3,687
-----------------------------------
6,377 6,560 6,123
-----------------------------------

-----------------------------------
69,114 42,443 55,975
-----------------------------------
-----------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Short-term borrowings from banks
and other lenders 18,824 11,023 28,022
Trade accounts payable 5,134 15,983 6,297
Payables and other current
liabilities 3,990 5,260 9,633
-----------------------------------
27,948 32,266 43,952
-----------------------------------

Non current liabilities
Loan from parent company 4,073 556 4,121
Retirement benefit costs 1,762 1,549 1,591
Provisions and other long-term
liabilities 73 185 159
-----------------------------------
5,908 2,290 5,871
-----------------------------------

Shareholders' equity
Share capital 627 - -
Other reserve (260) - -
Share premium 29,602 - -
Translation adjustments (128) (581) (915)
Retained earnings 5,417 8,468 7,067
-----------------------------------
35,258 7,887 6,152
-----------------------------------
69,114 42,443 55,975
-----------------------------------
-----------------------------------

The accompanying notes are an integral part of the financial
statements.


CONSOLIDATED CASH FLOW STATEMENT
(Euro in thousands)

Six Months Six Months Year
ended ended ended
June 30 June 30 31 December
2005 2004 2004
Unaudited Unaudited Audited
-----------------------------------

CASH FLOWS - OPERATING ACTIVITIES
Net (loss) income for the period (1,917) 9,823 8,422
Adjustments to reconcile loss to
net cash provided by
(used in) continuing operating
activities (Appendix A) 7,294 (23,605) (43,366)
-----------------------------------
Net cash provided by used in
continuing operating activities 5,377 (13,782) (34,944)
Net cash provided by used in
discontinued operating activities (388) (214) (429)
-----------------------------------
Net cash provided by (used in)
operating activities 4,989 (13,996) 35,373
-----------------------------------

CASH FLOWS - INVESTING ACTIVITIES
Additions to fixed assets (65) (98) (298)
Proceeds from disposal of fixed
assets 15 196 215
Additions to financial assets (190) - -
Investment in associate - (147) (409)
Addition to intangible assets (542) (10) (10)
-----------------------------------
Net cash used in investing
activities (782) (59) (502)
-----------------------------------

CASH FLOWS - FINANCING ACTIVITIES
Short-term borrowings from banks
and others, net (10,257) 9,071 26,234
Proceeds from issuance of
share capital 29,969 - -
Loan from a parent company - - 4,121
-----------------------------------
Net cash provided by financing
activities 19,712 9,071 30,355
-----------------------------------
Effect of exchange rate
differences 370 - (1)
-----------------------------------

-----------------------------------
Increase (decrease) in cash and
cash equivalents 24,289 (4,984) (5,521)

Cash and cash equivalents-balance
at beginning of period 582 6,103 6,103
-----------------------------------
Cash and cash equivalents-balance
at end of period 24,871 1,119 582
-----------------------------------
-----------------------------------

Supplemental disclosure of cash
flow information:
Interest paid 363 207 503
-----------------------------------
-----------------------------------
Income taxes paid 352 303 609
-----------------------------------
-----------------------------------

The accompanying notes are an integral part of the financial
statements.


CONSOLIDATED CASH FLOW STATEMENT
(Euro in thousands)

Appendix A - Adjustments to reconcile net income to net cash
provided by operating activities

Six months Six months Year
ended ended ended
30 June 30 June 31 December
2005 2004 2004
Unaudited Unaudited Audited
-----------------------------------

Income and expenses not involving
cash flows:
Depreciation and amortisation 333 365 665
Deferred taxes 14 9 (5)
Other loss (income) - 128 (3)
Write-off of long term loan - (12,121) (12,090)
Increase (decrease) in liability
for retirement benefit costs 170 (9) 33
Capital fund to employees 267 - -
Erosion of deposit designated
for investment in associate (23) - 3
Equity in results of associate 87 75 321
Discontinued operations 391 298 596

Changes in assets and liabilities:
Decrease (increase) in trade
receivables 13,725 (8,251) (24,685)
Decrease (increase) in receivables
and other current assets 2,815 4,797 (685)
Increase in inventory (3,463) (8,609) (1,889)
(Increase) decrease in trade
payables (1,047) 4,876 (4,563)
(Increase) decrease in other
current liabilities (5,975) (5,163) (1,064)
-----------------------------------
7,294 (23,605) (43,366)
-----------------------------------
-----------------------------------

The accompanying notes are an integral part of the financial
statements.


STATEMENT OF CHANGES IN EQUITY
(Euro in thousands)

Six months ended 30 June 2005 (Unaudited)
-------------------------------------------
Share Other Share Translation Retained
capital reserve premium, adjustment earnings Total
net
---------------------------------------------------------

Balance- 1
January,
2005 - - - (915) 7,067 6,152

Reverse
acquisition
capital
adjustment - - - - - -
Issue of share
capital 388 (260) - - - 128
Initial public
offering 239 - 29,602 - - 29,841
Translation
adjustments,
net - - - 787 - 787
Compensation
for employees
options plan - - - - 267 267
Net loss for
the period - - - - (1,917)(1,917)
---------------------------------------------------------

Balance-30
June 2005 627 (260) 29,602 (128) 5,417 35,258
---------------------------------------------------------
---------------------------------------------------------


Six months ended 30 June 2004
-------------------------------
Share Translation Retained
capital adjustment earnings Total
-------------------------------------------

Balance- 1 January 2004 - (645) (1,355) (2,000)
Translation adjustments,
net - 64 - 64
Net income for the period - - 9,823 9,823
-------------------------------------------

Balance-30 June 2004 - (581) 8,468 7,887
-------------------------------------------
-------------------------------------------


Year ended 31 December 2004
----------------------------
Share Translation Retained
capital adjustment earnings Total
-------------------------------------------

Balance- 1 January 2004 - (645) (1,355) (2,000)
Translation adjustments,
net - (270) - (270)
Net income for the period - - 8,422 8,422
-------------------------------------------

Balance-31 December
2004 - (915) 7,067 6,152
-------------------------------------------
-------------------------------------------

The accompanying notes are an integral part of the financial
statements.


NOTES TO THE INTERIM FINANCIAL STATEMENT
AT 30 JUNE 2005 (UNAUDITED)


1. Telit Communications PLC ("the Company") was incorporated and registered in England and Wales as a public limited company on 30 November 2004 under the Companies Act 1985.

On 4 April 2005, the Company completed an Initial Public Offering on the AIM Market, for the issue of 16,428,571 ordinary shares, at a price of 140 p. per share, for aggregate proceeds of Pounds Sterling 20.5 million (approximately EUR 30 million), net of certain issuance costs and expenses.

The Company has control over two Israeli consolidated subsidiary companies - Dai Telecom Holdings (2000) Ltd. (formerly Polar Trade and Services Ltd.-"Dai Israel"), of which the Company holds 100% of its issued and paid in capital, and Dai Telecom Ltd., of which the Company holds directly 20% of its issued and paid in capital, and indirectly an additional 80% through the Holdings in Dai Telecom Holdings (2000) Ltd. The company also owns 100% of the issued and paid in capital of Dai Telecom SPA ("Dai Italy) (all together - "the Group"). The Group is currently engaged in the following two main activities:

- Data Product (DP) - Development manufacturing and sale of modules - cellular products for transmitting data designed for the (machine-to-machine) telecom market and services entailing the development and licensing of cellular technology to third parties based on the Company's technological property.

- Branded Enhanced Value Added Reseller (BEVAR) - Distribution of cellular products manufactured in the Far East on the Israeli, Italian and European market and rendering warranty on this equipment.

2. The consolidated interim financial statements of the Company has been prepared on the accounting policies set out in the Group's 30 June 2004 statutory accounts and have not been audited. The interim financial statements do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985.

The Company has treated the acquisition of Dai Telecom Holdings (2000) Ltd according to the reverse acquisition method described in IFRS 3. Accordingly the acquisition has been treated as if Dai Telecom Holdings (2000) Ltd had acquired the Company. The comparative figures relate to Dai Telecom Holdings (2000) Ltd .The accounting policies applied in these interim financial statements are consistent with those of Dai Telecom Holdings (2000) Ltd for the year ended 31 December 2004 which were prepared under International Financing Reporting Standards (IFRS).



3. (Loss) earnings per share:

6 months 6 months Year ended
ended ended
30 June 30 June 31 December
2005 2004 2004

(Loss) earnings for the period (1,917) 9,823 8,422
Weighted average number of equity
shares in issue 30,558,033 17,901,785 17,901,785
Basic (Loss) earnings per share
from continued operation (4.99) 56.53 50.38
Basic loss per share from
discontinued operation (1.28) (1.66) (3.33)
Basic (Loss) earnings per share (6.27) 54.87 47.05
Diluted (loss) earnings per share
from continued operation (4.99) 56.53 50.38
Diluted (loss) earnings per share
from discontinued operations (1.28) (1.66) (3.33)
Diluted (loss) earnings per share (6.27) 54.87 47.05


The calculation of basic (loss) earnings per share is based on the loss for the six months and on a weighted average number of ordinary shares of 1p each in issue during the period. The diluted (loss) earnings per share for the current period includes the impact of 1,141,071 outstanding ordinary share options during the period.

4. The Directors have not declared an interim dividend.

5. The Company was incorporated with a share capital of Pounds Sterling 50,000 divided into 50,000 ordinary shares of Pounds Sterling 1 each of which two shares were in issue.

On 24 March, 2005 the Company passed an ordinary resolution to sub-divide the issued and authorised ordinary shares of Pounds Sterling 1 each in the capital of the Company into 100 shares of 1p each, and an ordinary resolution to increase the authorized share capital of the Company to Pounds Sterling 800,000 divided into 80,000,000 shares of 1p each.

On 24 March 2005, the Company issued to its parent company - Polar Investments Ltd., 17,901,785 ordinary shares of 1p each in the capital of the Company. In addition, the Company allotted 3,883,925 ordinary shares of 1p each to certain officers and directors of the Group, in consideration for their waiver of options held by them over shares in Dai Israel and Dai Italy.

On 4 April 2005, the Company completed an Initial Public Offering on the London AIM Market, for the issuance of 16,428,571 ordinary shares, at a price of 140p per a share, for an aggregate proceed of Pounds Sterling 20,515,000 (approximately EUR 30 million), net of certain issuance costs and expenses.

6. Following the final settlement of all controversies between the Company's subsidiaries Dai Italy and Nuove Iniziative SpA and the mutual waivers of all claims filed by Dai Italy and Finmek S.p.A, Dai Italy recorded net income of EUR 548,000 resulting from offsetting of all the outstanding balances between the parties. The net income has been recorded as other income in the income statement for the six months ended 30 June 2005.

7. In November 2004, a lawsuit was filed against Dai Italy by a third party claiming compensation for damages suffered as a consequence of alleged breaches of obligations under two contracts executed between the parties on 28 October 2002.

The third party is claiming an amount of R$ 10.9 million, equivalent to approximately US$ 3.8 million. Dai Italy has filed a defence brief. Dai Italy's management, based on legal advice, believe it is probable that Dai Italy will make no payment.

8. Pursuant to the restructuring of Dai Italy which commenced on its acquisition in 2002, Dai Italy is expected to incur dismissal costs in the second half of 2005 under Italian labour legislation of approximately EUR 800,000. In the past the Company has had to make payments in respect of the dismissed employees, such payments will no longer be made following payment of the above mentioned sum.

9. Pursuant to an agreement between the Company, Great Court Capital LLC and SD Partners LLC (together "SD Partners") referred to in the AIM Admission document, SD Partners received payments of Pounds Sterling 500,000 and US$50,000 and are entitled to a warrant to purchase 492,857 ordinary shares in the Company at the Placing Price at the time of the Company's flotation on AIM.

10. For management purposes, the group is currently organised into two operating divisions, Data Products and Branded Enhanced Value Added Reseller ("BEVAR"). These divisions are the basis on which the Group reports its segment information. Segment information of these businesses is presented below.



Six months ended
June 30 Year ended
31 December
2005 2004 2004
Unaudited Unaudited Audited
-------------------------------------------

REVENUES
BEVAR 32,105 24,417 63,583
-------------------------------------------
DATA PRODUCT 4,519 5,460 10,738
-------------------------------------------
CONSOLIDATED
External revenues 36,624 29,877 74,321
Unallocated income - - 201
-------------------------------------------
Total revenue 36,624 29,877 74,522
-------------------------------------------
OPERATING PROFIT (LOSS)
BEVAR 2,261 1,038 3,340
Data Product (3,074) (3,215) (6,000)
Unallocated income - - 201
-------------------------------------------
(813) (2,177) (2,459)
Unallocated corporate
expenses (377) - (126)

Operating loss (1,190) (2,177) (2,585)
-------------------------------------------


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