Tadpole Technology plc
Interim Results for the period October 1, 2002 - March 31, 2003
Chairman's Statement
Introduction
The first half of the 2003 financial year has been an eventful period for the
Group with fundamental changes taking place in the scope of the Group's business
activities and its senior management. The planned sale of the hardware division
in December 2002 completed a key phase of the strategy to transform the Group's
business activities from hardware to software.
The trading results for the six months ended 31 March 2003, together with
comparatives for the six months ended 31 March 2002 and the year ended 30
September 2002, disclose separately the performance of the 'continuing
operations' (Cartesia and Endeavors) and the 'discontinued operations' (Tadpole
Hardware). Also, for the first time, a segmental analysis by business unit has
been presented for the 'continuing operations' to give shareholders a better
understanding of the structure of the Group's activities.
Continuing operations
Turnover in the software businesses for the first half of 2003 was £1.1 million
compared with £1.0 million for the same period last year. Operating losses
before goodwill impairment and foreign exchange movements improved from £3.2
million to £2.6 million.
Endeavors
Endeavors made good progress throughout the first half in developing its product
portfolio.
Magi Application Express was released in early November. This product securely
delivers any Windows application on demand over the Internet from central
servers to desktops. Autodesk became an early adopter of this technology to
deliver trial and evaluation software securely to its customers across the Web.
The implementation was successful and a new contract was won with Autodesk in
April to stream AutoCAD 2004 to a large pool of prospects. At the end of the
first half, Endeavors announced a further step in bringing this technology to
market when an agreement was signed with Centia to distribute Magi Application
Express to the UK market using Centia's extensive distribution channel.
The second significant product development for Endeavors during the first
quarter was the release of Magi Secure IM for AOL Instant Messenger (AIM),
Microsoft MSN Messenger and Yahoo Messenger, which was followed at the end of
the half-year with the announcement of a further Magi IM product enabling native
interoperability between AIM and MSN platforms.
The Board has completed a strategic review of Endeavors' operations and the
division will now focus its sales efforts on Magi Application Express and Magi
IM. The Magi collaboration suite of products will be marketed through embedding
the software in third party solutions. The first such OEM relationship is with
Cartesia and forms part of Cartesia's GO!Sync product.
The focus for the second half is to develop sales traction for Endeavors'
products and to keep cash burn tightly under control.
Cartesia
The first half-year saw solid progress at Cartesia during a period characterised
by continuing difficult trading conditions. Turnover compared with the
equivalent period last year was flat but consisted of a different business mix,
with greater utilisation of technical staff on project delivery.
The decision to invest in products based on ESRI technology is now bringing
rewards. Through direct sales activity, partnership with ESRI regional offices
in the USA and business relationships with other ESRI partners and distributors,
Cartesia is seeing considerable interest in its GO!Sync data synchronization
products. Early implementations have proved successful with a number of clients
including Alliant Energy and City of Burbank. Through the partnership with Miner
and Miner, GO!Sync will be supplied to HydroOne in Canada later this year.
Cartesia was delighted to be chosen as ESRI California's business partner of the
year at the ESRI International Business Partner meeting in March 2003.
The second half of 2003 will see an increase in revenues from Cartesia's
contract to deliver the next generation field information system for Ordnance
Survey. It is anticipated that further opportunities will result, as evidenced
by the recent announcement of the contract to supply field technology with ESRI
(UK) to Ordnance Survey Northern Ireland.
Discontinued operations
The operating results of the hardware division cover the period from 1 October
2002 to the date of its disposal on 23 December 2002. During this period, the
division incurred an operating loss of £0.7 million. The disposal of the
hardware division resulted in a loss of £4.3 million of which £4.1 million
arises from the early settlement of promissory notes as described below.
Assets and Financing
Part of the consideration for the sale of the hardware business was the issue by
the purchaser, Tadpole Computer Inc., of two subordinated promissory notes
totalling $8.5 million, which were due for payment in December 2007.
Under the terms of an agreement signed on 25 June 2003, the Company received an
immediate cash payment of $2.0 million in part settlement of the notes. In
addition, the agreement provides for a further $0.75 million cash to be paid in
three instalments of $0.25 million in June 2005, 2006 and 2007, subject to
Tadpole Computer Inc. achieving a defined level of profitability at these
milestone dates. The agreement results in the need to make a provision of £4.1
million ($6.5 million) against the book value of the promissory notes. The
Company is taking no recognition of the $0.75 million due under the earn outs.
In view of the current stage of Tadpole's development and the potential returns
from continued investment in this critical stage of Endeavors' growth, the Board
concluded that it would be in shareholders interests as a whole to receive value
for the Notes today rather than when they become due in four and a half years'
time. In coming to this decision the Board took into account the current state
of the market in UNIX products worldwide which is facing increasing competition,
and the fact that an immediate receipt of $2.0 million cash would substantially
reduce the need for Tadpole to make further draw downs against the GEM equity
credit line, although further use of this facility is not ruled out. To date,
the Company has drawn down £4.9 million against the GEM £10 million equity line
of credit, which expires in January 2004
Board changes
Graham Brown, who served as president of the hardware division, resigned as a
director in January 2003 and, in March 2003, Bernard Hulme resigned as a
director and group chief executive. Since joining the Group as chief executive
in June 1996, Bernard had been instrumental in the development of the Board's
strategy to transform the Group's business activities from hardware to software.
Outlook
Endeavors' target markets are still at an early stage of development and the
business climate for enterprise software continues to be challenging. Following
the strategic review, the Board confirms that it is seeking a strategic partner
with the strengths to help exploit the potential of Endeavors' products and is
focusing sales and marketing activities on the Applications Express and Instant
Messaging products.
Cartesia is expected to achieve a substantial increase in revenues during the
second half of this financial year compared with the first half and to be
profitable. Most encouragingly, the order book at the end of March 2003 stands
at ten times that of March 2002, providing a stable base for business growth in
the second half of 2003 and throughout the financial year 2004.
The division's success to date has been built primarily on the supply of
GIS-based products and services to mapping agencies and utilities. However,
there are significant opportunities for Cartesia to sell its existing products
and services into new markets and also to extend its range of products and
services into markets where it has an established presence. The challenge for
Cartesia is to exploit these opportunities to achieve continued growth beyond
2004.
The Group's continuing operations are expected to record a substantially reduced
operating loss in the second half of this financial year compared with the first
half and the Board looks forward with confidence to a further improvement in
operating results during 2004.
David Lee
Chairman
27 June 2003
Chief Financial Officer's Review
Continuing Operations
Turnover for the period from continuing operations was £1.1 million (2002 - £1.0
million), which was substantially flat compared with the same period last year.
The small growth came from revenue at Endeavors, which grew to £50,000 (2002 -
£7,000).
The Gross Profit % for Cartesia has reduced in the period to 39% (2002 - 45%).
This is due to a change in the revenue mix with greater utilisation of
development resources. Therefore, the amount of development that is not covered
by specific customer contracts has reduced to £0.1 million (2002 - £0.4
million). The Gross Profit % for Endeavors has reduced with the amount of
support costs for the sale of the Autodesk trial.
Selling, Development and Administration expenses have reduced this period
compared to the same period last year by 18% to £2.9 million (2002 - £3.6
million). Cartesia's development costs have reduced by £0.3 million due to the
better resource utilisation. Overall the costs in Endeavors have been reduced in
the current period by £0.3 million to £1.9 million (2002 - £2.2 million). These
cost savings have been achieved by a reduction in headcount, focusing resources
on delivering revenue in the second half of the year.
Overall the loss on operating activities for the period for Cartesia and
Endeavors reduced compared to the same period last year - Cartesia is £0.3
million (2002 - £0.5 million) and Endeavors is £1.9 million (2002 - £2.2
million). The loss on operating activities for Headquarters is £0.4 million
(2002 - profit £0.1 million), the change was due to a large US$ exchange rate
movement which resulted in an unrealised loss on the intercompany financing of
Endeavors which was £0.1 million (2002 - gain of £0.6 million). The exchange
losses in the current period in the Profit and Loss Account are largely offset
by the exchange gains on foreign currency translation in the Statement of
recognised gains and Losses of £0.1 million (2002 - loss of £0.5 million).
Discontinued Operations
The discontinued operations reflect the results of the hardware division prior
to its sale on 23 December 2002. The revenue for the three months to that date
was £1.7 million (2002 - six months revenue of £8.7 million). The Gross Profit %
declined to 21% (2002 - 37%). All of the operating expense lines were lower than
last year, especially development, which was significantly reduced due to the
recovery of £0.25 million of expenses from Tadpole Computer Inc., in the period,
on developing the TCP/IP Offload product. Overall the Division's operating loss
during the current period was £0.7 million (2002 - £0.2 million).
The sale of the hardware division including the settlement of the Loan Notes
resulted in a loss in the current period of £4.3 million.
Balance Sheet
The sale of the hardware division has had a significant impact on the Group
Balance Sheet. The Goodwill reduced to £2.7 million (2002 - £10.2 million). The
Debtors include £1.6 million due from Tadpole Computer Inc., otherwise the
Debtors for March 2003 are at £0.8 million (2002 - £3.9 million) which is
consistent with the change in the revenue profile of the Group. Creditors are
also substantially reduced to £2.9 million (2002 - £5.0 million) and include
£0.8 million of accrued costs on sale of the hardware division. As at 31 March
2003 the Group had a net cash outflow on the sale of the hardware division of
£0.4 million where expenses paid exceeded receipts.
Financing
During the current period, GEM Global Equity subscribed to 23,193,680 ordinary
1p shares and the Company raised £1.2 million net of expenses. Subsequent to the
period end, GEM Global Equity subscribed to a further 16,791,666 ordinary 1p
shares and a placing was made for a further 21,700,000 ordinary 1p shares. The
sums raised subsequent to the period end from these two share issues net of
expenses were £1.2 million.
Keith Bigsby
Chief Financial Officer
27 June 2003
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the six months ended 31 March 2003
Unaudited 6 months ended Unaudited 6 months ended Audited year ended
31 March 2003 31 March 2002 30 September 2002
Continuing Discontinued Total Continuing Discontinued Total Continuing Discontinued Total
Operations Operations Operations Operations Operations Operations
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
TURNOVER 1,060 1,743 2,803 1,033 8,711 9,744 1,842 14,882 16,724
Cost of sales (634) (1,374) (2,008) (580) (5,516) (6,096) (916) (9,528)(10,444)
GROSS PROFIT 426 369 795 453 3,195 3,648 926 5,354 6,280
Selling and marketing
costs (1,254) (463) (1,717) (1,417) (1,609) (3,026) (2,946) (3,449) (6,395)
Research and
development costs (1,015) (229) (1,244) (1,437) (908) (2,345) (2,755) (1,669) (4,424)
General administrative
expenses (644) (142) (786) (718) (466) (1,184) (1,293) (757) (2,050)
Goodwill amortisation (80) (210) (290) (80) (420) (500) (161) (839) (1,000)
Goodwill impairment - - - - - - - (2,922) (2,922)
Exchange gain/(loss) (50) - (50) 576 (2) 574 (666) (2) (668)
OPERATING EXPENSES (3,043) (1,044) (4,087) (3,076) (3,405) (6,481) (7,821) (9,638)(17,459)
Operating loss (2,617) (675) (3,292) (2,623) (210) (2,833) (6,895) (4,284)(11,179)
OPERATING LOSS
BEFORE GOODWILL
IMPAIRMENT AND
EXCHANGE GAIN/
(LOSS) (2,567) (675) (3,242) (3,199) (208) (3,407) (6,229) (1,360) (7,589)
Loss on sale of
discontinued
operations - (4,300) (4,300) - - - - - -
LOSS ON ORDINARY
ACTIVITIES BEFORE
INTEREST (2,617) (4,975) (7,592) (2,623) (210) (2,833) (6,895) (4,284)(11,179)
Interest receivable 82 46 94
Interest payable (6) (55) (55)
LOSS ON ORDINARY
ACTIVITIES BEFORE
TAXATION (7,516) (2,842) (11,140)
Taxation (19) - 217
LOSS FOR THE PERIOD (7,535) (2,842) (10,923)
LOSS PER ORDINARY SHARE:
Basic and diluted (3.6p) (1.5p) (5.7p)
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the six months ended 31 March 2003
Unaudited Unaudited Audited
6 months ended 6 months ended year ended
31 March 31 March 30 September
2003 2002 2002
£'000 £'000 £'000
Loss for the period (7,535) (2,842) (10,923)
Gain/(loss) on foreign currency translation 109 (454) 525
TOTAL RECOGNISED LOSSES
RELATING TO THE PERIOD (7,426) (3,296) (10,398)
CONSOLIDATED BALANCE SHEET
at 31 March 2003
Unaudited Unaudited Audited
at 31 March at 31 March at 30 September
2003 2002 2002
£'000 £'000 £'000
FIXED ASSETS
Intangible assets - goodwill 2,735 10,240 6,818
Intangible assets - other 175 80 219
Tangible assets 177 579 465
3,087 10,899 7,502
CURRENT ASSETS
Stocks - 2,152 1,720
Debtors 2,400 3,911 2,381
Cash at bank and in hand 367 1,748 1,159
2,767 7,811 5,260
CREDITORS: amounts falling due within one year (2,935) (4,966) (3,606)
NET CURRENT (LIABILITIES)/ASSETS (168) 2,845 1,654
TOTAL ASSETS LESS CURRENT LIABILITIES 2,919 13,744 9,156
CREDITORS: amounts falling due after one year (13) - -
NET ASSETS 2,906 13,744 9,156
CAPITAL AND RESERVES
Called up share capital 19,105 18,749 18,873
Share premium account 33,970 30,636 33,026
Merger reserve 1,856 6,451 6,451
Profit and loss account (52,025) (42,092) (49,194)
SHAREHOLDERS' FUNDS - ALL EQUITY 2,906 13,744 9,156
CONSOLIDATED CASH FLOW STATEMENT
For the period ended 31 March 2003
Unaudited Unaudited Audited
at 31 March at 31 March at 30 September
2003 2002 2002
£'000 £'000 £'000
Operating loss (3,292) (2,833) (11,179)
Depreciation and amortisation charges 446 706 1,458
Goodwill impairment - - 2,922
Loss on sale of fixed assets - - 27
Decrease in stocks 350 551 802
(Increase)/Decrease in debtors (213) (316) 898
Increase in creditors 629 1,316 244
Exchange loss/(gain) 51 (572) 660
Net cash outflow from operating activities (2,029) (1,148) (4,168)
Returns on investments and servicing of finance - (9) 39
Capital expenditure and financial investment (18) (134) (516)
Corporation tax (19) - 217
Sale of hardware division - discontinued operations (380) - -
Net cash outflow before management of
liquid resources and financing (2,446) (1,291) (4,428)
Management of liquid resources - (800) -
Financing 1,176 11 2,524
Decrease in cash in the period (1,270) (2,080) (1,904)
Note
The decrease in cash in the period represents cashflows
excluding money on deposit
Including these monies, cashflows were: -
Decrease in cash in the period (1,270) (2,080) (1,904)
Net movement of cash placed on treasury deposit - 800 -
Decrease in cash and liquid resources in the period (1,270) (1,280) (1,904)