Immediate Release: Friday 19 September 2008
Block Shield Corporation plc
('Block Shield' or the 'Company')
Report and accounts for year ended 29 February 2008
Block Shield Corporation plc, the provider of innovative electronic components
and processes utilised in electromagnetic compatibility (`EMC') and Radio
Frequency Identification (`RFID') applications, announced on 17 September that
it had posted to shareholders its report and accounts for the year ended 29
February 2008. The report and accounts were also made available on the
Company's website at www.blockshield.com.
Extracts from the audited accounts comprising the chairman's statement,
consolidated income statement, consolidated and company balance sheet,
consolidated statement of changes in equity, consolidated and company statement
of cash flows and the relevant notes to these financial statements are set out
below.
The audited accounts depart in certain areas, including a $694,000 reduction in
revenues, from the preliminary results announced on 2 July 2008 reflecting
developments with a customer who had agreed to purchase one of the Company's
Dedivol and RFID related production equipment in February 2008. At the time the
Company had a signed purchase order from the customer and had every reason to
believe that the customer would perform its payment obligations under the
agreement. Despite the Company's continued efforts post year-end payment from
this customer has not been forthcoming. As a consequence, the Company has not
booked any revenue on the sale of the Dedivol or RFID production equipment in
these audited financial statements.
For further information, please contact:
Block Shield Corporation plc
Edwin Oh, Chief Executive Officer
+1 408 702 1083
Ambrian Partners Limited
Tim Goodman
+44 (0) 20 7634 4700
Hansard Group
Vikki Krause
+44 (0) 20 7245 1100
Chairman's Statement
I am pleased to report on the results for the Group for the 12 month period
ending 29 February 2008 (the `period').
Overview - Group products and geography
Block Shield is an innovative provider of electronic components and processes
utilised in electromagnetic compatibility (`EMC') and Radio Frequency
Identification (`RFID') applications.
In the EMC market, through its wholly owned subsidiary Wavezero Inc., the
Company is a provider of innovative solutions and products which control radio
frequency (`RF') emissions for the purpose of achieving electromagnetic
compatibility of electronic circuits and equipment. The Group provides
shielding solutions in both methods of vacuum deposition and also with its
patented Form-met plastic shielding. The principal advantages of the Group's
solutions over its competitors are: it is less expensive than traditional metal
shielding and its shielding is environmentally friendly and in compliance with
the government mandates of RoHS and WEEE.
The Group generates EMC revenues by providing shielding services to our
customers via our Illinois plant in the US and increasingly receives requests
to provide shielding solutions via a dedicated facility in Shanghai, China. The
Company also sells turnkey manufacturing solutions to its customers and seeks
to obtain an ongoing royalty for product manufactured under license as well as
the upfront revenues recognised upon sale of the equipment.
In the RFID market, the Company provides solutions to its customers in the form
of manufacturing antennas and inlays. We believe that the Dedivol, the
company's proprietary RFID manufacturing machine, is capable of producing the
lowest cost passive RFID antenna available, with a production capacity in
excess of 200 million antennas annually. These antennas can be produced in
environmentally friendly aluminium and have superior performance specifications
in comparison with alternative RFID products available in the market today. It
is our view that the proprietary Dedivol solution well positions the company to
exploit the rapidly growing market for RFID in Asia.
The Company receives revenues from the sale of antennas and inlays and, to a
lesser degree, from the design and engineering services it provides. The
Company also intends to sell its Dedivol manufacturing module as a turnkey
solution to potential customers in Asia
Highlights
During the period Block Shield successfully continued its progress from a
predominantly engineering-focussed organisation to a sales, marketing and
manufacturing orientated group, fully equipped to handle large production
volume orders for both EMC and RFID components in both the United States and
Asia. In particular, the Group's accomplishments included:
* the completion of the research, development and industrial testing of our
first high volume RFID antenna manufacturing machine, the Dedivol, which is
capable of producing in excess of 200 million antennas annually;
* the continuation of our increase in market penetration within Asia through
the:
(a) establishment of our own facility in China where we will be able to
directly manufacture product for our customers,
(b) securing of sales of industrial turnkey solutions for EMC components that
enable Asian manufacturers to undertake EMC components.
(c) entering into of key distribution agreements with major distributors, for
supply of both EMC and RFID industrial turnkey solutions;
(d) establishment of new sales channels with direct sales of our EMC and RFID
components; and
(e) partnering with subcontractors of US government military programmes for
direct sales of our EMC products, which could lead to securing potentially
multimillion dollar contracts.
While our achievements to date strongly support the appeal of our products and
solutions to our potential customers as supported by our increasing global
penetration, those achievements must also be viewed in the context of future
revenue potential because we did not achieve our expectations for substantial
growth in revenue during the period. This we attribute to the following
factors:
* customers with whom we were - and indeed still are - in negotiations for
the sale of our industrial turnkey solutions who deferred signing sales
contracts due to the downturn in the global economy;
* a slower than anticipated growth in the development of the RFID market and
high volume segment in particular; and
* the impact of the slowdown in demand for medical devices in the US, which
has impacted our direct sales of EMC product.
EMC division
During the period, our proprietary EMC solutions continued to attract customers
requiring product development and sales directly from the Group in the US as
well as those wishing to purchase turnkey industrial solutions for their own
product development and sales in Asia.
Our success with regards to EMC direct sales is heavily dependent on our
ability to integrate our components within the design stage of our customer's
products. This can often take many years of work, particularly in the case of
military and medical device companies, where regulatory compliance is a key
factor. In spite of the potentially lengthy gestation period, the process can
result in highly valued, loyal, long-term contacts. This was the case when,
towards the end of the period, we were successful in winning contracts -
primarily awarded due to our proprietary solutions - with US government
subcontractors, MicroSun Technologies LLC and EF Johnson Technologies Inc., for
military programmes. Block Shield's US subsidiary has commenced initial
production for these multiyear contracts, which (upon ramp up) could eventually
generate multimillion dollar EMC product revenues for the Group going forward.
In addition, our strategy of locating a manufacturing facility in China has
enabled us to successfully secure initial contracts with major US manufacturers
such as Radiospire Networks Inc., which will commence in the forthcoming
financial year. A production capability in China suits the supply chain
logistics of these customers and validates our investment in a dedicated plant
in this geographic region as a means of facilitating business from both the US
and Asia.
Over the period, the US medical device market displayed signs of decline amid
an economic slowdown. Customers in this industry represent a large portion of
our US product revenue and while contracts remain ongoing, demand on an
annualised basis was lower than expected. We are hopeful that the military
contracts outlined above, together with additional contracts maturing in our
order pipeline, will alleviate and compensate for any future unexpected
reduction in specific customer demand.
I am also pleased to report that the EMC industrial turnkey solutions achieved
considerable progress in extracting revenues from the high growth Asian
economies by concluding the sale of two additional EMC vacuum deposition
machines to Hyundai RFmon Corporation (`RFmon'), a component distribution
company based in South Korea. It is anticipated that this sale of equipment
will also generate ongoing royalties for the Group under the terms of the
licence as RFmon manufactures and sells products.
RFID division
Unquestionably, the most consequential technical progression during the period
was the completion of the research, development and industrial testing of our
high volume RFID antenna manufacturing machine, the `Dedivol', in January 2008.
The Company had previously announced on 2 July 2008, in its preliminary
financial results, the sale of its Dedivol and RFID related production
equipment to a customer for a total consideration of US$2.2 million. The
Company entered into a purchase order agreement to sell the RFID production
equipment to its customer in February 2008. At that time, the Company had every
reason to believe that its customer would perform its payment obligations under
the agreement and that it would be able to include some elements of revenue in
its financial accounts. The Company has been working vigorously to collect
payments from its customer for the sale of the RFID production equipment,
however, at this time we have not been able to secure payments from them. As a
consequence of this, the Company has not booked any revenue on the sale of the
Dedivol or RFID production equipment in those financial statements
We are confident in our belief that the Dedivol is capable of producing the
lowest cost passive antenna available, with a production capacity in excess of
200 million antennas annually. These antennas can be produced in
environmentally friendly aluminium and have superior performance specifications
in comparison with alternative RFID products available in the market today. We
believe this proprietary solution in RFID is essential to exploiting the
rapidly growing market for RFID in Asia.
Sales and Marketing
Our business model is highly synergistic and bifurcated as we are able to sell
products in the US to our high value customers and sell and/or license
industrial solutions to our partners in Asia for high volume manufacture.
During the period, we laid the foundations for revenue growth with our proven
and proprietary technology, coupled with our ability to manufacture in the US
and in Asia, for both the EMC and RFID markets.
In anticipating the conclusion of the Dedivol's research and development
programmes the Group focussed its resources towards sales and marketing;
specifically committing our sales channels to include a direct sales presence
in the US targeting high margin business applications. In Asia, with a
significant growth in customer demand for our turnkey equipment solutions, we
actively engaged a combination of distribution and manufacturing partners. In
line with this strategy we signed an exclusive distribution contract in China
with the Basch Corporation, a leading distributor of manufacturing equipment to
both the printing and RFID industries. We also signed a memorandum of
understanding (MoU) with SinoStar Technologies Inc. in Taiwan for manufacturing
solutions in Asia and PolyPlas Sdn Bhd, a major plastics supplier in Malaysia.
Acquisition
As we near the completion of the Group's research and development efforts in
our major applications, and as companies engaged in the RFID market suffer from
both the consequences of the economic slowdown and the delay in the growth of
the RFID industry, to safeguard the commercial prospects of the Group, we have
actively sought appropriate acquisition targets. As a result of our endeavours,
I am pleased to announce that post year-end we completed our first strategic
acquisition - in June 2008 - by purchasing Mu-Gahat Holdings Inc. We believe
this acquisition combines and broadens the Group's technology portfolio and
will enable us to provide what our customers have been asking for: fast
end-to-end RFID manufacturing solutions which connect with the design and
prototyping stage and culminate in the delivery of cost effective high volume
products. In addition to the readily apparent benefits of acquiring a company
with patent pending technology ideally suited to RFID prototyping and
customised applications, the acquisition also avails Block Shield with a
synergistic management team enjoying explicit strengths in sales and marketing
and considerable business opportunities in the printed circuit and gaming
industries.
Asia
The Group's commitment to RFID in general and the Asia Pacific market in
particular is supported not only by the significant customer prospects we are
experiencing but also by the leading independent industry consulting and
research firm IDTechEx. In a recent report, IDTechEx forecast the global RFID
market to increase from US$5 billion in 2007 to US$27.9 billion by 2017 and the
RFID market in east Asia (already the largest in the world) to grow from 2007
sales of US$2.7billion to 2017 sales of US$11.35 billion.
Our business model in Asia is focussed on extracting the maximum revenue
potential across a diverse range of services; from direct sales of our products
and equipment to establishing strategic alliances and joint ventures that will
supply a combination of license and royalty payments in addition to securing
long-term returns. We have made significant progress in this regard but such
arrangements can take time to mature and finalise but we expect to make further
progress in this regard during the coming year.
Summary
In summary, whilst our revenues were below expectations, the period was one of
significant achievement for the Group as we laid the principal foundations for
our future growth. We completed our primary research and development
initiatives, effectively eliminating the technology risk of the products and
process equipment sales which form the core of our business and we created the
beachhead for the rapid expansion of revenues by establishing and securing
manufacturing and distribution arrangements in the US and in Asia for both our
EMC and RFID suite of products and services.
The Directors believe the RFID industry continues to represent a significant
growth opportunity for the Group as a whole and that our prospects for
expedited growth and expansion have never been better.
I wish to take this opportunity to express my gratitude and thanks to the
employees of the Group for their commitment and achievements during this period
and to express the appreciation of the Board for the continued support of our
investors. Based on the solid achievements of this past year I look forward to
the future commercial success of the Group.
ME Fitzgerald
Chairman
Consolidated Income Statement
For the year ended 29 February 2008
In thousands of US dollars
Note 2008 2007
Revenue 1 5,744 10,569
Cost of sales (3,094) (5,795)
Gross profit 2,650 4,774
Administrative expenses before research and
development expenses:
Equity settled share-based payment expenses 11 (499) (795)
Other administrative expenses (4,364) (3,454)
Total administrative expenses before research and (4,863) (4,249)
development expenses
Administrative expenses - Research and development (2,897) (3,431)
expenses
Total administrative expenses (7,760) (7,680)
Operating loss (5,110) (2,906)
Financial income 2 5 68
Financial expenses 2 (62) (174)
Net financing expense (57) (106)
Loss before tax (5,167) (3,012)
Taxation 3 (2) (2)
Loss for the year attributable to the shareholders (5,169) (3,014)
Basic and fully diluted loss per share (in US$) (0.15) (0.09)
All losses are solely attributable to the equity holders of the parent.
All figures relate to continuing activities.
Consolidatedand CompanyBalance Sheet
For the year ended 29 February 2008
In thousands of US dollars
Note Group Company
2008 2007 2008 2007
Assets Restated
Non-current assets
Investment in subsidiary 14 - - 27,072 25,430
undertaking
Property, plant and equipment 4 1,222 1,488 - -
Intangible assets 5 1,164 1,187 - -
Total non-current assets 2,386 2,675 27,072 25,430
Current assets
Inventories 6 1,555 437 - -
Trade and other receivables 7 3,005 4,272 49 42
Cash and cash equivalents 8 304 1,605 31 325
Current assets for sale - 38 - -
Total current assets 4,864 6,352 80 367
Total assets 7,250 9,027 27,152 25,797
Equity
Share capital 9 611 602 611 602
Share premium 9 19,812 19,595 19,812 19,595
Reserves 7,227 7,227 4,707 4,707
Retained (losses)/profits (26,156) (21,486) 926 446
Total equity 1,494 5,938 26,056 25,350
Liabilities
Interest-bearing loans and 10 2,923 500 798 -
borrowings
Total non-current liabilities 2,923 500 798 -
Trade and other payables 13 2,693 2,589 298 447
Deferred income 12 140 - - -
Total current liabilities 2,833 2,589 298 447
Total liabilities 5,756 3,089 1,096 447
Total equity and liabilities 7,250 9,027 27,152 25,797
Consolidated Statement of Changes in Equity
For the year ended 29 February 2008
In thousands of US dollars
Merger Reserve Share Share premium Retained loss Total
capital
Group
Equity as at 1 March 7,227 602 19,595 (21,486) 5,938
2007
Retained loss for the - - - (5,169) (5,169)
twelve months
New share capital - 9 217 - 226
issued (net of
related costs)
IFRS2 equity settled - - - 499 499
option
Equity as at 29 7,227 611 19,812 (26,156) 1,494
February 2008
Company
Equity as at 1 March 4,707 602 19,595 446 25,350
2007
Retained loss for the - - - (19) (19)
twelve months
New share capital - 9 217 - 226
issued (net of
related costs)
IFRS2 equity settled - - - 499 499
option
Equity as at 29 4,707 611 19,812 926 26,056
February 2008
Merger Reserve Share Share premium Retained loss Total
capital
Group
Equity as at 1 March 7,227 574 15,868 (19,267) 4,402
2006
Retained loss for the - - - (3,014) (3,014)
twelve months
New share capital - 28 3,727 - 3,755
issued (net of related
costs)
IFRS2 equity settled - - - 795 795
option
Equity as at 28 7,227 602 19,595 (21,486) 5,938
February 2007
Company
Equity as at 1 March 4,707 574 15,868 (1,291) 19,858
2006 as previously
reported
Change in accounting - - - 885 885
policy for adoption of
IFRIC8
Equity as at 1 March 4,707 574 15,868 (406) 20,743
2006 (restated)
Retained profit for the - - - 57 57
twelve months
New share capital - 28 3,727 - 3,755
issued (net of related
costs)
IFRS2 equity settled - - - 795 795
option
Equity as at 28 4,707 602 19,595 446 25,350
February 2007
Consolidated Statement of Cash Flows
For the year ended 29 February 2008
In thousands of US dollars
Note Group Company
2008 2007 2008 2007
Cash flows from operating
activities
Profit/ (loss) for the year (5,110) (2,906) (19) 57
Adjustments for:
Depreciation 350 312 - -
Amortisation of intangible assets 101 87 - -
Impairment losses on property, 58 - - -
plant and equipment
Financial income 5 68 - -
Financial expense - - - -
Equity settled share-based 499 795 - -
payment expenses
Taxation - - - -
(4,097) (1,644) (19) 57
(Increase)/decrease in trade and 1,267 (2,003) (7) 5
other receivables
(Increase)/decrease in (1,118) (266) - -
inventories
(Decrease)/increase in trade and 43 1,335 (149) 194
other payables
(Decrease)/increase in deferred 140 - - -
revenue
(3,765) (2,578) (175) 256
Interest paid - (19) - -
Tax paid (2) (2) - -
Net cash from operating (3,767) (2,599) (175) 256
activities
Cash flows from investing
activities
Acquisition of property, plant 4 (104) (814) - -
and equipment
Acquisition of other intangible (78) (136) - -
assets
Investment in subsidiary 14 - - (1,143) (4,813)
undertaking
Net cash from investing (182) (950) (1,143) (4,813)
activities
Cash flows from financing
activities
Proceeds from the issue of share 9 226 3,945 226 3,945
capital
Payment of transaction costs - (190) - (190)
Proceeds from new loan 10 2,423 500 798 -
Repayment of borrowings - (998) - -
Payment of finance lease (1) (1) - -
liabilities
Net cash from financing 2,648 3,256 1,024 3,755
activities
Net increase/(decrease) in cash (1,301) (293) (294) (802)
and cash equivalents
Cash and cash equivalents at 1 1,605 1,898 325 1,127
March 2007
Cash and cash equivalents at 29 8 304 1,605 31 325
February 2008
Notes to the Results
1 Segment reporting
Business segments
The Group comprises the following main business segments:
* EMC - WaveZero is a provider of proprietary solutions for EMI, RFI and ESD
attenuation and control. By utilizing vacuum deposition, WaveZero provides
complete product shielding solutions, as well as solutions for board
isolation and grounding protection.
* RFID - A leader in the development and manufacture of extremely low cost,
environmentally-friendly RFID antennas and inlays. WaveZero offers a broad
range of pre-designed RFID antennas and inlays as well customized
solutions.
The directors considers that the group has one activity which is the provision
of innovative solutions and products which control radio frequency (`RF')
emissions for the purpose of achieving electromagnetic compatibility (`EMC') of
electronic circuits and equipment as well as for implementing RF identification
(`RFID') Tags. The administrative expenses and research and development
expenses are centralized and have not been allocated to revenue category or by
geographical destination of sales. Therefore, the following tables present
gross profit and not profit/(loss) before taxation.
The revenue, gross profit and net assets by business segments are as follows:
2008 2007 2008 2007 2008 2007
US$000 US$000 US$000 US$000 US$000 US$000
EMC EMC RFID RFID Total Total
Total segment 5,744 3,391 - 7,178 5,744 10,569
revenue
Segment result 2,650 807 - 3,967 2,650 4,774
Segment (755) (783) - - (755) (783)
Operating costs
Unallocated (7,005) (6,897)
Operating costs
Total operating (5,110) (2,906)
loss
Segment assets 4,220 2,940 1,350 2,768 5,570 5,708
Unallocated 1,680 3,319
assets
Segment (692) (2,235) (750) (155) (1,442) (2,390)
liabilities
Unallocated (4,314) (699)
liabilities
Net assets/ 1,494 5,938
(liabilities)
The majority of unallocated assets and liabilities represent either Group
working capital, in the form of cash or loans, or property plant and equipment
that cannot be separately identifiable to either segment.
The revenue by major category within the business segments are as follows:
2008 2007
Turnover Turnover
US$000 US$000
RFID Business-Equipment - 7,178
EMC Business-Product 2,064 2,741
-Equipment 3,680 650
Subtotal EMC business 5,744 3,391
Total 5,744 10,569
Geographical segments
The EMC and RFID segments are managed on a worldwide basis, but operate in two
principal geographical areas, North America and the Far East. In North America
manufacturing facilities and sales offices are operated in Illinois and
California. In presenting information on the basis of geographical segments,
segment revenue is based on the geographical location of customers. Segment
assets are based on the geographical location of the assets.
All of the group's operating activities are based in the United States of
America. Only the holding company is based in the United Kingdom. Given that
the net assets are located in the United States, the directors believe that
analysing net assets by geography or revenue category is inappropriate.
Revenue and gross profit by geographical destination of sales, all of which
originates from the US, are as follows:
2008 2007 2008 2007
US$000 US$000 US$000 US$000
Revenue Revenue Gross Gross
profit profit
United States 3,694 9,880 1,191 4,356
Asia 50 682 50 415
Europe 2,000 7 1,409 3
Total 5,744 10,569 2,650 4,774
2 Finance income and expenses
2008 2007
US$000 US$000
Interest income on bank deposits 5 68
Interest expense on financial liabilities (56) (19)
Foreign currency translation differences (6) (155)
(62) (174)
Net finance expense recognised in the income (57) (106)
statement
3 Income tax expense
Analysis of charge in period:
2008 2007
US$000 US$000
Current tax expense:
Foreign tax
Current tax on income for the period 2 2
Total current tax 2 2
Deferred tax (see note 22) - -
Tax income tax expense 2 2
Factors affecting the tax charge for the current period
The total tax charge for the period is higher than the standard rate of
corporation tax in California (40%). The differences are explained below.
Reconciliation of effective tax rate 2008 2007
US$000 US$000
Loss for the period (5,169) (3,014)
Total income tax expense 2 2
Profit excluding income tax (at 40%) (5,167) (3,012)
Income tax using the Company's domestic (2,067) (1,205)
tax rate
Share based payments 200 318
Non-deductible expenses, primarily 294 202
intercompany interest and legal expenses
Depreciation in excess of capital 120 112
allowances for period
Amortisation in excess of capital (54) 59
allowances for period
Other timing differences 71 (98)
Current year losses for which no deferred 1,438 614
tax asset was recognised
Total tax expense 2 2
Factors that may affect future current and total tax charges
During the period the Group made tax losses which have been carried forward.
The losses carried forward with a tax value of US$5,684,000 (28 February 2007:
US$4,246,000) have not been recognised as a deferred tax asset due to the
uncertainty of their eventual crystallisation. This will be reassessed at each
period end.
It was announced and enacted during the year that the UK standard rate for
corporation tax would be reduced from 30% to 28% from 1 April 2008.
4 Property, plant and equipment
Land and Plant and Fixtures & Total
Buildings equipment fittings
US$000 US$000 US$000 US$000
Cost
Balance at 1 March 2006 574 911 403 1,888
Acquisitions - 692 122 814
Balance at 28 February 2007 574 1,603 525 2,702
Balance at 1 March 2007 574 1,603 525 2,702
Acquisitions - 66 38 104
Disposals (574) - - (574)
Balance at 29 February 2008 - 1,669 563 2,232
Depreciation and impairment
Balance at 1 March 2006 (554) (139) (209) (902)
Depreciation charge for the year - (108) (204) (312)
Balance at 28 February 2007 (554) (247) (413) (1,214)
Balance at 1 March 2007 (554) (247) (413) (1,214)
Depreciation charge for the year - (325) (25) (350)
Disposals 554 - - 554
Balance at 29 February 2008 - (572) (438) (1,010)
Net book value
At 1 March 2006 20 772 194 986
At 28 February 2007 and 1 March 20 1,356 112 1,488
2008
At 29 February 2008 - 1,097 125 1,222
During the year ended 29 February 2008, the land and buildings which had a net
book value of US$20,000 at 28 February 2007, was disposed of for nil
consideration.
Included in the total net book value of fixture and fittings is US$ 2,000
(2007: US$ 3,000) in respect of assets held under finance leases and similar
hire purchase contracts. Depreciation for the year on these assets was US$
1,000 (2007: US$ 1,000).
5 Intangible assets
Goodwill Concessions, Total
patents,
licenses,
trademarks and
similar rights
and assets
US$000 US$000 US$000
Cost
Balance at 1 March 2006 403 1,090 1,493
Acquisitions - internally developed - 136 136
Balance at 28 February 2007 403 1,226 1,629
Balance at 1 March 2007 403 1,226 1,629
Other acquisitions - internally - 78 78
developed
Balance at 29 February 2008 403 1,304 1,707
Amortisation and impairment losses
Balance at 1 March 2006 - 355 355
Amortisation for the year - 87 87
Balance at 28 February 2007 - 442 442
Balance at 1 March 2007 - 442 442
Amortisation for the year - 101 101
Balance at 29 February 2008 - 543 543
Carrying Amounts
Balance at 1 March 2006 403 735 1,138
Balance at 28 February 2007 and 1 403 784 1,187
March 2007
Balance at 29 February 2008 403 761 1,164
Impairment review
For the purposes of impairment testing, goodwill is allocated to the Group's
EMC division, which represents the lowest level within the Group at which
goodwill is monitored for internal management purposes.
The recoverable amounts are based on value in use calculation. Cash flow
projections, which were based on the three year business plan, were used to
calculate the value in use. A projection period of fifteen years was used. A
growth rate of 8% was used for years 2 to 5 and 3% for years 6 to 15. A pre-tax
discount rate of 10% has been used in discounting the cash flows. The discount
rate was estimated based on an industry weighted cost of capital, adjusted to
reflect the risks specific to the asset being assessed. Based on this
assessment, no impairment has been recognised.
The assumptions used above, including growth rate and cash flow projections,
were based on the current and expected growth in the EMC business. The
Chairman's statement discusses the EMC division prospects and customer wins
over the last year, which support the assumptions in this goodwill review.
2008 2007
Patents granted
At beginning of period 14 10
Granted during period 1 4
Expired during the period (4) -
At end of period 11 14
31 patents have been applied for and are currently pending.
A royalty of 3% of gross receipts is payable to Jack Gabower, an employee of
the group, on sales of goods incorporating the core patent or from the license
of any right in and to the core patent up to an amount of US$ 3,840,000. The
amount of royalty paid to Jack Gabower during the year was US$15,000 (2007: US$
7,000) and was recognised as an expense.
6 Inventories
2008 2007
US$000 US$000
Raw materials and 130 114
consumables
Work in process 15 16
Goods for resale 1,410 307
1,555 437
The difference between purchase price or production cost of inventory and their
replacement cost is not considered material.
Raw materials and changes in work in progress recognised as cost of sales in
the year is not considered material.
7 Trade and other receivables
Group Company
2008 2007 2008 2007
US$000 US$000 US$000 US$000
Trade receivables 2,830 4,121 - -
Other receivables 45 42 49 42
Prepayments and accrued 130 109 - -
income
3,005 4,272 49 42
8 Cash and cash equivalents
Group Company
2008 2007 2008 2007
US$000 US$000 US$000 US$000
Bank balances 304 1,605 31 325
Call deposits - - - -
304 1,605 31 325
9 Share capital and share premium
Ordinary shares
2008 2007
On issue at 1 March 33,274,174 31,846,984
Issued for cash - 1,307,190
Exercise of share options (see note 20) 433,698 120,000
On issue at 29 February 33,707,872 33,274,174
The Group also has issued share options (see note 20).
2008 2007
Authorised
Equity: 50,000,000 Ordinary shares of � 0.01 each � 500,000 � 500,000
Allotted, called up and fully paid
Equity: 33,707,872 at 29th February 2008 and US$ 611,000 US$ 602,000
33,274,174 at 28th February 2007, Ordinary shares
of �0.01 each
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at meetings of the
Parent Company.
10 Loans and borrowings
This note provides information about the contractual terms of the Group's
interest-bearing loans and borrowings, which are measured at amortized cost.
For more information about the Group's exposure to interest rate, foreign
currency and liquidity risk, see note 24.
2008 2007
US$000 US$000
Non-current liabilities- Group
Other Loans 2,923 500
2008 2007
US$000 US$000
Non-current liabilities- Company
Other Loans 798 -
Group 29-Feb-08 28-Feb-07
Nominal Year of Face Carrying Face Carrying
interest maturity value amount value amount
rate
US$000 US$000 US$000 US$000
Other loans LIBOR + 1% Dec 2009 2,923 2,923 500 500
Total 2,923 2,923 500 500
interest-bearing
liabilities
Company 29-Feb-08 28-Feb-07
Nominal Year of Face Carrying Face Carrying
interest maturity value amount value amount
rate
US$000 US$000 US$000 US$000
Other loans LIBOR + 1% Dec 2009 798 798 - -
Total 798 798 - -
interest-bearing
liabilities
Cloverleaf Holdings Ltd, a company controlled by Chairman Mr Fitzgerald, has
made available a facility of US$5,000,000 to the Group and Parent Company. The
facility provided on market terms, repayable on 31st December 2009, and is
unsecured. The balance due at 29th February 2008 was US$2,923,000 (28 February
2007: US$500,000).No penalty interest accrued during the period.
11 Share based payments
Share Options
The Company has adopted a share option plan, the principal provisions of which
are summarised below:
Options to subscribe for Ordinary Shares of the company may be granted (at the
discretion of the Board of Directors) to selected employees or directors to the
Company.
No consideration is payable for the grant of an option. Options are not
transferable or assignable.
Options will vest (become exercisable) 25 percent on the expiry of 12 months
from the date of grant. Thereafter, an equal percentage of the option will vest
each month until the expiry of four years from the date of grant when 100
percent of the option will have vested.
The fair value of share options granted is recognised as an employee expense
with a corresponding increase in reserves. The share based expense of
US$499,000 in respect of year ending 29 February 2008 (2007: US$795,000),
comprises the corresponding increase in the profit and loss account reserve.
During the period ended 29 February 2008, various employee stock options and
warrants were exercised at prices ranging between *0.10 and *0.145 per share,
raising a combined value of *113,000 (US$226,000).
The following share options were granted pursuant to the reorganisation on 20th
April 2004 under the Unapproved Scheme and are outstanding and will vest as to
twenty-five percent on the expiry of twelve months from the effective date
listed below and an equal percentage of the remainder will vest each month
until the expiry of 4 years from such effective date;
The terms and conditions of the grants are as follows; all options are to be
settled by physical delivery of shares:
Number of options
during the year
Effective At start Granted Exercised Cancelled At end Exercise Vested Expiry
date of year / expired of year price as at Date
� 28th
Feb
2008
30.08.01 8,000 Nil Nil Nil 8,000 0.10 8,000 30.08.11
20.06.03 980,682 Nil 100,000 390,341 490,341 0.145 490,341 19.06.13
25.11.03 300,000 Nil 150,000 Nil 150,000 0.145 150,000 24.11.13
The following share options were granted on 20th April 2004 (conditional upon
completion of the Reorganisation) under the Unapproved Scheme to reflect
understandings reached between WaveZero and certain employees in October 2003
and are outstanding and will vest as to twenty-five percent on the expiry of
twelve months from the effective date listed below and an equal percentage of
the remainder will vest each month until the expiry of 4 years from such
effective date;
Number of options
during the year
Effective At start Granted Exercised Cancelled At end Exercise Vested Expiry
date of year / expired of year price as at Date
� 28th
Feb
2008
24.10.03 399,999 Nil 25,000 nil 374,999 0.145 374,999 23.10.13
The following share options were granted during the period ended 28th February
2005 and will vest as to twenty-five percent on the expiry of twelve months
from the effective date listed below and an equal percentage of the remainder
will vest each month until the expiry of 2 years from such effective date;
Number of options
during the year
Effective At start Granted Exercised Cancelled At end Exercise Vested Expiry
date of year / expired of year price as at Date
� 28th
Feb
2008
1.7.04 100,000 Nil Nil Nil 100,000 1.01 100,000 30.06.14
1.7.04 50,000 Nil Nil Nil 50,000 1.50 50,000 30.06.14
1.7.04 50,000 Nil Nil Nil 50,000 2.00 50,000 30.06.14
26.10.04 26,000 Nil Nil 26,000 Nil Nil 25.10.14
The following share options were granted during the period ended 28th February
2006 and will vest as to twenty-five percent on the expiry of twelve months
from the effective date listed below and an equal percentage of the remainder
will vest each month until the expiry of 4 years from such effective date;
Number of options
during the year
Effective At start Granted Exercised Cancelled At end Average Vested Expiry
date of year / expired of year Exercise as at Date
price 28th
� Feb
2008
22.04.05 26,000 Nil Nil 26,000 Nil Nil -
16.09.05 247,000 Nil Nil 82,000 165,000 1.31 106,230 15.09.15
The following share options were granted during the period ended 28th February
2007 and will vest as to twenty-five percent on the expiry of twelve months
from the effective date listed below and an equal percentage of the remainder
will vest each month until the expiry of 4 years from such effective date;
Number of options
during the year
Effective At start Granted Exercised Cancelled At end Average Vested Expiry
date of year / expired of year Exercise as at Date
price 28th
� Feb
2008
26.07.06 425,000 Nil Nil 163,000 262,000 1.32 102,659 25.07.16
30.1.07 312,000 Nil Nil 172,000 140,000 1.20 66,505 29.01.17
The following share options were granted during the period ended 29th February
2008 and will vest as to twenty-five percent on the expiry of twelve months
from the effective date listed below and an equal percentage of the remainder
will vest each month until the expiry of 4 years from such effective date;
Number of options
during the year
Effective At start Granted Exercised Cancelled At end Average Vested Expiry
date of year / expired of year Exercise as at Date
price 28th
� Feb
2008
30.3.07 Nil 85,000 Nil 25,000 60,000 0.98 6,250 29.03.17
24.8.07 Nil 125,000 Nil 20,000 105,000 0.93 Nil 23.08.17
16.11.07 Nil 55,000 Nil 10,000 45,000 0.71 Nil 15.11.17
22.2.08 Nil 20,000 Nil Nil 20,000 0.58 Nil 21.02.18
The options outstanding at the year end have an exercise price in the range of
10p to 200p and a weighted average contractual life of 2.5 years. The fair
value of options granted was measured using the Hull-White share option
valuation model, using the following assumptions as inputs:
Expected volatility 38.7%
Option life 10 years
Expected dividends 0%
Risk-free interest rate (based on government bonds 4.5%
yields)
The expected volatility is based on the historic volatility (calculated based
on the weighted average remaining life of the share options), adjusted for any
expected changes to future volatility due to publicly available information.
The fair value of the options at measurement dates and the exercise prices are
dependent on each option contract. Share options are granted under a service
condition. There are no market conditions associated with the share option
grants.
This resulted in a charge of US$499,000 in the period (2007: US$795,000).
Warrants
The following individual warrants were issued pursuant to Block Shield
Corporation plc entering into a merger agreement with WaveZero Inc. on 22nd
April 2004, by way of replacing individual warrant deeds which existed between
WaveZero Inc. and each warrant holder in relation to previous business
combinations rather than performance obligations:
Number of warrants
during the year
Warrant At start Granted Exercised Cancelled At end Exercise Vested Effective
holder of year / expired of price as at date
year � 28th
Feb
2008
R. Goodman 10,000 Nil 10,000 Nil Nil 0.01 Nil 08.08.03
Senior *
R. Goodman 65,000 Nil Nil Nil 65,000 0.01 65,000 08.08.03
Junior * /
**
C. Goodman 65,000 Nil Nil Nil 65,000 0.01 65,000 08.08.03
* / **
B. Watkins 57,226 Nil Nil Nil 57,226 0.01 57,226 08.08.03
*
R. Arnold 57,227 Nil 57,227 Nil Nil 0.01 Nil 08.08.03
*
R. Arnold 42,774 Nil Nil Nil 42,774 0.145 42,774 08.08.03
*
B. Watkins 42,773 Nil Nil Nil 42,773 0.145 42,773 08.08.03
*
Jane 50,000 Nil 50,000 Nil Nil 0.145 Nil 20.04.04
Capital
Partners,
LLC �
B Arnott 53,682 Nil 50,000 Nil 3,682 0.145 3,682 20.04.04
Smith� ***
�These warrants are exercisable at any time after the effective date for a
period of 10 years.
* All of the warrants granted to Quintec, LLC were assigned as set out on the
purchase of the remaining 70% of Quintec, LLC by WaveZero, Inc. The assigned
warrants vest as to 50% by 08.08.05 and the balance in equal monthly parts over
the following 24 months, and in all cases are/will be exercisable until 8
August 2013. R. Goodman Sr, R.Goodman Jr and C. Goodman exercised their vested
warrants as at 28th February 2006 at various times.
** 85,547 of the warrants granted to Quintec, LLC were assigned as set out on
the purchase of the remaining 70% of Quintec, LLC by WaveZero, Inc. The balance
of 683,356 warrants were cancelled. The assigned warrants vest as to 50% by
08.08.05 and the balance in equal monthly parts over the following 24 months
and in all cases are/will be exercisable until 8 August 2013.
*** B. Arnott Smith exercised 100,000 of his vested warrants during the period
ended 28th February 2006.
12 Deferred income
Deferred income classified as current consists of installation and training
services and equipment sold to customers prior to the year end whereby revenue
recognition criteria has not been met in accordance with the revenue
recognition policy in note 3(k).
13 Trade and other payables
Group Company
2008 2007 2008 2007
US$000 US$000 US$000 US$000
Trade creditors 2,408 2,390 298 447
Accruals 285 199 - -
2,693 2,589 298 447
2008 2007
US $000 US $000
Trade payables 2,408 2,390
Non-trade payables and accrued expenses 285 199
2,693 2,589
14 Group entities
The companies in which the company's interest at the period end is more than
20%, which are all included in the consolidation, area as follows:
Country of Principal activity Investment Class and
incorporation held by Percentage
of
ordinary
shares
held
Subsidiary
undertakings
WaveZero, Inc United States Radio Frequency Block 100%
of America identification tags and Shield
shielding of electronic
parts and components Corporation
Plc
WaveZero United States Shielding of electronic Wavezero 100%
of America parts and Inc
Manufacturing
Inc components
Vacuum Platers, United States Non- trading Wavezero 100%
Inc. of America Inc
Company:
Investment in Loans Interest Total
subsidiary roll up (restated)
(restated)
US$000 US$000 US$000 US$000
Investment as at 1 March 4,984 13,300 653 18,937
2006 as previously presented
Change in accounting policy 885 - - 885
for adoption of IFRIC8
Investment as at 1 March 5,869 13,300 653 19,822
2006
New loans - 4,168 - 4,168
Interest charged - - 645 645
Share incentive charges - 795 - - 795
subsidiaries
As at 28 February 2007 6,664 17,468 1,298 25,430
Share incentive charges - 499 - - 499
subsidiaries
New loans - 409 - 409
Interest charged - - 734 734
Investments in subsidiaries 7,163 17,877 2,032 27,072
at 29 February 2008
Loans and investments in 2008 2007
subsidiaries -company
US$000 US$000
restated
Investment in subsidiary 7,163 6,664
Loans to subsidiary 17,877 17,468
Interest roll up 2,032 1,298
27,072 25,430
END
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