2ergo- annual report year 2009

Digital leaders in a mobile world

Annual Report + Accounts 2008/2009

Contents

– 04 Highlights

– 06 About 2ergo

– 08 Chairman’s Statement

– 09 Management Review

– 14 Solutions and Services

– 16 Interactive Messaging

– 18 Mobile Internet and Publishing

– 20 Smartphone Applications

– 22 Mobile Ticketing and Coupons

– 24 Mobile Security and Advanced Messaging

– 26 Business Partner Programme

– 34 Directors’ Report

– 37 Statement of Directors’ Responsibilities

– 38 Report of the Independent Auditor to the Members of 2ergo Group plc (on the Consolidated Financial Statements)

– 39 Consolidated Income Statement

– 40 Consolidated Balance Sheet

– 41 Consolidated Statement of Changes in Equity

– 42 Consolidated Cash Flow Statement

– 43 Notes to the Consolidated Financial Statements

– 64 Report of the Independent Auditor to the Members of 2ergo Group plc (on the Company Financial Statements)

– 65 Company Balance Sheet

– 66 Notes to the Company Financial Statements

– 70 Company Information

03

SOLD

SOLD

SOLD


Highlights

– Gross profit from direct sales and enhanced Business Partner Programme up 26% to £10.1 million, increasing overall gross margin from 30% to 48%, ahead of expectations

– Strategy to reduce exposure to high-volume low-margin wholesale distribution business seeing continuing success

– EBITDA, before impairment of initial investment in Broca plc, up 21% from £4.1 million to £5.0 million

– Americas region reports first profits

– Expansion into Asia and Australia and broadening of product set through acquisitions

– Growing number of global clients

– Market leading product set starting to be rolled out across all regions

– Completed buy-back of 1 million 2ergo shares into treasury, at a cost of £1.4 million

– Cash reserves of £6.4 million at the year end and debt free

– Ideally positioned to reap significant benefits from investment in additional sales, marketing and support resources in order to drive turnover growth across all geographies

Gross profit from direct sales and enhanced Business Partner Programme up 26% to £10.1 million

SOLD

SOLD

SOLD

2.726m– 2006

3.223m– 2007

4.104m– 2008

4.968m– 2009

6.89p– 2006

6.74p¹– 2007

8.54p– 2008

9.87p– 2009

2.726m– 2006

3.223m– 2007

4.104m– 2008

4.968m– 2009

6.89p– 2006

6.74p¹– 2007

8.54p– 2008

9.87p– 2009

EBITDA (£m)

Earnings before interest, tax, depreciation, amortisation and impairment of initial investment in Broca

Adjusted basic earnings per share (pence)1Stated after applying 2008 effective tax rate to 2007 EPS

Expansion into Asia and Australia and broadening of product set through acquisitions

05

About 2ergo

2ergo is a leading international provider of mobile enabling technology for marketing, business, entertainment and media. Its product portfolio includes an innovative suite of interactive messaging, mobile publishing, content management, smartphone applications, mobile ticketing and coupons, mobile security and advanced messaging solutions to deliver a multi-dimensional approach. Wrapped around the product suite are professional managed services to help organisations develop and execute their mobile strategy.

2ergo enables global businesses, brands, marketing agencies, publishers and mobile network operators to take advantage of integrated mobile communications to increase sales, enhance customer experiences, mobilise business processes and reduce costs. Many leading global brands have recently adopted 2ergo’s product set and are benefiting from more targeted and personalised communications with their customers via the mobile channel.

Key to 2ergo’s success is its core enabling technology platform ‘Multiserve’. A result of over ten years of mobile product evolution and significant research and development, Multiserve comprises a unique set of technologies which form the intelligence and billing layer between network operators, the Internet and customer-facing applications.

Built with flexibility at its core, Multiserve seamlessly integrates voice, data, text, email, video and mobile Internet channels to form a powerful yet agile nucleus. This intelligent core enables 2ergo to rapidly develop and launch a wide range of integrated and innovative customer-facing products and services for mobile marketing, business, entertainment and media. Its flexibility also ensures that 2ergo can respond quickly and efficiently to changing market conditions and customer needs.

Headquartered in the UK, 2ergo’s international presence spans Europe, North America, Latin America, Australia and India and a partner network in China. The Group currently employs over 150 people, with offices in Manchester (head office), London, Washington, New York, Buenos Aires, Sydney, New Delhi and Mumbai.

06


About 2ergo’s customers

The Group’s customers include well-known brands, mobile network operators, marketing agencies, media brands and organisations in the financial services, retail and travel sectors, amongst other industries.

The long list of organisations which utilise 2ergo’s products and services include:

The UK’s three largest mobile network operators –O2, Orange and Vodafone

Dallas-based MetroPCS Communications and AT&T, –the second largest mobile network operator in the United States

The Australian Broadcasting Corporation (ABC), an –Australian public broadcaster which provides television, radio, and digital online services

FOX News, a cable and satellite news channel that is –part of News Corporation, one of the world’s largest media conglomerates

Internet search and services provider Yahoo! –

Procter & Gamble, the Fortune 500 multinational –manufacturer of consumer goods

Ladbrokes, world-leader in the global betting and –gaming market

Rightmove, the UK’s number one property website –

Through the Business Partner Programme 2ergo has established relationships with some of the world’s most respected marketing and advertising agencies, including Ogilvy & Mather, BBH and McCann Erickson, as well as market research leader Kantar Operations.

07

Chairman’s Statement

I am pleased to report another very strong year for 2ergo. The strategy to focus on direct sales and the enhanced Business Partner Programme is paying dividends and the Group’s gross profit margin has increased from 30% to 48% as a result of the move away from the wholesale reseller business. Earnings before interest, tax, depreciation, amortisation and impairment charges for the year have increased from £4.1 million to £5.0 million, a rise of some 21%.

2ergo has continued to enjoy organic growth and, despite the global economic downturn, during the period the Group has completed three key strategic acquisitions adding new products, new technological innovations and an extended pool of quality people with significant expertise in the industry. Crucially, the Board believes that these acquisitions will provide the Group with extensive geographical reach into some of the fastest growing world markets.

In April 2009, 2ergo completed the acquisition of Broca plc, with patented technology for end-to-end security over multiple mobile communication protocols. In May 2009, the Group acquired Australian-based Wapfly Technologies, whilst July 2009 saw 2ergo’s expansion into India following the acquisition of Activemedia Technologies, leading providers of mobile ticketing and couponing with offices in New Delhi, Mumbai and London.

The Group chose these technology-rich acquisitions in strategically important regions as part of its plan to expand the business globally and to better serve its blue chip clients who are increasingly eager to reach the whole addressable mobile market on a global scale. These three key businesses have a strong future and 2ergo is committed to helping them realise their full growth potential. This year, the Group will make substantial further investment in people, technology and operations to complete the integration of the acquisitions and globalise its products and solutions.

Over the past 10 years, 2ergo has delivered impressive growth which has put the business in a market leading position. To further accelerate the Group’s growth, the management team has been strengthened by the appointment of high-quality people who have proven and wide-ranging experience in building successful businesses and in integrating acquisitions. I am confident that we have the best team, with the right skills, to execute our plans and take the business to the next level.

The Group’s innovative technology and services have been developed to scale with the business. The mobile market is growing beyond the early predictions, and with continued investment and sound leadership, 2ergo looks forward to executing its very exciting strategy.

Keith Seeley, Chairman

08


Management Review

Financial performance

The strategy announced by the Board last year to focus on higher-margin direct sales and the enhanced Business Partner Programme and reduce the Group’s exposure to low-margin wholesaler-introduced business has continued to pay dividends, as follows:

Revenue

2009 £000

2008 £000

% Change

Direct/Business Partner 11,720 9,071 +29%

Wholesale Reseller Channel 10,973 23,494 -53%

22,693 32,565 -30%

Gross Profit

2009 £000

2008 £000

% Change

Direct/Business Partner 10,058 8,013 +26%

Wholesale Reseller Channel 829 1,756 -53%

10,887 9,769 +11%

Total revenue for the year was £22.7 million, compared to £32.6 million in 2008. This reflects the Group’s strategy of reducing business from its wholesale reseller clients, with revenue from this area now £11.0 million (2008: £23.5 million). Gross profit from these wholesale services was £0.8 million (2008: £1.7 million), a reduction of just £0.9 million. Conversely, gross profit generated by the redeployment of resources from the delivery of wholesale services into the delivery of direct and Business Partner Programme sales increased by £2.1 million in the year, validating this strategy.

Revenues generated through direct sales and business partners increased from £9.1 million to £11.7 million, a rise of 29%, whilst gross profit grew by 26%, up from £8.0 million in 2008 to £10.1 million this year. Gross margins in this area remained consistently high at 86% (2008: 88%). Total Group gross profit for the year rose from £9.8 million to £10.9 million, with overall Group gross margins growing from 30% to 48%.

The focus on selling direct to customers or through sophisticated business partners means that by understanding the needs of its customers better, 2ergo is well positioned to generate significant increases in revenue. Also, crucially, the Group’s increased reach offers the opportunity to sell its products and services to existing customers in new regions.

Group overheads for the year, before impairment charges, were £7.3 million (2008: £6.8 million). The increase in overheads reflects the investment made by the Group during the year in strengthening the management team and product set to capitalise on the growing global opportunities for 2ergo. This investment, together with investment in the recent acquisitions, will continue into the coming year as the Board seizes the vast opportunities for the growth of 2ergo.

Group operating profit, before impairment charges, rose to £3.6 million (2008: £3.0 million), an increase of 19%. The impairment charge of £3.2 million arose in the first half of the financial year, when 2ergo held a 19.2% interest in Broca plc which was accounted for as an available for sale investment. In accordance with the principles of IAS 39, the carrying value of the asset was required to be written down to the quoted share price of Broca plc, giving rise to the impairment charge of £3.2 million through the income statement for the 6 months to February 2009.

Subsequent to the half year, 2ergo completed the acquisition of the remaining share capital of Broca plc. The goodwill arising on the acquisition of the entire 100% interest in Broca plc is £6.8 million (including £3.2 million in relation to the initial 19.2% holding). This is supported by its value in use and is not considered to be impaired.

In terms of overall net asset values, the impairment charge arising in the first half of the year has been reversed in the second half, but IAS 39 requires that the reversal of the original charge is not put through the income statement. The overall impact is that while the income statement includes an impairment of £3.2 million in respect of the previously held available for sale investment, the subsequent acquisition accounting is such that the impairment is reversed within the balance sheet and reinstated within goodwill.

EBITDA before impairment charges grew by 21% from £4.1 million to £5.0 million. Of the amortisation charge for the year, £0.1 million was in respect of acquisitions made by the Group. Profit before tax and impairment charges was £3.8 million compared to £3.4 million in 2008, an increase of 11%. After the goodwill impairment charge of £3.2 million, the profit before tax was £0.6 million (2008: £3.4 million).

09

The effective tax rate for the year, based on profit before the impairment charge, was 21% (2008: 26%), and basic earnings per share, before goodwill impairment, was 9.87p, compared to 8.54p in 2008, an increase of 16%.

Net assets at the year end stood at £23.5 million (2008: £16.1 million). Cash of £3.5 million was generated from operating activities, compared to £1.2 million in 2008. Following the purchase of 1 million 2ergo shares into treasury, together with continued investment into technology and product development and the completion of the acquisitions, cash balances at the year end were £6.4 million (2008: £9.1 million). The Group will consider opportunities to buy back further shares as and when appropriate.

The Group has continued its progress in the Americas region during the year, with revenue growth to $3.7 million (2008: $2.5 million) an increase of 48%. The Board is delighted that 2ergo Americas reports a profit for the first time this year, with $365k being generated, compared to a loss of $955k in 2008. This represents a turnaround of some $1.3 million. Now that the Group’s model in the Americas has been proven, the Board is fuelling growth in that region, with investment since the year end which includes a new regional managing director and senior sales staff. The Board believes that over the coming years this investment will allow 2ergo Americas to grow significantly.

During the year 2ergo completed the acquisition of Broca plc, Wapfly Technologies Pty Limited and Activemedia Technologies Limited (AMT). All of these acquisitions are technology-rich companies, who are either pre-revenue or in early stages of revenue generation. The contribution of these acquisitions to both revenue and profitability this year has been minimal but, with continued investment during the new financial year, all are expected to contribute to profitability by the end of 2009/10. It is the Board’s intention to develop these businesses in a similar manner to 2ergo Americas, which is now demonstrating significant underlying value following its successful turnaround.

At the year end, these acquisitions were valued within intangible assets at £17.1 million, with deferred consideration estimated at £7.0 million. The deferred consideration in respect of AMT is an estimate based on management forecasts, calculated as 4 times AMT India profit after tax and 2.8 times AMT UK operating profit for the year to 31 August 2012, which will be payable between November 2009 and November 2013, dependent on AMT achieving agreed levels of financial performance and subject to an overall consideration cap. Consideration will be settled, at the discretion of 2ergo, by the issue of new 2ergo ordinary shares or loan notes.

Consideration for the acquisition of Broca plc was satisfied by the issue of 0.0909 of a 2ergo share in exchange for each Broca share, whilst the Wapfly consideration was settled in cash after the year end. Details of the values attributable to each acquisition in terms of asset value and deferred consideration are shown in note 18 to the consolidated financial statements.

The Group’s cash position, its debt-free status, its increased global footprint in high-growth geographies and its award-winning product set mean 2ergo is ideally positioned to enter its next growth phase with confidence.

10


Operational review

During the year, the Group has continued its strategy of increasing its global footprint to capitalise on the boom in mobile services in some of the fastest growing regions in the world. In early 2009, 2ergo relocated its global headquarters to the centre of MediaCity UK in Manchester. MediaCity UK is fast becoming a significant international hub for the media and creative industries, with the UK’s leading broadcast, media and technology companies at its heart. Following its recent acquisitions, the Group now has offices in Manchester, London, Washington, New York, New Delhi, Mumbai, Sydney and Buenos Aires and employee numbers have increased from 82 to over 150 during the year.

In April 2009, 2ergo acquired Broca plc and its patented technology for end-to-end security over multiple mobile communication protocols. This technology provides secure data transfer solutions for mobile phone and wireless networks and has particularly strong potential in emerging markets such as Asia, Africa and South America to facilitate secure mobile payments, money transfers and banking solutions. The Board is pleased with the progress made since acquisition in integrating the Broca technology into 2ergo’s product set, and with the opportunities developing in the sales pipeline.

The acquisition of Australian-based Wapfly Technologies Pty Limited, in May 2009, is part of a move to extend the Group’s reach into the Asia-Pacific region. 2ergo is now making great headway in the mobile marketing and broadcast sectors in Australia, and once the migration of its full product range into the region has been completed in 2009/10, the Group will become active in other core sectors. 2ergo now serves, amongst others, media giant ABC (Australian Broadcasting Corporation) with its mobile Internet and smartphone applications.

In July 2009, the Group expanded into India following the acquisition of Activemedia Technologies Limited, with offices in New Delhi, Mumbai and London. 2ergo now provides mobile value added services and solutions in India, and is a leading supplier of mobile ticketing and couponing, delivering the couponing redemption technology behind the highly successful ‘Orange Wednesdays’ campaign in Europe. This acquisition holds vast potential and gives 2ergo access to one of the world’s fastest growing mobile markets. There were 472 million mobile subscribers in India as at 30 September 2009, and with subscriber numbers increasing by 15 million in September 2009 alone (source: Telecom Regulatory Authority of India), the acquisition opens up a vast audience to 2ergo and its clients.

In addition to the increased geographical reach afforded to 2ergo as a result of these acquisitions, each brought to the Group experienced staff and management, together with significant additions to the Group’s product suite. Since the acquisitions were completed, 2ergo has invested significantly in incorporating these new products into its existing award winning product set, and in readying them for the roll out of all products across all regions throughout the coming year.

Global product consolidation will enable organisations to seamlessly move between 2ergo products thus enhancing their mobile offering and increasing sales and customer loyalty. This investment will continue into 2009/10 and is expected to generate significant revenues during the latter part of that year and subsequent years.

An example of the success the Group has had in the year following this investment in its technology has been with its mobile Internet and smartphone applications product lines, enabling organisations to launch engaging interactive services across smartphone platforms such as Apple iPhone, Google Android, Blackberry and Windows. Some key projects undertaken during the year include the Rightmove application, the FOX Business Smartphone application in the US and the ABC application in Australia.

Customer retention rates continue to run close to 100% and established clients such as O2, AT&T and leading media brands are increasingly helped by 2ergo to grow their mobile services, once again proving the strength of 2ergo’s product set. In addition to numerous high profile client wins, the Group has secured relationships with business partners such as Ogilvy & Mather, McCann Erickson and BBH in the UK and Group M and Kantar Operations (part of WPP group) globally.

2ergo also made pleasing progress in the Americas region during the year, reporting its first profit and expanding its network operator and media relationships by delivering new services for customers such as AT&T and National Geographic Channel and adding MetroPCS to its customer base. The Group’s relationships with leading household names such as Procter and Gamble also continued to grow and 2ergo now provides solutions for them in India as well as Latin America, as a direct result of the Group’s increased geographic presence. Recent services have included mobile loyalty campaigns for leading brands such as Gillette and Pampers utilising 2ergo’s mobile couponing services. To support this growth, the Group has appointed a new Managing Director of 2ergo Americas who is a recognised and well-respected figure in the mobile communications industry.

Following the Group’s launch into India, 2ergo is quickly establishing itself in that region, being selected by one of India’s largest network operators as their mobile couponing partner. Similar progress is being made in Australia, where investment has been made in expanding the sales, technical and operational support teams, the benefits of which are already starting to be seen as a healthy pipeline continues to develop in that region.

The Group is also benefiting from reduced operating costs and improved efficiencies as a result of migrating certain development functions to India and South America.

11

Markets and opportunity for growth

As global awareness and consumer appetite for mobile services continues to rise, the opportunity for significant growth for 2ergo is excellent. There are now over 4 billion mobile subscribers in the world, equating to a global market penetration of 61.1% (source: International Telecommunication Union), and the pace of growth is faster than any other technological development in history. Of these subscribers, 2 billion are capable of accessing the mobile web from their handset. This compares with only 1 billion PC/laptop users being able to access the Internet, 1.5 billion TV subscribers and 1.2 billion fixed line telephone users (source: Google In Mobile 2009). Moreover, with fixed line Internet access in developing countries being limited and, if available, often slow and expensive, the growth of global mobile services, mobile banking and mobile commerce is assured. The Group’s proven technology means that it is ideally placed to exploit this demand.

Investment strategy

As the penetration of high-tech handsets increases, the growth of mobile services and use of 2ergo’s services follows. The Board therefore believes that the time is right to make significant investment in the Group’s ability to deliver these services on a larger scale. The Board has considered a range of potential capital acquisitions of established businesses in order to gain greater scale. It now believes that investment in the Group’s existing operations, including its recently acquired businesses, is the best means by which to achieve the operational scale required to fully capitalise on the opportunity for significant growth.

Investment will be made in the following:

Additional sales and marketing staff in order to drive –growth in revenue across all geographies

Technical support staff in order to ensure consistency –of service across a larger customer base through standardisation and globalisation of 2ergo’s products and services

Corporate processes and structures in order to –ensure the effective operation of the enlarged multi-geographical Group

Technology in order to ensure robust global delivery –of services

This investment and the ramp-up of the scale of the Group’s operations will predominantly take place during the first half of 2009/2010 and will result in a materially increased overhead to be supported by the Group. It is anticipated that the investment will be funded out of existing cash reserves. Staff numbers are expected to increase from 152 at the end of August 2009 to 240 during the year to August 2010, resulting in an expected increase in the annual overhead charge for the year to 31 August 2010 as follows:

Description £m

Additional sales and marketing staff costs 2.1

Full year staff costs within Wapfly, AMT and Broca 1.4

Additional technical staff costs 1.0

Additional staff costs to support enlarged group 0.3

Other staff cost increases 0.4

Total staff cost increases 5.2

Non-staff overheads from acquisitions 0.8

Incremental operating costs arising from capital investment

0.5

Additional operating costs for enlarged group 0.6

Total other cost increases 1.9

Total forecast increase in overhead for the year to 31 August 2010

7.1

12


Future trading

2ergo has already started to see growth from the migration of its existing products into all geographies with sales of its services into new and existing customers. The Group’s pipeline of potential new business from blue chip companies has never been stronger, and 2ergo’s existing well proven revenue model of charging upfront development fees, monthly service annuity fees and transactional fees is now being successfully established in all geographies. Following the investment to be made in scaling the business, the Board expects a considerable increase in long term annuity revenue to be seen in the latter part of 2009/10. This should lead to significantly increased revenues, gross profits and operating profits across all territories in the financial year 2010/11.

Outlook

The market-size statistics alone confirm that well-established and proven companies within the mobile market are set to benefit from the inevitable commercial growth of the mobile industry and, in particular, data services. The Board believes that 2ergo is best placed to lead the market with its unique full-service solution. Proven and used by an ever increasing number of world leading organisations, the Group’s suite of self-service products gives its blue chip customers the holistic approach to mobile marketing, customer relationship management and the mobile entertainment and media they demand.

It is against this backdrop of a rapidly growing market, coupled with strong management, a clear strategy, an established global footprint and a healthy new business pipeline that 2ergo’s outlook has never been stronger.

Solutions and Services

2ergo’s solutions and services enable multinational businesses, mobile network operators, content owners and business partners to take advantage of integrated mobile technology to increase sales, mobilise business processes, reduce costs and enhance customer experience.

Through 2ergo, more and more organisations are leveraging the unique characteristics of the mobile channel in order to attract and retain customers and generate new revenue streams through existing and emerging technologies such as smartphone applications, mobile banking and mobile commerce.

2ergo’s solutions cover all aspects of mobile technology and are device, network and protocol independent.

2ergo Multiserve

At the heart of 2ergo’s product portfolio is the Multiserve platform; a result of over 10 years’ research and development, it is a unique set of technologies that form the intelligence and billing layer between network operators, the Internet and customer-facing applications.

Built with flexibility at its core, Multiserve seamlessly integrates voice, data, text, email, video and mobile Internet channels to form a powerful yet agile nucleus. This intelligent core enables 2ergo to effortlessly develop and launch a wide range of integrated and innovative customer-facing mobile business, mobile marketing and mobile entertainment products and services. Its flexibility ensures 2ergo can respond quickly and efficiently to changing market conditions and customer needs.

Sophisticated reporting and management information

Underpinning all of 2ergo’s products and services is a sophisticated reporting and analytics engine that enables organisations to gain a greater insight into their customers’ behaviour. Accessed through a common user interface, it provides organisations with a true 360 degree view across all customer touchpoints. It enables organisations to assess the success of each communication channel and to build a customer profile based on the responsiveness to each customer interaction, taking into account the best time of day to establish communication, the best method of communication, with what frequency, and to what content they are most receptive.

14


InteractiveMessaging

– Campaign Manager– Mobile Messaging Manager– SMS2Email– Broadcast SMS/MMS

Mobile Ticketing & Coupons

– VoucherNet– Ticketing Platform– POS Redemption– QR Codes– Bluetooth

SmartphoneApplications

– Android– iPhone– Blackberry– Symbian/Java – Windows

Mobile Internet& Publishing

– Mobile Site Builder– Content Management– Video Streaming– Device Rendering

Mobile Security & Advanced Messaging

– Secure Advanced Messaging Service– mBanking, mPayments and mCommerce– Secure Mobile Communications– Network Operator Bill and Pre-pay Account Payments

G

15

Interactive Messaging

2ergo’s Interactive Messaging solutions allow organisations such as mobile operators and brands to create and send personalised communications via text message, picture message, voice, email and mobile Internet, from one source to audiences ranging from hundreds to millions. The carrier grade interactive campaign delivery platform is used by the likes of O2, AT&T and Ladbrokes to engage with customers throughout the customer lifecycle, including customer acquisition, satisfaction surveys, polls, competitions, market research, time-bound loyalty vouchers, upgrade management and promotional activity.

Optimised marketing campaigns

In a crowded marketplace, marketers are constantly looking for new ways to reach out to customers. 2ergo’s Interactive Messaging solutions can be used to create and run sophisticated, creatively-rich mobile marketing and promotional campaigns that capture the attention of target audiences. They can be used by brands and their agencies to take customers on an interactive journey via text (SMS), multimedia messaging (MMS), mobile Internet and email. The solution can be used to personalise interactions, schedule delivery times and engage in a two-way dialogue, ensuring communications are more targeted, more relevant and ultimately more effective. Numerous 2ergo case studies have illustrated powerful response rates upwards of 25 per cent, yet at a fraction of the cost associated with traditional marketing channels.

Customer relationship management

The mobile phone presents one of the most targeted, cost effective and timely ways to communicate with customers. 2ergo’s Interactive Messaging solutions can be used by organisations to create, execute and track mobile customer relationship management (CRM) campaigns to communicate more effectively and conveniently with customers and staff via text message, picture message, mobile Internet and email. Whereas traditional forms of customer contact can be costly or deliver low response rates, 2ergo’s solutions are proven to significantly increase customer satisfaction and reduce customer contact strategy costs by as much as 30 per cent. They can be used to mobilise inbound customer care channels, effectively allowing customers to ‘self-serve’. Frequently asked questions, balance enquiries and account transfers are just some of the routine communications that can be automated through 2ergo’s mobile enabling technology.

Media engagement

Media and entertainment brands can engage audiences with rich interactive services such as competitions, voting, chat and games. 2ergo’s Interactive Messaging solutions enable brands to deliver multimedia information services to strengthen relationships with their clients, increase brand awareness and generate additional revenue streams. Examples include subscription-based news alerts, mobile video streaming and community-based mobile Internet portals.

Reporting and management information

Underpinning 2ergo’s Interactive Messaging solutions is advanced reporting and business intelligence. The real-time analytical reporting enables organisations to assess the success of each communication sent and to build a customer profile based on the responsiveness to each campaign.

“People currently send two trillion messages per day worldwide.” – In-Sat

16


The Challenge

As one of the world’s leading telecoms brands, AT&T is dedicated to providing high-quality services to its subscribers. As part of this commitment, AT&T’s Youth Marketing Group was looking for a compelling way to reach its core audience of music-loving customers via their mobiles. The Group’s goal was to support a range of live music events through interactive messaging and mobile Internet solutions designed to add value to the customer experience.

To achieve this, AT&T Mobility needed a comprehensive mobile marketing platform that would simplify the distribution of relevant content and information in a unique and entertaining fashion via mobile – a key medium in the company’s diverse marketing mix.

The Solution

AT&T realised that 2ergo could deliver a full mobile package to engage AT&T customers according to the individual needs of each campaign.

2ergo prepared a full range of mobile-enabled options for a number of AT&T campaigns, tailored to the company’s specific objectives. As an example, an SMS messaging campaign supported by a mobile website was created to promote the annual Vans Warped Tour concert tour, where customers could receive individually tailored pre-show texts offering exclusive content tied to their local Vans Warped Tour stop. 2ergo’s technology also made it possible for AT&T to send promotions and offer downloadable music content exclusively to its subscribers, thus enriching AT&T subscribers’ experiences at the events.

The Results

2ergo enabled AT&T to engage with its target customers in ways that had not previously been possible. The added value and improved customer experience introduced AT&T to a previously untapped world of potential for engaging new, young consumers with practical information and useful content.

Vans Warped Tour fans sent nearly 40,000 SMS messages to opt in to the campaign, and the tour’s mobile site received an impressive 75,000 page views.

Following the project, AT&T remains committed to using mobile marketing to reach its subscribers and recognises the value of combining the use of SMS campaigns with mobile websites to provide consumers with an interactive, engaging and informative experience.

Case Study: AT&T

Multi-channel mobile marketing campaigns add value to customer experience

“Fans sent nearly 40,000 SMS messages to opt in to the campaign, and the tour’s mobile site received an impressive 75,000 page views.” – Jennifer Erdman, Senior Manager at AT&T Youth Marketing

17

Mobile Internet and Publishing

The mobile Internet enables organisations to extend their traditional online presence to a mobile web environment for interaction. In the UK mobile Internet growth is currently eight times greater than PC-based growth, driven by the popularity of smartphones, flat rate data plans, faster network speeds and changing consumer behaviour (source: Nielsen Research). In many developing nations consumers are leapfrogging fixed line access and choosing mobile as their primary experience, driving demand even higher.

This shift presents a wealth of opportunities for global brands to extend their geographical reach and interact with domestic consumers ‘on the go’. The true value of the mobile web becomes clear when businesses start to take advantage of location-based services and engage with consumers ‘in the moment’; for example the ability for retailers to interact with consumers at the point of purchase is extremely powerful.

2ergo has developed mobile Internet sites for some of the world’s most influential brands including Rightmove, the Australian Broadcasting Corporation (ABC), FOX News, AT&T, American Idol, NBC Universal and Uno Medios. In 2009, 2ergo partnered with global marketing and advertising agency, Ogilvy & Mather, to mobilise the ‘Hopenhagen’ initiative, helping millions of people to participate in the landmark movement. Recognised as market leading, the success of these sites lies in the fact that they provide a high-quality, consistent experience which has been optimised for the mobile user.

“The mobile Internet is predicted to grow from 577 million users in 2008 to 1.7 billion users in 2013.” – www.watblog.com

High-end mobile publishing and content management solution

2ergo’s high-end mobile publishing and content management solutions can be used by marketing and creative teams to quickly establish a mobile presence or manage updates. The suite of products can be used by brands and agencies to quickly develop a mobile web presence, either via 2ergo’s powerful site building tools or through a managed service team utilising in-house creative and production facilities. The technology seamlessly integrates with existing content management systems and enables content repurposing to ensure 2ergo mobile Internet sites render elegantly on all mobile devices.

Organisations can track customer usage and key metrics with 2ergo’s intuitive yet sophisticated analytics and reporting package. Rich analytics relay in-depth consumer insight including popular handsets, unique visitors and page impressions for ongoing site optimisation.

18


Case Study: Australian Broadcasting Corporation (ABC)

The ABC uses mobile site and applications to engage audiences whilst on the move

The Challenge

The Australian Broadcasting Corporation (ABC) is an Australian public broadcaster which provides television, radio and digital online services. It is funded by the Australian Federal Government and received AU$ 858 million in 2009.

The ABC needed technical expertise to launch its new mobile services portfolio, aimed at extending audience reach within the mobile space. It was also essential that the mobile site and applications loaded quickly and provided a seamless user experience to its customers.

The ABC needed the advice of a global mobile services provider with the scale and knowledge to produce a content-rich mobile service for a large audience. It therefore contracted 2ergo to develop ABC Mobile (msite and selected applications for iPhone, Android, BlackBerry and Java based platforms).

The Solution

2ergo deployed its mobile site creation and content management system (CMS) to deliver a fully integrated location-based mobile site along with Apple iPhone, Java and Android applications for the ABC. Page designs and layouts produced by the ABC were ingested into the system along with ABC content feeds. Images used on ABC News stories can now be repurposed on the move, by the CMS, to eight different mobile handset profiles, giving audiences up-to-the-minute information whilst out and about.

Rich analytics reports are also provided, equipping the ABC with information regarding audience usage and behaviour across the different properties.

The Results

ABC Mobile (m.abc.net.au) received 2.2 million page views from December 2008 to June 2009.

The ABC iPhone application registered over 140,000 downloads in its first four months of distribution, and ranked number one Top Free Application in the iTunes App Store in its first week of release.

19

“The ABC is already a leading provider of digital media content in Australia. The ABC Mobile suite provides another way for Australians to access reliable, quality content wherever and whenever they choose.” – Chris Winter, Manager, New Services at the ABC

SOLD

Smartphone Applications

The popularity of smartphones has opened up a completely new marketing and brand-building channel for organisations looking to interact with mobile users on a truly one-to-one basis.

Downloaded directly to the phone, mobile applications leverage and interact with the unique features of the handset operating system to give consumers a richer experience. As well as text, images, video and interactivity, they can include advanced features such as location-based services, augmented reality, push notifications or user preference settings to give users a more personal experience. The most successful branded applications take advantage of these features to interact with consumers and engage in a way that has not been possible before.

“50% of users of the myTouch 3G/HTC Magic visit the Android Market at least once per day. Around 80% browse the web on their devices multiple times a day.” – Brodman

Leading class smartphone applications

2ergo is a leading developer of smartphone applications including Apple iPhone, Google Android, Java/Symbian environments, Blackberry and Windows. Its application framework ensures leading usability as well as seamless integration into the wider 2ergo suite to realise consolidated reporting and analytics.

With considerable expertise in developing information and specialised brand applications, 2ergo’s smartphone development centre has built some of the world’s most innovative applications including those for Rightmove, Arsenal Football Club, the ABC (Australian Broadcasting Corporation) and FOX Business.

The Rightmove application reached number one in the iTunes App Store download charts in the first week of release, and has received more than 1,800 positive reviews from users. It was downloaded 150,000 times in its first month with an average of 55,000 searches performed every day. Both Rightmove and Arsenal Football Club have recently made the ‘iTunes Best of 2009’ chart, featuring within the top 30 ‘Best of 2009’ and ‘Top Sellers’ charts respectively.

“Over two billion downloads from Apple App Store since launch, and 50% of iPhone users purchase paid for apps once or more per month.” – Apple

20


SOLD

Case Study: Rightmove

Creating the number one ranking iPhone property application

The Challenge

As the UK’s number one property website, Rightmove wanted to be the first to provide an innovative, functional and engaging mobile application that would offer millions of iPhone users access to extensive property search functionality while on the move.

Capitalising on the evolution of pervasive mobile Internet use, Rightmove saw the application as a way to extend the exposure of its agents whilst changing the face of house-hunting with a more convenient and dynamic approach.

The application needed to incorporate the website’s functionality whilst taking advantage of cutting-edge location-based technology to allow house-hunters to search for properties in their immediate vicinity, in addition to the traditional area-specific search tool.

The Solution

Building on its extensive global brand and smartphone application development expertise, 2ergo provided a solution that offers sophisticated functionality for access to a wide array of information, whilst on the move. The application allows mobile users to search for properties by keying in their postcode or by using the real-time GPS technology embedded in the iPhone to search their current location.

Photos and maps for over 950,000 UK sales or rental properties can also be accessed with built-in sharing capabilities, allowing users to send prospective properties to friends via email and call agents directly from the application. Users can also access address and agent details, prices and images and save search filters.

The Results

The application empowered Rightmove to make house-hunting even easier for its millions of users and revolutionised the house-hunting process for customers that use its property search. On average over 55,000 searches are performed per day.

As the first application of its kind, it arms customers with a practical property search tool and provides Rightmove’s agents with extensive exposure.

From project inception to completion, launching the Rightmove application took only six weeks, ensuring Rightmove maintained its market lead and first-mover advantage.

The application reached number one in the iTunes App Store in its first week and has had over 275,000 downloads to date. It now receives over 55,000 searches per day and has delivered 60,000 agent email leads.

“Rightmove’s application receives over 55,000 searches per day and has delivered 60,000 agent email leads to date.” – Miles Shipside, Commercial Director at Rightmove

21

2 for 1

AdmitOne

AdmitOneMobile Ticketing

and Coupons

2ergo offers a complete mobile ticketing, coupon and customer loyalty solution that is proven to enhance brand value and improve customer retention. A complete end-to-end solution, it enables organisations to distribute digital coupons, vouchers and offers via the mobile phone, and then redeem, manage, track and report on promotional campaigns via retail outlet EPOS systems, wireless terminals or mobile handsets. The real-time reporting and analytics enables organisations to deliver significant return-on-investment through better targeting and propensity modelling.

Since 2002, 2ergo’s technology has delivered over 27 million vouchers worldwide. It is the system behind the hugely successful Orange Wednesdays campaign, widely regarded as the longest running and one of the most successful mobile marketing campaigns to date.

“Over 300 million global consumers will use a mobile phone coupon in 2014, with the applications revolution triggering growth in new services.” – Juniper

Mobile coupons

Since their conception in the late 1880s by Coca Cola, discount coupons and vouchers have been a firm favourite with consumers and businesses alike.

Mobile couponing allows organisations to distribute digital coupons to customers’ mobile phones. They offer significant advantages over paper-based alternatives due to the fact that they are proven to deliver higher redemption rates, offer better security and encourage impulse traffic.

The real magic of mobile couponing is in the redemption of each coupon. Mobile customer relationship management databases can be enriched with lifestyle and purchase data allowing organisations to build a more detailed profile of their customers for targeting with future marketing and promotional campaigns.

Mobile ticketing

Mobile ticketing allows 1D and 2D barcodes to be sent directly to mobile phones. These barcodes can be read by most retail EPOS scanners or GPRS connected handheld devices.

Mobile barcodes are ideal for live events, concerts or other ticketed venues such as theme parks. They offer businesses increased security, faster entry times and lower operational costs, and provide consumers with a much richer experience that is significantly more convenient.

Loyalty programmes

Mobile tickets and coupons can be used to replace and enhance loyalty programmes, enabling organisations to send highly targeted, time-bound communications at critical times in the customer life cycle in order to increase customer loyalty and increase lifetime value.

“Mobile ticketing and couponing total gross value is forecast to reach $92 billion by 2013.” – Juniper

22


2 for 1

AdmitOne

AdmitOne

Case Study: Orange Wednesdays

The Future’s Bright: Mobile coupon and redemption campaign creates brand loyalty and improves customer retention

The Challenge

To differentiate its brand and improve customer retention, Orange, one of the most successful mobile network operators in the UK, wanted to create an innovative loyalty campaign. In partnership with 2ergo, Buongiorno and the UK cinema network in 2004, and supported by a national media campaign, Orange launched Orange Wednesdays, offering all Orange customers the chance to receive ‘two-for-one’ cinema tickets every Wednesday. Wednesday was chosen as cinema attendance was the lowest on this day.

The Solution

Orange wanted to make this process easy for customers, and cinemas wanted to ensure their transaction times at the box office were unaffected. To deliver against both organisations’ priorities Orange chose to use 2ergo’s end-to-end couponing and voucher solution, which enabled Orange customers to easily take up the offer and ensured cinemas could quickly validate Orange customers when they arrived at the box office.

After texting FILM to 241, Orange customers receive a ‘two-for-one’ unique text ticket code that can then be redeemed at the box office that Wednesday. The code is then scanned or entered into the participating outlet’s EPOS system or behind the till GPRS-enabled unit. The solution’s inbuilt two-way security validation system then validates the Orange user and the coupon number before the ‘two-for-one’ free ticket is issued. As well as allowing organisations to distribute and redeem coupons, the end-to-end capability also meant Orange could manage and track coupons issued as well as receive real-time reports on the campaign.

The Results

Orange Wednesdays is now not only the longest running but also one of the most successful mobile marketing campaigns in the world, having been enjoyed millions of times since the deal was launched in 2004.

Through Orange Wednesdays, the number of people visiting UK cinemas every year has increased significantly, adding investment and growth to the industry as well as savings for customers.

Wednesday is now the most popular day of the week to go to the cinema outside of the weekend.

The five year Orange Wednesdays campaign has been so successful it has now been extended to offer ‘two-for-one’ meals at Pizza Express.

23

Mobile Security and Advanced Messaging

2ergo’s Mobile Security and Advanced Messaging solutions can be used by organisations to offer customers a secure, safe and convenient way to send sensitive customer data, or transfer money to third parties, via a mobile phone. They are ideal for mobile payments, mobile banking, mobile money transfer, market research and customer care environments, as well as workforce applications within both the public and private sectors. They hold particular value to the healthcare sector where the security of sensitive customer data is paramount. In the telecoms environment they can be used to drive loyalty, particularly in the high-churn world of pre-pay where they provide an ideal solution for mobile top-up.

The immediacy of SMS combined with the richness of an Internet experience

2ergo’s Mobile Security and Advanced Messaging solutions are operated via an application that sits on the mobile handset. The application enables consumers to send secure person-to-person or person-to-machine communications quickly and easily. Instead of plain text, the messages are structured in ‘forms’ with data entry fields, such as drop down lists or pre-formatted as alpha or numeric characters. Using patented technology, the messages are encrypted at both ends to ensure they cannot be intercepted, making them ideal for mobile banking, mobile money transfer, healthcare services or other sensitive situations.

“Mobile payments and security are predicted to generate $587 billion of mCommerce transactions by 2011.” – Juniper

Easy-to-use web-based interface

Through the easy-to-use web-based interface, organisations can easily design and build the handset applications, which are subsequently downloaded from the Internet or transferred to users’ handsets via encrypted SMS. Applications can be updated with ease and distributed to groups or individuals.

The solution also includes unique ‘timers’ and ‘wake-up’ facilities such that an application can be remotely set to ‘wake-up’ either at a predefined time or on demand by the organisation. If it was being used for market research, for example, the market research company would perform this task once a new survey had been uploaded in order to encourage the user to complete the survey.

“International mobile money transfer services to exceed $65bn by 2014.” – Juniper

24


25

2ergo’s Advanced Messaging solutions offer a unique data capture messaging service that combines the immediacy of SMS with the richness of an Internet experience. It is an ideal solution for marketers and organisations looking to utilise the mobile channel for direct response marketing, market research or data capture.

26

Business Partner Programme

The 2ergo Business Partner Programme is designed to cultivate business relationships with global and regional partner companies, and accelerate their adoption and use of 2ergo’s broad mobile products and services portfolio in order to drive the growth and success of their clients’ businesses. Unlike traditional reseller programmes that merely offer a channel-ready version of a product, the 2ergo programme is a true partnership approach, focused on leveraging 2ergo’s market leading expertise in the mobile arena to help facilitate cutting-edge solutions to partners’ clients.

Within this context, 2ergo has helped to enable some of the world’s largest agencies and global mobile technology providers to bring unique and creative solutions to their customers through the use of mobile products and services. In 2010, 2ergo will be enhancing the programme even further with dedicated educational elements that will allow all of its partners to stay up-to-speed on best practice regarding 2ergo technology, and how to use it effectively in order to deliver value to their clients.

In the past 12 months, 2ergo has established relationships with some of the world’s most respected marketing and advertising agencies, including Ogilvy & Mather, BBH and McCann Erickson, as well as market research leader Kantar Operations. Business intelligence organisations such as Data Lateral and GroupM are also benefitting from working with 2ergo.


Case Study: Mobile Partner to Ogilvy & Mather: Hopenhagen

Enabling global engagement through mobile technology worldwide

“2ergo has helped the millions of citizens of Hopenhagen participate in the landmark international movement via their mobile phone.” – Seth Farbman, President of OgilvyEarth,

Ogilvy & Mather’s Global Sustainability Practice

The Challenge

To create a global community to ‘lead our leaders’ into making the right decisions at the crucial 2009 UN Climate Change Conference, a high-impact, global marketing and communications initiative was created to raise awareness of and involvement in climate change issues, and send a strong message to the conference delegates responsible for ratifying a new global climate change treaty.

Created by Ogilvy & Mather on behalf of the International Advertising Association the campaign demanded the time and expertise of more than 90 companies to bring the ‘Hopenhagen’ initiative to life.

Alongside a highly creative element, the hub for the campaign was the Hopenhagen website. Pivotal to the website and the impact of the campaign, an interactive mobile site was identified as the most effective way to mobilise the citizens of the world and allow them to learn more about the initiative, sign a petition and expand the movement with friends worldwide.

The Solution

Recognising the tremendous role that communications would play leading up to and during the conference, 2ergo partnered with Ogilvy & Mather and donated its industry leading mobile services and big brand, global expertise to take the campaign mobile and amplify its reach. 2ergo created the Hopenhagen mobile website at http://m.hopenhagen.org to allow users to sign the Hopenhagen petition, learn more about the climate change conference, read related news and easily spread the word through Facebook and Twitter.

2ergo’s mSite improved the experience for the vast number of people accessing the Internet from their mobile and ensured an engaging user experience regardless of the device used to access the site. 2ergo also included mobile detection code to automatically redirect users visiting the URL from a mobile phone to the mobile site.

The Results

The critical mobile channel created an engaging conduit for a movement that connected millions of people around the world to influence their world leaders.

2ergo’s work for Hopenhagen has pushed the cause into the pockets of the world and increased the worldwide access and availability of the petition. The optimised user experience made it possible to engage every user across the globe, irrespective of the mobile phone type they were using.

27

Reveal the Infinite

AdmitOne

AdmitOne

SOLD

SOLD

SOLD

SOLD

A

A

G

Directors’ Report


The directors present their annual report, the audited consolidated financial statements and the audited Company financial statements for the year ended 31 August 2009.

Principal activities, business review and future developments

The principal activities of the Group in the year under review were telecommunication software provision, application and development.

A detailed review of the business, together with the outlook for the future, is contained in the Chairman’s Statement on page 8 and the Management Review on pages 9 to 13.

Directors

BA Sharples

NS Graham

J Collighan

K Seeley

MS Caller

The Company has agreed to indemnify its directors against third party claims which may be brought against them and has put in place a directors’ and officers’ insurance policy.

Directors’ share options

The directors hold the following share options:

The market price of the Company’s shares at the end of the financial year was 117.5p and the range of the market price during the year was between 113.5p and 188.5p.

Substantial shareholdings

At 18 November 2009, the directors have been notified of the following beneficial interests in excess of 3% of the issued share capital of the Company (excluding those shares held in treasury):

Options over ordinary shares of 1p each

31 August 2009 31 August 2008

BA Sharples 132,383 132,383

NS Graham 132,383 132,383

J Collighan 364,204 364,204

K Seeley – –

MS Caller – –

Total shares %

Aviva plc 4,396,925 13.53

N Wray 3,081,874 9.48

BA Sharples 3,033,822 9.33

NS Graham 3,033,822 9.33

D Traynor 1,194,411 3.67

Standard Life Investments 1,175,000 3.61

T Bladon 1,110,900 3.42

J Collighan 1,099,116 3.38

D Hanson 1,066,392 3.28

C Brassington 1,000,000 3.08

34

35

Corporate governance

The Board of Directors, so far as it is practicable and to the extent appropriate, having regard to the size of the Group, intends to continue to comply with the main provisions of the principles of good corporate governance.

The Board holds regular meetings and is responsible for formulating, reviewing and approving the Group’s strategy, budgets, major items of capital expenditure, similar personnel appointments and key performance indicators. Details of the Group’s financial key performance indicators, which include revenue, gross profit, operating profit and the Group’s cash balance are included in the Financial performance section of the Management Review on pages 9 and 10. The Group’s non-financial key performance indicators include platform, system and application availability and latency and customer service and satisfaction levels.

The Board has established a Remuneration Committee consisting of all non-executive directors, currently MS Caller and K Seeley. It reviews the performance of executive directors and sets the scale and structure of their remuneration and other terms of their service agreements with due regard to the interest of shareholders. In exercising this role, the Committee’s Terms of Reference require it to comply with the relevant provisions of the Code of Best Practice in the Combined Code.

The Board has also established an Audit Committee which consists of all current non-executive directors. The Committee meets at least twice a year, linked to the timing of the publication of the Group’s results. It assists the Board in meeting its responsibilities in respect of external financial reporting and internal controls. The Audit Committee also keeps under review the scope and results of the audit. In addition it considers the cost-effectiveness, independence and objectivity of the auditors, taking into account the non-audit services provided by them. The executive directors and external auditors normally attend meetings by invitation.

Research and development

Research and development expenditure incurred in the development of new products is capitalised when recoverability can be assessed with reasonable certainty and is amortised in line with the expected sales arising from the projects. All other development costs are written off in the year of expenditure.

Share capital

During the year, the Company purchased 1,000,000 of its own ordinary shares at a cost of £1,373,000. The purchased shares are held as treasury shares. At 31 August 2009, the number of ordinary shares held in treasury represented 3.0% of the total issued share capital of the Company. Details of other changes in the Company’s share capital are set out in note 15 of the consolidated financial statements.

Risk management objectives and policies

Details of the Group’s financial risk management objectives and policies are set out in note 14 of the consolidated financial statements. The key non-financial risks that the Group faces are listed below:

– Impact of new and evolving technology

The Group’s forecasts make assumptions over wider market acceptance of new and evolving mobile technology. These forecasts are built up by management based on over 80 combined years’ experience of the mobile industry. Exposure to the risk of delays in market acceptance of the Group’s technology is mitigated by the broad suite of products now offered by the Group and the range of territories in which the Group now operates, not all of which are at the same stage of market development, which presents the Group with further opportunities.

– Proprietary technology

The Group currently derives a competitive advantage from its proprietary Multiserve platform and its integrated application suite. Patents are in place over certain of the Group’s technology. If the technology used by the Group is alleged to infringe the proprietary rights of others, or if others infringe the Group’s rights, the Group may be forced to seek licenses, re-engineer its services, engage in expensive and time-consuming litigation or cease particular activities. This risk is mitigated by the constant evolution of the Group’s platform, the unique and well established way in which the application suites are combined which provides product differentiation from the rest of the market and the patents and non-disclosure agreements that the Group has in place.

– Recruitment and retention

Technological competence and innovation is critical to the Group’s business and depends on the expertise of the directors and key employees and the work of technically skilled employees. Whilst the Group has entered into contractual arrangements and offers competitive reward and benefit packages, including long term incentive schemes, with the aim of securing the services of these directors and employees, as is the case within all companies, the retention of their services is not guaranteed. The market for the services of these types of employees is competitive and therefore the Group may not be able to attract and retain these employees. The Group’s investment in an enlarged HR department is key to the ongoing process of rewarding and developing the best people to develop its innovative technology and support its clients.

36

– Development of regulation

Regulation of mobile services varies by country and evolves over time. In particular increased and varying global governmental regulations may inhibit the growth of the market in certain territories. The Group has mitigated this risk through the use of in-house and external regulatory specialists and by strengthening its local knowledge of government regulations through the acquisitions during the year.

– Economic climate

The Group is subject to the general risks to which all companies operating in the same market are subject, including the general macro-economic climate. A number of the Group’s products provide clients with the opportunity to optimise business processes and offer significant and fast returns on investment. Following the acquisitions made during the year, which strengthened the product portfolio of the Group and its global coverage, and considering the Group’s expectations for future performance, the directors believe that the Group is well positioned to manage this risk and are confident of the future growth of the Group. The risk is mitigated by the range of territories in which the Group now operates, not all of which are at the same stage of market development and therefore impacted in the same way by global economic conditions.

Related party transactions

Details of the Group’s transactions and year end balances with related parties are set out in note 19 of the consolidated financial statements.

Dividends

The directors do not recommend the payment of a dividend (2008: £Nil).

Supplier payment policy

It is the Group’s policy to pay its suppliers in accordance with the terms and conditions agreed in advance of each transaction once satisfactory performance of service or receipt of goods has been achieved.

Group creditor days at the year end were 36 days (2008: 30 days) of average supplies for the year.

Off-balance sheet arrangements

The Group does not have any off-balance sheet financing arrangements.

Auditors

Grant Thornton UK LLP have expressed willingness to continue in office. In accordance with Section 489(4) of the Companies Act 2006 a resolution to re-appoint Grant Thornton UK LLP will be proposed at the forthcoming Annual General Meeting.

By order of the board

J Collighan Company Secretary

4th Floor, Digital World Centre 1 Lowry Plaza The Quays Salford Manchester M50 3UB

20 November 2009

37

Statement of Directors’ Responsibilities

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

United Kingdom company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared financial statements for the Group in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and financial statements for the Company in accordance with United Kingdom accounting standards (United Kingdom Generally Accepted Accounting Practice). The financial statements are required by law to give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to:

select suitable accounting policies and then apply –them consistently

make judgements and estimates that are reasonable –and prudent

state whether applicable accounting standards have –been followed, subject to any material departures disclosed and explained in the financial statements

prepare the financial statements on the going –concern basis unless it is inappropriate to presume that the Group will continue in business

The directors are responsible for keeping adequate accounting records that disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

In so far as each of the directors is aware:

there is no relevant audit information of which the –Group’s auditors are unaware

the directors have taken all steps that they ought to –have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

38

Report of the Independent Auditor to the Members of 2ergo Group plc We have audited the group financial statements of 2ergo Group plc for the year ended 31 August 2009 which comprise the consolidated income statement, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the Company’s members, as a body, in accordance with Sections 495 and 496 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/UKNP.

Opinion on financial statements

In our opinion the group financial statements:

give a true and fair view of the state of the Group’s –affairs as at 31 August 2009 and of its loss for the year then ended;

have been properly prepared in accordance –with IFRS as adopted by the European Union; and

have been prepared in accordance with the –requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors’ report for the financial year for which the group financial statements are prepared is consistent with the group financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

certain disclosures of directors’ remuneration –specified by law are not made; or

we have not received all the information and –explanations we require for our audit.

Other matter

We have reported separately on the parent company financial statements of 2ergo Group plc for the year ended 31 August 2009.

Joanne Kearns Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Manchester

20 November 2009

39

Consolidated Income Statementfor the year ended 31 August 2009

Note

2009 £000

2008 £000

Revenue

Cost of sales

2 22,693

(11,806)

32,565

(22,796)

Gross profit

Administrative costs

10,887

(10,502)

9,769

(6,761)

Operating profit before impairment of available for sale investment

Impairment of available for sale investment

10

3,579

(3,194)

3,008

-

Operating profit

Finance income

3

5

385

234

3,008

438

Profit before taxation

Taxation 6

619

(803)

3,446

(911)

(Loss)/profit for the financial year (184) 2,535

Earnings per share

Basic

Diluted

7

7

(0.60)p

(0.60)p

8.54p

8.27p

All activities relate to continuing operations.

40

Consolidated Balance Sheetas at 31 August 2009

Note

2009 £000

2008 £000

Non-current assets

Intangible assets

Property, plant and equipment

Available for sale investments

Loan to related party

8

9

10

14,19

21,273

823

-

-

2,937

362

1,610

500

22,096 5,409

Current assets

Trade and other receivables

Cash and cash equivalents

11

14

6,068

6,434

6,817

9,120

12,502 15,937

Total assets 34,598 21,346

Current liabilities

Trade and other payables

Current income tax payable

12 (3,878)

(267)

(4,742)

(498)

(4,145) (5,240)

Non-current liabilities

Other payables

Deferred income tax liability

12

13

(6,736)

(225)

-

-

(6,961) -

Total liabilities (11,106) (5,240)

Net assets 23,492 16,106

Capital and reserves attributable to equity holders of the parent

Share capital

Share premium

Investment in own shares

Merger relief reserve

Merger reserve

Other reserve

Share option reserve

Retained earnings

15

15

15

15

335

7,724

(1,373)

3,375

1,512

(338)

914

11,343

306

7,724

-

-

1,512

(338)

813

6,089

Total equity 23,492 16,106

These financial statements were approved by the Board on 20 November 2009 and signed on its behalf by

J Collighan Director

NS Graham Director

41

Consolidated Statement of Changes in Equityfor the year ended 31 August 2009

Share capital

£000

Share premium account

£000


£000

Merger relief

reserve £000

Merger reserve

£000

Other reserve

£000

Share option

reserve £000

Retained earnings

£000Total £000

Balance at 31 August 2007 301 7,141 - - 1,512 (413) 605 6,170 15,316

Valuation loss on available for sale investment taken to equityTax on items taken directly to or transferred from equity

- -

-

-

-

-

-

-

-

-

-

-

-

-

(2,995)

320

(2,995)

320

Net loss recognised directly in equity

Profit for the year

-

-

-

-

-

-

-

-

-

-

-

-

-

-

(2,675)

2,535

(2,675)

2,535

Total recognised income and expense for the year

Issue of share capital

IFRS 2 share based payment expense

Fair value of options exercised in the period

Exercise of options over shares in EBT

-

5

-

-

-

-

583

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

75

-

-

267

(59)

-

(140)

-

-

59

-

(140)

588

267

-

75

Balance at 31 August 2008 306 7,724 - - 1,512 (338) 813 6,089 16,106

Recycling of valuation loss on available for sale investment taken to equity (note 10)

Reinstatement of cost of previously impaired available for sale investment (note 18)

Tax on items taken directly to or transferred from equity

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

2,394

3,194

(150)

2,394

3,194

(150)

Net gain recognised directly in equity

Loss for the year

-

-

-

-

-

-

-

-

-

-

-

-

-

-

5,438

(184)

5,438

(184)

Total recognised income and expense for the year


Purchase of shares into treasury

IFRS 2 share based payment expense

-

29

-

-

-

-

-

-

-

-

(1,373)

-

-

3,375

-

-

-

-

-

-

-

-

-

-

-

-

-

101

5,254

-

-

-

5,254

3,404

(1,373)

101

Balance at 31 August 2009 335 7,724 (1,373) 3,375 1,512 (338) 914 11,343 23,492

42

Consolidated Cash Flow Statementfor the year ended 31 August 2009

2009 £000

2008 £000

Cash flows from operating activities

Profit before taxation

Adjustments for:


Depreciation

Amortisation

Share based payment expense

Finance income

Decrease/(increase) in trade and other receivables

Decrease in trade and other payables

Income tax paid

619

3,194

250

1,139

101

(234)

959

(1,711)

(778)

3,446

-

148

948

267

(438)

(949)

(2,006)

(244)

Net cash flows from operating activities 3,539 1,172

Cash flows from investing activities

Payments to acquire property, plant and equipment

Payments to acquire intangible assets

Loan granted to related party

Purchase of subsidiary undertakings

Cash acquired with subsidiaries

Interest received

(614)

(2,411)

(1,133)

(1,024)

96

234

(255)

(1,162)

(500)

-

-

438

Net cash flows from investing activities (4,852) (1,479)

Cash flows from financing activities

Net proceeds from share issue


Proceeds from exercise of options over shares held in EBT

-

(1,373)

-

101

-

75

Net cash flows from financing activities (1,373) 176

Net decrease in cash and cash equivalents in the year

Cash and cash equivalents at beginning of year

(2,686)

9,120

(131)

9,251

Cash and cash equivalents at end of year 6,434 9,120

43

Notes to the Consolidated Financial Statements

1 Accounting policiesBasis of preparation

The consolidated financial statements have been prepared in accordance with applicable International Financial Reporting Standards as issued by the International Accounting Standards Board and adopted by the EU (IFRS).

These financial statements have been prepared on a going concern basis under the historical cost convention. The directors have prepared a forecast which identifies that the Group continues to comfortably have sufficient working capital to continue trading for the foreseeable future and therefore the directors feel it is appropriate to continue to prepare the financial statements on a going concern basis.

These financial statements have been prepared using the measurement bases specified by IFRS for each type of asset, liability or expense. The detailed measurement bases and principal accounting policies of the Group are set out below. The accounting policies have been applied consistently throughout the Group for the purposes of the preparation of these consolidated financial statements. The presentational currency of the Group and functional currency of the Company is Sterling.

Basis of consolidation

The consolidated financial statements consolidate those of the Company and its subsidiary undertakings drawn up to 31 August each year. Subsidiaries are entities over which the Company has the power to control the financial and operating policies so as to obtain benefits from their activities. The Group generally obtains and exercises control through voting rights.

The results of subsidiaries acquired are consolidated from the date on which control passed. Acquisitions of subsidiaries are accounted for under the purchase method, other than for the original acquisition of 2ergo Limited by 2ergo Group plc which has been accounted for using the principles of merger accounting as permitted by IFRS 1.

Joint ventures are entities in which the Group holds an interest on a long-term basis and which are jointly controlled with one or more parties under a contractual arrangement. The Group’s share of joint venture income, expenses, assets, liabilities and cashflows is included in the consolidated financial statements on a proportionate consolidation basis.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Business combinations

Under the provisions of IFRS 1, the Group has elected not to apply IFRS 3 Business Combinations retrospectively to business combinations prior to the date of transition to IFRS.

Accordingly, the classification of acquisitions prior to the date of transition remain unchanged from those used under UK GAAP. Assets and liabilities are recognised at the date of transition (if they would be recognised under IFRS), and are recognised at net book value.

Subsequent to the date of transition, the purchase method is used for the acquisition of subsidiaries. This involves the recognition at fair value of the assets, liabilities and contingent liabilities of the subsidiary at the acquisition date. These fair values are also used as the bases for subsequent measurement in accordance with the Group accounting policies.

In accordance with IFRS 3, the fair value of assets or liabilities acquired, where cash flows arise in future periods, is obtained by discounting to present value the amounts expected to be receivable or payable in the future using a weighted average cost of capital.

44

Revenue

Revenue represents the fair value of consideration receivable by the Group for services provided, net of value added tax. The Group’s revenue streams include monthly service fees, application development fees, licence fees and transaction fees depending on the type and delivery of service.

Revenue for transaction fees is recognised at the point of service delivery and when collection of the resulting receivable is reasonably assured. Monthly service and licence fees are recognised over the period of the agreement. Development fees are recognised in line with achievement of contracted milestones. When components of a single invoice are separately identifiable, such as development and monthly service fees, revenue is measured separately for each component in accordance with the recognition policies above.

Intangible assets

– Purchased intellectual property

Purchased intellectual property is capitalised at cost and amortised on a straight line basis based upon the directors’ estimate of their useful economic lives (1 to 10 years).

– Research and development

Expenditure on research is written off in the period in which it is incurred, except where such expenditure is recoverable from third parties. Development costs incurred are capitalised when all the following conditions are satisfied:

completion of the product is technically feasible so that it will be available for use or sale –

the Group intends to complete the product and use or sell it –

the Group has the ability to use or sell the product –

the product is commercially viable and will generate probable future economic benefits –

there are adequate technical, financial and other resources to complete development of the product, and –

the expenditure attributable to the product during its development can be measured reliably –

Development costs comprise all directly attributable costs, including employee costs incurred on software development along with an appropriate portion of relevant overheads. Development costs not meeting the criteria for capitalisation are written off as incurred. Development costs are capitalised at cost and amortised on a straight line basis based upon the directors’ estimate of their useful economic lives (3 to 10 years).

Development costs that have been capitalised are amortised from completion and commercial sale of the product.

– Assets acquired as part of a business combination

In accordance with IFRS 3 Business Combinations, an intangible asset acquired in a business combination is deemed to have a cost to the Group of its fair value at the acquisition date. The fair value of the intangible asset reflects expectations about the probability that future economic benefits from the asset will flow to the Group. These costs are amortised on a straight line basis based upon the directors’ estimate of their useful economic lives as above.

– Goodwill

Goodwill arising on business combinations represents the difference between the cost of a business acquisition and the fair value of the net identifiable assets acquired. The cost of acquisition represents the fair value of assets given and equity instruments issued in return for the assets acquired, plus directly attributable costs.


Property, plant and equipment are stated at cost less depreciation and any provision for impairment. Depreciation is provided to write down the cost over the assets’ estimated useful economic lives as follows:

Computer equipment 25% or 33.3% straight-line Office furniture and fittings 25% or 33.3% straight-line

45

Impairment testing of intangible assets and property, plant and equipment

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Those intangible assets not yet available for use and goodwill are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value less costs to sell, and value in use based on an internal discounted cash flow valuation. Any impairment loss is charged pro rata to the assets in the cash-generating unit.

Leased assets

Rentals paid under operating leases are charged to the income statement on a straight line basis over the period of the lease.

Taxation

Current tax is the tax currently payable based upon the taxable profit for the period.

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Tax losses which are available to be carried forward and other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying temporary differences will be able to be offset against future taxable income.

Current and deferred tax assets and liabilities are measured at tax rates that are expected to apply in the period of realisation based on tax rates and laws that have been enacted or substantively enacted at the balance sheet date.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.

Financial assets

Financial assets are recognised when the Group becomes a party to the contractual provisions of the contract. They are assigned to the categories described below by management on initial recognition, depending on the purpose for which they were acquired. The designations of financial assets are re-evaluated at every reporting date at which a choice of classification or accounting treatment is available, and are as follows:

– Available for sale investments

Available for sale investments include non-derivative financial assets that are either designated as such or do not qualify for inclusion in any of the other categories of financial assets. These investments are measured subsequently at fair value, with changes in value recognised in equity, through the statement of changes in equity. The fair values of quoted investments are based on market prices at the balance sheet date. Gains and losses arising from investments classified as available for sale are recognised in the income statement when they are sold or when the investment is impaired. Prior to the acquisition of Broca plc on 8 April 2009, the Group’s investment in the ordinary shares of Broca plc fell into this category.

– Loans and receivables

Loans and receivables are non-derivative financial assets with fixed payments that are not quoted in an active market. These are initially recognised at fair value and subsequently are measured at amortised cost using the effective interest rate method, less provision for estimated irrecoverable amounts. Any change in their value through impairment or reversal of impairment is recognised in the income statement. The carrying value less impairment provision of loans and receivables is assumed to approximate to their fair value. The Group’s trade receivables, the loan to Broca in 2008 and cash and cash equivalents fall into this category.

46


Cash and cash equivalents comprise cash in hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

Financial liabilities

Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the contract. The Group’s financial liabilities include trade payables and contingent consideration on acquisitions which are measured initially at fair value and subsequently at amortised cost using the effective interest rate method, based on management’s expectations of performance.

Derecognition of financial assets and liabilities

A financial asset or liability is generally derecognised only when the contract that gives rise to it is settled, sold, cancelled or expires.

Foreign currencies

Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date. Exchange differences arising on the settlement and retranslation of monetary items are included in the operating result for the year.

The results of overseas operations are translated at the monthly average rates of exchange during the period and their assets and liabilities at the rates of exchange ruling at the balance sheet date. Exchange differences arising on translation of the opening net assets and results of overseas operations are taken directly to equity.

Employee benefits

The Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in an independently administered fund. The pension costs charged against profits are the contributions payable to the scheme in respect of the accounting period.

Share-based payments

The Group issues equity-settled share-based payments to certain employees. The fair value of these payments is determined at the date of grant and is expensed on a straight line basis over the vesting period based on the Group’s estimate of shares or options that will eventually vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting.

In the case of options granted, fair value is measured by the Black-Scholes pricing method. All equity-settled share-based payments are ultimately recognised as an expense in the income statement with a corresponding credit to the share option reserve.

Upon exercise of share options the proceeds received, net of attributable transaction costs, are credited to share capital, and where appropriate share premium.

Employee benefit trust

The assets and liabilities of the Employee Benefit Trust (EBT) have been included in the consolidated financial statements. Any assets held by the EBT cease to be recognised on the consolidated balance sheet when the assets vest unconditionally in identified beneficiaries. The costs of purchasing own shares held by the EBT are shown as a deduction against equity. The proceeds from the sale of own shares increase equity. Neither the purchase nor sale of own shares leads to a gain or loss being recognised in the consolidated income statement.

47

Equity

Equity comprises the following:

Share capital, representing the nominal value of shares of the Company; –

Share premium, representing the excess over the nominal value of the fair value of consideration received for shares, –net of expenses of the share issue;

Investment in own shares, representing the cost of purchasing issued shares in the Company into treasury; –

Merger relief reserve, representing the excess over the nominal value of shares issued of the fair value of net assets –acquired and goodwill arising on acquisition;

Merger reserve, representing the excess of the Company’s cost of investment over the nominal value of 2ergo –Limited’s shares acquired where the Group reorganisation qualified as a common control transaction;

Other reserve representing the cost of the Company’s shares held by the EBT that are shown as a deduction against –equity; and

Share option reserve, representing the cost of equity-settled share-based payments until such share options –are exercised.

Recently issued accounting pronouncements

At the date of issue of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective. The directors anticipate that the adoption of these Standards and Interpretations will not have a material impact on the Group’s financial statements other than for changes to presentation of the financial statements when IAS 1 comes into effect and that further operating segments will be reported in future when IFRS 8 comes into effect. The directors anticipate that the Group will adopt these Standards and Interpretations on their effective dates.

IAS 1 Presentation of Financial Statements (Revised 2007) –

IFRS 3 Business Combinations (Revised 2008) –

IFRS 8 Operating Segments –

IFRS 9 Financial Instruments –

Amendment to IFRS 2 Share-based Payment – Vesting Conditions and Cancellations –

Amendment to IFRS 7 Financial Instruments: Disclosures – Improving Disclosures About Financial Instruments –

Improvements and amendments to IFRSs –

Of the Standards and Interpretations listed above IFRS 9 is yet to be endorsed by the European Union.

48

Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported revenue and expenses during the periods presented. Actual results may differ significantly from the estimates, the effect of which is recognised in the period in which the facts that give rise to the revision become known. The following paragraphs detail the policies the Group believes to have the most significant impact on the annual results under IFRS.

– Share-based payments

The Group issues equity-settled share-based payment options to certain employees. The fair value of these options granted is determined using the Black-Scholes valuation model, which requires a number of estimates and assumptions. The significant inputs into the model are share price at grant date, exercise price, expected option life, expected volatility and the risk-free rate. Volatility is measured as the standard deviation of expected share price returns based on a statistical analysis of share prices of companies in the peer group.

– Provision for doubtful trade receivables

The Group evaluates the collectability of trade receivables and records provisions based on experience. These provisions are based on, amongst other things, comparison of the relative age of accounts and consideration of actual write-off history. The actual level of receivables collected may differ from the estimated levels of recovery, which could impact operating results positively or negatively.

– Intangible assets

Intangible assets are capitalised at cost and amortised on a straight line basis based upon the directors’ estimate of their useful economic lives. The level of success of products and applications based on these intangible assets may be different from the directors’ estimates, which could impact the useful economic lives of the intangible assets and operating results positively or negatively.

– Impairment of goodwill

The Group determines whether goodwill arising on acquisitions is impaired on at least an annual basis. This requires an estimation of the ‘value in use’ of the cash-generating units to which the goodwill is allocated. Estimating a value in use amount requires the directors to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The actual cash flows may be different from the directors’ estimates, which could impact the carrying value of the goodwill and therefore operating results negatively.

– Contingent consideration

The consideration payable for the acquisition of certain subsidiaries includes a deferred element which is contingent on the future performance of the acquired business. The value of contingent consideration recognised is based on the directors’ estimates of that future performance and has been discounted. The actual performance may be different from the directors’ estimates, which could impact the value of contingent consideration recognised and the interest charge relating to the unwinding of the discount.

49

2 Segmental analysis All revenue was derived from the Group’s principal activity which relates to the provision of services. In the opinion of the directors the activities of the Group fall into one class of business segment, which they consider to be the primary segment.

The Group’s secondary segments are geographical segments. In the years ended 31 August 2009 and 2008, the Group’s revenue is generated mainly in the UK and the Americas. Of the Group’s consolidated revenue and assets, greater than 75% is derived from customers located in the UK, for each of the years ended 31 August 2009 and 2008 and hence no geographical analysis is presented.

3 Operating profit

2009 £000

2008 £000

Operating profit is stated after charging to administrative costs:


Depreciation of owned tangible assets

Amortisation of intangible assets

Operating lease rentals

Auditor ’s remuneration

Audit of parent company and consolidated accounts

Audit of the Company’s subsidiaries

Other non-audit services

Research and development

3,194

250

1,139

328

11

11

85

145

-

148

948

57

10

11

8

141

50

4 Particulars of staffThe average number of persons employed by the Group, including executive directors, during the year was:

2009 No

2008 No

Technical

Sales and administration

36

58

33

49

94 82

The aggregate payroll costs of these persons was:

2009 £000

2008 £000

Wages and salaries

Share scheme costs

Social security costs

Pension costs – defined contribution plan

Less: amounts capitalised

4,345

101

498

114

(1,361)

4,085

267

467

103

(739)

3,697 4,183

Key management remuneration

Remuneration of the key management team, including executive directors, during the year was as follows:

2009 £000

2008 £000

Aggregate emoluments including short-term employee benefits

Share scheme costs


1,061

146

61

1,154

241

57

1,268 1,452

Directors’ remuneration

Remuneration of directors during the year was as follows:

2009 £000

2008 £000



Fees

337

46

35

526

45

27

418 598

The remuneration of the highest paid director during the year was:

2009 £000

2008 £000



108

21

169

21

129 190

Retirement benefits are accruing to 3 (2008: 3) directors in respect of defined contribution schemes.

51

5 Finance income

2009 £000

2008 £000

Interest income on loan to related party

Interest income on short-term bank deposits

30

204

5

433

234 438

6 Income tax expense

2009 £000

2008 £000

Current tax

UK Corporation tax at 28.00% (2008: 29.16%)

Adjustments in respect of prior years

693

-

839

(14)

Deferred tax

693

110

825

86

Tax on profit on ordinary activities 803 911

Tax reconciliation

Profit before tax 619 3,446

Tax using the UK corporation tax rate of 28.00% (2008: 29.16%)

Non-deductible expenses

Losses carried forward

Research and development tax credits

Exercise of options and employee share acquisition relief

Share-based payment temporary differences

Adjustment to current tax in respect of prior years


Other

173

30

(89)

(192)

-

(28)

-

894

15

1,005

83

102

(95)

(151)

(19)

(14)

-

-

Tax on profit on ordinary activities 803 911

52

7 Earnings per shareThe calculation of basic earnings per share is based on profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the year. The calculation of diluted earnings per share is based on the basic earnings per share adjusted to allow for the assumed conversion of all dilutive options. In 2009, the weighted average number of shares for the purpose of calculating diluted earnings per share is the same as for the basic earnings per share calculation. This is because the outstanding share options would have the effect of reducing the loss per ordinary share and therefore would be anti-dilutive. In 2008, 644,149 options were not included in the calculation as they would have been anti-dilutive due to their exercise price being greater than the market price of an ordinary share.

Earnings

per share pence

Loss £000

2009 Weighted average

number of ordinary shares

Earnings

per share pence

Earnings £000



Basic earnings per share

Dilutive effect of share options

(0.60) (184) 30,485,339

-

8.54 2,535 29,669,451

980,077

Diluted earnings per share (0.60) (184) 30,485,339 8.27 2,535 30,649,528

An adjusted earnings per share, before the impairment of the investment in Broca plc, has been presented in addition to the earnings per share as defined in IAS 33, since in the opinion of the directors, this provides a more meaningful indicator for investors. The weighted average number of shares for adjusted basic earnings per share and adjusted diluted earnings per share is the same as for basic earnings per share and diluted earnings per share respectively. Adjusted earnings per share can be reconciled from the basic earnings per share as follows:

Earnings

per share pence

Earnings £000



Earnings

per share pence

Earnings £000



Basic earnings per share

Impairment charge

(0.60) (184)

3,194

30,485,339

-

8.54 2,535

-

29,669,451

-

Adjusted basic earnings per share

Dilutive effect of share options

9.87 3,010 30,485,339

-

8.54 2,535 29,669,451

980,077

Adjusted diluted earnings per share 9.87 3,010 30,485,339 8.27 2,535 30,649,528

53

8 Intangible assets

Goodwill £000

Intellectual property for

mobile/Internet applications

£000Total £000

Cost

At 1 September 2007

Additions – internally developed

Additions – purchased

-

-

-

4,381

724

438

4,381

724

438

At 31 August 2008

Additions – internally developed

Additions – purchased

Acquisitions

-

-

-

14,087

5,543

1,361

1,050

2,977

5,543

1,361

1,050

17,064

At 31 August 2009 14,087 10,931 25,018

Amortisation

At 1 September 2007

Charge for the year

-

-1,658

948

1,658

948

At 31 August 2008

Charge for the year

-

-

2,606

1,139

2,606

1,139

At 31 August 2009 - 3,745 3,745

Net book value

At 31 August 2009 14,087 7,186 21,273

At 31 August 2008 - 2,937 2,937

At 1 September 2007 - 2,723 2,723

During the year the Group made 3 acquisitions, purchasing Broca plc (Broca), Wapfly Technologies Pty Limited (Australia) and Activemedia Technologies Limited (AMT). Annual impairment reviews of goodwill arising on acquisitions have been performed for the cash generating units related to each of the Broca, Australia and AMT acquisitions. The recoverable value of each unit has been based on its value in use. The cash flow projections, which were based on forecasts approved by the directors, supported the carrying value of goodwill with no impairment required. An analysis of each cash generating unit’s goodwill is provided in note 18. The Group has no intangible assets with indefinite useful lives other than goodwill.

Cash generating unit

Carrying value of goodwill

£000

Period over which

cashflows have been projected

Growth rate beyond

management approved forecasts

Discount rate for cashflow projections

Broca

Australia

AMT

6,786

205

7,096

10 years

5 years

10 years

0–2.25%

2.25%

0–2.25%

8%

8%

8%

The key assumptions underlying these forecasts are the growth rates for use of the products of each cash generating unit and the growth rate of mobile technology generally in the relevant territories. These assumptions are based on management’s experience. Cashflows for the Broca and AMT cash generating units have been projected over more than 5 years due to the technology rich nature of these cash generating units’ products, which not only have demand in the Group’s existing territories, but have particularly strong potential in emerging markets such as Asia, Africa and South America, and due to the acquisitions being either pre-revenue or in the early stages of revenue generation. The directors do not believe there is any reasonably possible change to any key assumption used in determining the recoverable amount which would cause any of the cash generating units’ carrying amounts to exceed their respective recoverable amounts.

54

9 Property, plant and equipment

Computer equipment

£000

Office furniture and fittings

£000Total £000

Cost

At 1 September 2007

Additions

517

239

163

16

680

255

At 31 August 2008

Additions

Acquisitions

756

101

49

179

513

48

935

614

97

At 31 August 2009 906 740 1,646

Depreciation

At 1 September 2007

Charge for the year

375

124

50

24

425

148

At 31 August 2008

Charge for the year

499

149

74

101

573

250

At 31 August 2009 648 175 823

Net book value

At 31 August 2009 258 565 823

At 31 August 2008 257 105 362

At 1 September 2007 142 113 255

10 Available for sale investments

£000

Cost

At 1 September 2007

Revaluation

4,605

(2,995)

At 31 August 2008

Impairment

Recycling of valuation loss taken to equity

Reclassification to subsidiary on acquisition of majority interest (see note 18)

1,610

(3,194)

2,394

(810)

At 31 August 2009 -

The available for sale investment was in the ordinary shares of Broca plc, which was a UK listed equity security denominated in Sterling. This investment was revalued based on the market price of its shares at 31 August 2008 and 28 February 2009. There was no disposal or impairment provision on available for sale investments in the year to 31 August 2008.

The impairment charge arose in the first half of the financial year, when 2ergo held a 19.2% interest in Broca plc. In accordance with the principles of IAS 39, the carrying value of the asset was required to be written down to the quoted share price of Broca plc, giving rise to the impairment charge of £3,194,000 through the income statement for the 6 months to 28 February 2009.

Subsequent to the half year, the Group completed the acquisition of the remaining share capital of Broca plc. The goodwill arising on the acquisition of the entire 100% interest in Broca plc is £6,786,000 (including £3,228,000 in relation to the initial 19.2% holding). This is supported by its value in use and is not considered to be impaired.

In terms of overall net asset values, the impairment charge arising in the first half of the year has been reversed in the second half, but IAS 39 requires that the reversal of the original charge is not through the income statement. The overall impact is that while the income statement includes an impairment of £3,194,000 in respect of the previously held available for sale investment, the subsequent acquisition accounting is such that the impairment is reversed within the balance sheet and reinstated within goodwill.

55

11 Trade and other receivables

2009 £000

2008 £000

Trade receivables

Less: Provision for impairment of trade receivables

3,461

(115)

4,829

(112)

Prepayments and accrued income

Other receivables

3,346

2,334

388

4,717

1,932

168

6,068 6,817

The ageing of trade receivables at the balance sheet date was:

2009 £000

2008 £000

Not past due

Up to 3 months past due

More than 3 months past due

2,423

671

367

3,425

1,107

297

3,461 4,829

The Group trades only with recognised, credit-worthy third parties. Receivable balances are monitored on an ongoing basis with the aim of minimising the Group’s exposure to bad debts and in some cases the Group holds cash as security for some customers’ debts. The Group has reviewed in detail all items comprising the above overdue but not impaired trade receivables to ensure that no impairment exists. As of 31 August 2009, trade receivables of £115,000 (2008: £112,000) were impaired and provided for, all of which were more than 3 months old (2008: more than 3 months old). The amount of the provision was £115,000 as at 31 August 2009 (2008: £112,000). Movements on the provision for impairment of trade receivables are as follows:

2009 £000

2008 £000

At 1 September

Provision for receivables impairment

Receivables written off during the year

112

45

(42)

102

55

(45)

At 31 August 115 112

The other classes within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable disclosed above.

The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:

2009 £000

2008 £000

Sterling

US Dollars

Australian Dollars

5,131

736

201

6,428

389

-

6,068 6,817

56

12 Trade and other payables

2009 £000

2008 £000

Current

Trade payables

Other payables

Deferred and contingent consideration

Accruals and deferred income

1,768

275

263

1,572

1,991

589

-

2,162

3,878 4,742

Non-current

Deferred and contingent consideration 6,736 -

10,614 4,742

Deferred and contingent consideration comprises deferred consideration payable in cash relating to the acquisition of Wapfly Technologies Pty Limited and deferred contingent consideration based on the directors’ current estimate of consideration payable in relation to the acquisition of Activemedia Technologies Limited, which can be settled in either shares or loan notes, to be determined at the Group’s discretion (see note 18).

13 Deferred income taxThe elements of deferred taxation are as follows:

2009 £000

2008 £000

Accelerated capital allowances

Intellectual Property (research and development costs)

Intellectual Property (acquisitions)

Share option charge

Trade losses acquired

6

357

582

(103)

(617)

6

219

-

(225)

-

225 -

Movement in deferred tax:

Accelerated

capital allowances

£000

Intellectual property

£000

Share option charge

£000

Revaluation of available

for sale investment

£000

Short-term and other

timing differences

£000

Trade losses £000

Total £000

At 1 September 2007

Charged/(Credited) to income statement

Credited to equity

12

(6)

-

114

105

-

(54)

(19)

(152)

168

-

(168)

(6)

6

-

-

-

-

234

86

(320)

At 31 August 2008

Charged/(Credited) to income statement

Acquisitions

Charged to equity

6

-

-

-

219

138

582

-

(225)

(28)

-

150

-

-

-

-

-

-

-

-

-

-

(617)

-

-

110

(35)

150

At 31 August 2009 6 939 (103) - - (617) 225

57

14 Financial instruments and financial risk managementThe accounting policies for financial instruments have been applied to the line items below:

2009 Available

for sale investment

£000

2009 Loans

and receivables

£000

2008 Available

for sale investment

£000

2008 Loans

and receivables

£000

Assets as per the balance sheet

Available for sale investment

Loan to related party

Trade receivables

Accrued income

Other receivables


------

--

3,346

2,191

388

6,434

1,610

-----

-

500

4,717

1,812

168

9,120

- 12,359 1,610 16,317

The loan to related party of £500,000 in 2008 was due from Broca Communications Limited in Sterling (see note 19).

2009 £000

2008 £000

Liabilities as per the balance sheet

Trade payables

Other payables

Accruals


1,768

275

1,559

6,999

1,991

589

2,162

-

Amortised cost 10,601 4,742

The Group uses financial instruments to manage financial and commercial risk wherever it is appropriate to do so. Risk management is overseen by the directors, who do not consider there to be any significant risks arising from the Group’s investment policies.

Market risk

– Foreign exchange risk

The vast majority of the Group’s revenues and costs are in Sterling (the parent company’s functional currency) and involve no currency risk. Activities in currencies other than Sterling (primarily US Dollars) are funded as much as possible through operating cash flows, mitigating foreign exchange risk on these investments. At the end of the year the Group has no material currency exposure. The Group has the following cash deposits:

2009 £000

2008 £000

Sterling

US Dollars

Australian Dollars

6,256

107

71

9,036

84

-

6,434 9,120

– Interest rate risk profile

Sterling cash deposits are placed on deposit at the most favourable floating bank deposit interest rates, taking into account the Group’s short and medium term cash flow expectations. The Group’s income and operating cash flows are substantially independent of changes in market interest rates.

58

Credit risk

The Group has no significant concentrations of credit risk. The Group’s standard policies require appropriate credit checks on potential customers before sales commence. Surplus funds held in the Group are invested, in line with board-approved policy, in high quality, short-term liquid investments, usually money market funds or bank deposits.

Credit risk is managed by placing cash deposits with banks which carry a minimum credit rating of AA-. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.

Liquidity risk

Prudent liquidity risk management requires the Group to maintain sufficient cash and short-term liquid investments to be able to settle its short-term payables as they fall due. The Group monitors rolling forecasts of its cash and short-term investments on the basis of expected cash flow.

15 Share capitalThe authorised share capital of the Company is 500,000,000 (2008: 500,000,000) ordinary shares of 1p each. The share capital allotted, called up and fully paid at 31 August 2009 was 33,506,694 (2008: 30,633,838) ordinary shares of 1p each, of which 1,000,000 (2008: nil) were held in treasury.

Number of shares

Share

capital £000

Share

premium £000

Merger relief

reserve £000

At 1 September 2007


30,142,154

491,684

301

5

7,141

583

-

-

At 31 August 2008


30,633,838

2,872,856

306

29

7,724

-

-

3,375

At 31 August 2009 33,506,694 335 7,724 3,375

2009 movement

On 8 April 2009, the Company issued 2,872,856 1p ordinary shares pursuant to the acquisition of the entire issued share capital of Broca plc.

2008 movement

On 28 February 2008, the Company issued 224,505 1p ordinary shares pursuant to the exercise of share options in the Company for a cash consideration of £100,839. On 29 November 2007 the Company issued 267,179 1p ordinary shares pursuant to the acquisition agreement with VICS Limited. The share issue was in consideration for intellectual property purchased from VICS Limited.

During the year to 31 August 2009, the Company purchased the following shares into treasury.

Date purchased

Number

purchased

Total consideration

£000

28 November 2008

29 July 2009

750,000

250,000

1,096

277

1,000,000 1,373

59

16 Share option schemeThe Company has a share option scheme for all employees of the Group. Options are exercisable at a price equal to the average quoted market price of the Company’s shares on the date of grant. Options are forfeited if the employee leaves the Group before the options vest. The performance criteria relating to the options are the continuing employment of the holder and the achievement of certain earnings based performance criteria.

2009 Number of share options


exercise price £

2008 Number of share options


exercise price £

Outstanding at the beginning of the year

Granted during the year

Exercised in the year

Forfeited in the year

Lapsed in the year

2,152,985

1,007,172

-

(148,344)

(336,418)

1.19

1.27

-

1.83

1.50

2,354,132

650,475

(381,070)

(159,299)

(311,253)

1.01

1.92

0.46

1.84

1.92

Outstanding at the end of the year 2,675,395 1.14 2,152,985 1.19

Exercisable at the end of the year 1,758,639 1.02 1,421,074 0.81

In the year ended 31 August 2009, options were granted on 24 November 2008, 2 March 2009, 28 May 2009 and 12 August 2009. The aggregate of the estimated fair values of the options granted on those dates was £423,659. In the year ended 31 August 2008, options were granted on 12 September 2007 and 28 July 2008. The aggregate of the estimated fair values of the options granted on those dates was £411,633.

Options outstanding under the Company’s share option schemes at 31 August 2009 were as follows:

Name of scheme

2009

No of options

2008

No of options

Calendar year of

grant

Exercise period

Exercise price

per share

2003 Executive share option scheme

2004 EBT scheme

2004 Executive share option scheme

2005 Incentive share option scheme




2009 Incentive share option schemes

638,600

155,450

165,050

395,158

557,548

49,025

30,000

84,033

550,000

50,531

638,600

155,450

165,050

409,735

566,450

77,700

140,000

-

-

-

2003

2004

2004

2005

2006

2007

2008

2009

2009

2009

2006-2013

2006-2014

2006-2014

2007-2015

2008-2016

2008-2017

2010-2018

2010-2019

2010-2019

2011-2019

£0.22

£0.48

£0.48

£1.72

£2.03

$3.93

£1.87

£1.19

£1.18

£1.18

The weighted average remaining contractual life of these options is 6.6 years (2008: 6.8 years).

The fair value of the employees’ services received in exchange for the grant of share options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the share options granted. Fair value is determined by reference to the Black-Scholes option pricing model.

The inputs into the Black-Scholes option pricing model are as follows:

2009 2008

Weighted average exercise price

Expected volatility

Expected life

Risk free interest rate

Expected dividends

£1.53

35.80%–61.28%

2.3–6.0 years

1.27%–5.03%

Nil

£1.63

35.80%–65.67%

2.2–5.6 years

4.10%–5.03%

Nil

60

The volatility of the Company’s share price on each date of grant was calculated as the average of volatilities of share prices of companies in the peer group on the corresponding dates. The volatility of share price of each company in the peer group was calculated as the average of annualised standard deviations of daily continuously compounded returns on the company’s stock, calculated over 2, 3, 4, 5 and 6 years back from the date of grant, where applicable.

The Company recognised total expenses of £101,000 (2008: £266,885) related to equity-settled share-based payment transactions in the year.

17 Operating lease commitmentsAt 31 August 2009, the Group had aggregate minimum lease payments under non-cancellable operating leases for office and server sites as follows:

2009 £000

2008 £000

Due within 1 year

Due from one to five years

249

671

11

-

920 11

The majority of the Group’s lease agreements are for initial terms of between 1 and 2 years, with the lease agreements then becoming cancellable with 1 to 2 months’ notice period, other than for the Group’s Head Office which can be cancelled after 5 years of the initial 10 year term.

61

18 Business CombinationsBroca acquisition

Until 7 April 2009 the Group held 19.2% of the ordinary share capital of Broca plc. The impairment charge in the income statement of £3,194,000 arose in the first half of the financial year. In accordance with IAS 39, the carrying value of the available for sale investment was required to be written down to the quoted share price of Broca plc, which gave rise to the impairment charge.

On 8 April 2009, the Group acquired the balance of the entire issued share capital of Broca plc and its subsidiary undertakings, Broca Communications Limited and Sure on Sight Limited for consideration of the issue of 2,872,856 ordinary shares in 2ergo Group plc. The fair value of the shares issued was determined with reference to market price on the date of acquisition.

The goodwill arising on the acquisition of the entire 100% interest in Broca plc is £6,786,000 (including £3,228,000 in relation to the 19.2% holding). This is supported by its value in use and is not considered impaired. The provisional impact of the acquisition on the Group’s assets and liabilities is set out below. The fair value of the assets and liabilities acquired may be adjusted for circumstances that are revealed within 12 months of the date of acquisition.

Book value

£000

Adjustments

£000

Provisional fair value

£000

Intangible assets


Deferred tax asset




2,671

41

-

58

12

(2,006)

(40)

-

131

146

-

(64)

2,631

41

131

204

12

(2,070)

Net assets acquired 776 173 949

Goodwill 6,786

Total purchase consideration 7,735

made up as follows:

reclassification from available for sale investment

reinstatement of cost of previously impaired available for sale investment

satisfied by issue of ordinary shares

direct costs relating to the acquisition

810

3,194

3,404

327

7,735

Goodwill arising on acquisition relates, inter alia, to the future potential to provide secure mobile payment, money transfer and banking solutions globally.

During the period from acquisition to 31 August 2009, the Broca business generated revenue of £nil and incurred a loss of £58,000. Net assets at 31 August 2009 are £124,000. Had the Broca business been part of the Group for the entire year to 31 August 2009, revenue would have increased by £12,000 and the operating profit would have decreased by £471,000.

Wapfly acquisition

On 14 May 2009, the Group acquired the entire issued share capital of Wapfly Technologies Pty Limited (now renamed 2ergo Australia Pty Limited) for consideration of £172,000. The provisional impact of the acquisition on the Group’s assets and liabilities is set out below. The fair value of the assets and liabilities acquired may be adjusted for circumstances that are revealed within 12 months of the date of acquisition.

62

Book value

£000

Adjustments

£000


£000

Intangible assets




-

7

19

(56)

31

-

-

(9)

31

7

19

(65)

Net liabilities acquired (30) 22 (8)

Goodwill 205

Total purchase consideration 197

made up as follows:

cash

deferred consideration


63

109

25

197

The adjustment creating the separately identifiable intangible asset recognised on acquisition relates to customer contracts. Goodwill relates to the value added to the 2ergo product portfolio through Wapfly Technologies Pty Limited’s products and the platform provided for further growth of the Group in the Asia-Pacific region.

During the period from acquisition to 31 August 2009, the 2ergo Australia business generated revenue of £265,000 and made a profit of £69,000. Net assets at 31 August 2009 are £195,000. Had 2ergo Australia been part of the Group for the entire year to 31 August 2009, revenue would have increased by £73,000 and the operating profit would have increased by £104,000.

Activemedia Technologies acquisition

On 24 July 2009, the Group acquired the entire issued share capital of Activemedia Technologies Limited (AMT UK) and its Indian subsidiary undertaking Active Media Technologies Private Limited for initial cash consideration of £179,000 with further estimated consideration payable of £6,890,000. The provisional impact of the acquisition on the Group’s assets and liabilities is set out below. The fair value of the assets and liabilities acquired may be adjusted for circumstances that are revealed within 12 months of the date of acquisition.

Book value

£000

Adjustments

£000


£000

Intangible assets





-

49

177

65

(31)

315

-

-

-

(88)

315

49

177

65

(119)

Net assets acquired 260 227 487

Goodwill 7,096

Total purchase consideration 7,583

made up as follows:

cash

deferred contingent consideration*


179

6,890

514

7,583

63

*The deferred contingent consideration, which is payable in tranches, is discounted and calculated as 4 times Indian profit after tax and 2.8 times AMT UK operating profit for the year to 31 August 2012 based on management projections and is dependent on the acquired business achieving agreed levels of financial performance and is subject to an overall cap related to Group performance. Consideration is payable between November 2009 and November 2013 and will be settled, at the discretion of the Group, by the issue of new ordinary shares in the Company or loan notes.

The adjustment creating the separately identifiable intangible asset recognised on acquisition relates to customer contracts. Goodwill arising on acquisition relates to the value added to the 2ergo product portfolio through Activemedia Technologies’ mobile value added services and solutions and to the access provided to the world’s fastest growing mobile phone markets, particularly in India.

During the period from acquisition to 31 August 2009, the Activemedia Technologies group generated revenue of £181,000 and made a profit of £88,000. Net assets at 31 August 2009 are £260,000. Had the Activemedia Technologies group been part of the Group for the entire year to 31 August 2009, revenue would have increased by £513,000 and the operating profit would have increased by £220,000.

19 Related party transactionsDuring the year ended 31 August 2009, fees of £30,000 (2008: £26,668) were charged by another company for the services of K Seeley as non-executive director of the Company. At the year end, amounts owed in respect of these services were £2,500 (2008: £3,179). During the year the Group purchased tax advisory services to the value of £8,646 (2008: £nil) from Target Consulting Limited, a company in which K Seeley, a non-executive director of the Company, is a director. These transactions were at arm’s length on normal commercial terms. At the year end the Group owed Target Consulting Limited £nil (2008: £nil) in respect of these services.

During the year the Group purchased legal advisory services to the value of £350,909 (2008: £91,602) from Pannone LLP, a firm in which MS Caller, a non-executive director of the Company, is a consultant. These transactions were at arm’s length on normal commercial terms. At the year end the Group owed Pannone LLP £89,988 (2008: £1,998) in respect of these services.

Prior to its acquisition of Broca plc on 8 April 2009, the Company already owned 19.2% of Broca plc. BA Sharples and NS Graham were executive directors of 2ergo Group plc and non-executive directors of Broca plc. Prior to the acquisition, recharges of £96,646 (2008: £114,960) were made to the Broca plc group. Also prior to the acquisition, the Group purchased services from the Broca plc group to the value of £16,533 (2008: £nil). All transactions were at arm’s length and on normal commercial terms. At 31 August 2008 the amount due from the Broca plc group was £24,921.

During the year ended 31 August 2008, the Group made available to Broca Communications Limited a loan facility secured over the assets of Broca Communications Limited and Broca plc. £500,000 of this facility had been drawn down at 31 August 2008. This loan was repayable within 18 months of the date that the facility was made available. The loan carried an interest rate of 3.5% above the base rate of Barclays Bank PLC, payable monthly in arrears. Following the acquisition this loan was eliminated on consolidation.

None of the key management personnel of the Group owes any amounts to any company within the Group (2008: £nil), nor are any amounts due from any company in the Group to any of the key management personnel (2008: £nil).

Other than the loan to Broca Communications Limited prior to the acquisition of Broca plc, related party receivables and payables are not secured and bear no interest.

64

Report of the Independent Auditor to the Members of 2ergo Group plc We have audited the parent company financial statements of 2ergo Group plc for the year ended 31 August 2009 which comprise the parent company balance sheet and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Company’s members, as a body, in accordance with Sections 495 and 496 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Statement of Directors’ Responsibilities the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/UKNP.

Opinion on financial statements

In our opinion the parent company financial statements:

give a true and fair view of the state of the Company’s affairs as at 31 August 2009; –

have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and –

have been prepared in accordance with the requirements of the Companies Act 2006. –

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the parent company financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not –been received from branches not visited by us; or

the parent company financial statements are not in agreement with the accounting records and returns; or –

certain disclosures of directors’ remuneration specified by law are not made; or –

we have not received all the information and explanations we require for our audit. –

Other matter

We have reported separately on the group financial statements of 2ergo Group plc for the year ended 31 August 2009.

Joanne Kearns, Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP, Statutory Auditor, Chartered Accountants, Manchester, 20 November 2009.

65

Company Balance Sheetas at 31 August 2009

Note

2009 £000

2008 £000

Fixed assets

Investments in subsidiaries

Fixed asset investments

4

4

15,656

-

357

4,004

15,656 4,361

Current assets

Debtors

Cash at bank and in hand

5 1,697

5,066

1,496

8,865

6,763 10,361

Current liabilities

Creditors: amounts falling due within one year 6 (1,363) (2,496)

Net current assets 5,400 7,865

Total assets less current liabilities 21,056 12,226

Creditors: amounts falling due after more than one year 7 (6,736) -

Net assets 14,320 12,226

Capital and reserves

Share capital

Share premium


Merger relief reserve

Profit and loss account

8

8

9

9

9

335

7,724

(1,373)

3,375

4,259

306

7,724

-

-

4,236

Shareholders’ funds 14,320 12,266

These financial statements were approved by the Board on 20 November 2009 and signed on its behalf by

J Collighan Director

NS Graham Director

66

Notes to the Company Financial Statements

1 Accounting policiesBasis of preparation

The Company financial statements have been prepared in accordance with the Companies Act 2006 and applicable United Kingdom accounting standards (UK GAAP).

The financial statements have been prepared on a going concern basis under the historical cost convention. The measurement bases and principal accounting policies of the Company are set out below.

The accounting policies have been applied throughout all periods presented in these financial statements. These accounting policies comply with each UK GAAP accounting standard that is mandatory for accounting periods ending on 31 August 2009.

Taxation

Current tax is the tax currently payable based upon the taxable profit for the period. Current tax liabilities are measured at tax rates that are expected to apply in the period of realisation based on tax rates and laws that have been enacted or substantively enacted at the balance sheet date.

Investments

Investments held as fixed assets are stated at cost less provision for impairment.

2 Company result for the financial year2ergo Group plc has not presented its own profit and loss account as permitted by section 408 (4) of the Companies Act 2006. The profit for the financial year dealt with in the accounts of the Company is £23,000 (2008: £218,000).

3 Particulars of staffThe Company had no staff during the year (2008: no staff). Details of directors’ remuneration are contained in note 4 to the consolidated financial statements.

67

4 InvestmentsInvestments in subsidiaries

£000

Cost

At 1 September 2008

Transfer from other investments

Additions

357

4,004

11,295

At 31 August 2009 15,656

Investment Principal activityCountry of incorporation

Class and percentage of shares held and voting rights

2ergo Limited Communications England & Wales Ordinary 100%

Marblesquare Limited Communications England & Wales “A” and “B” Ordinary 100%

Activemedia Technologies Limited Communications England & Wales Ordinary 100%

Broca Limited (formerly Broca plc) Holding company England & Wales Ordinary 100%

Broca Communications Limited*

Secure mobile messaging development

England & Wales

Ordinary 100%

Sure on Sight Limited* Dormant England & Wales Ordinary 100%

2ergo Americas Inc* Communications United States Ordinary 100%

Georgia Holding Company Inc* Dormant United States Ordinary 100%

M-Invent Inc* Communications United States Ordinary 100%

2ergo Inc* Dormant United States Ordinary 100%

Telitas US Inc* Dormant United States Ordinary 100%

Proteus Movil SA* Communications Argentina Ordinary 100%

2ergo Australia Pty Limited (formerly Wapfly Technologies Pty Limited)*

Communications

Australia

Ordinary 100%

Active Media Technologies Pvt Limited* Communications India Ordinary 100%

*held indirectly

Other investments

Fixed asset investment

£000

Cost

At 1 September 2008

Transfer to investment in subsidiaries

4,004

(4,004)

At 31 August 2009 -

On 8 April 2009, the Company acquired the entire issued share capital of Broca plc, a company incorporated in England & Wales, whose principal activity is the development of a secure mobile messaging service, in which it had previously held an investment of 19.2%.

68

5 Debtors

2009 £000

2008 £000

Amounts owed from group undertakings

Prepayments and accrued income

Other debtors

1,528

66

103

1,201

134

161

1,697 1,496

6 Creditors: amounts falling due within one year

2009 £000

2008 £000

Trade creditors

Amounts owed to group undertakings

Corporation tax


Accruals and deferred income

85

1,013

22

154

89

3

2,408

71

-

14

1,363 2,496

7 Creditors: amounts falling due after more than one year

2009 £000

2008 £000

Deferred and contingent consideration 6,736 -

8 Share capital and premium The authorised share capital of the Company is 500,000,000 (2008: 500,000,000) ordinary shares of 1p each. The share capital allotted, called up and fully paid at 31 August 2009 was 33,506,694 (2008: 30,633,838) ordinary shares of 1p each, of which 1,000,000 (2008: nil) were held in treasury.

Number

of shares

Share capital

£000

Share premium

£000

Total £000

At 1 September 2008

Issue of share capital (net of issue costs)

30,633,838

2,872,856

306

29

7,724

-

8,030

29

At 31 August 2009 33,506,694 335 7,724 8,059

On 8 April 2009, the Company issued 2,872,856 1p ordinary shares pursuant to the acquisition of the entire issued share capital of Broca plc. During the year to 31 August 2009, the Company purchased the following shares into treasury.

Date purchased

Number

purchased

Total consideration

£000

28 November 2008

29 July 2009

750,000

250,000

1,096

277

1,000,000 1,373

69

9 Movement in reserves and total shareholders’ funds

Share

capital £000

Share premium

account £000


£000

Merger relief

reserve £000

Profit and loss account

£000

Total £000

Balance at 1 September 2008



Profit for the year

306

29

-

-

7,724

--

-

-

-(1,373)

-

-

3,375

-

-

4,236

--

23

12,266

3,404

(1,373)

23

Balance at 31 August 2009 335 7,724 (1,373) 3,375 4,259 14,320

10 Related party transactionsDuring the year ended 31 August 2009, fees of £30,000 (2008: £26,668) were charged by another company for the services of K Seeley as non-executive director of the Company. At the year end, amounts owed in respect of these services were £2,500 (2008: £3,179).

During the year ended 31 August 2009 the Company purchased legal advisory services to the value of £269,966 (2008: £24,547) from Pannone LLP, a firm in which MS Caller, a non-executive director of the Company, is a consultant. These transactions were at arm’s length on normal commercial terms. At the year end the Company owed Pannone LLP £83,375 (2008: £nil) in respect of these services.

The directors have taken advantage of the exemption in IFRS 8 and have not disclosed transactions with other group undertakings.

Company Information

K Seeley (Non–Executive Chairman)

BA Sharples (Joint Chief Executive Officer)

NS Graham (Joint Chief Executive Officer)

J Collighan (Finance Director)

MS Caller (Non–Executive Director)

J Collighan

5010663

4th Floor, Digital World Centre 1 Lowry Plaza The Quays Salford Manchester M50 3UB

NatWest Bank plc 6th Floor 1 Spinningfields Square Manchester M3 3AP

Pannone LLP 123 Deansgate Manchester M3 2BU

Grant Thornton UK LLP Registered Auditors Chartered Accountants 4 Hardman Square Spinningfields Manchester M3 3EB

Numis Securities Limited 10 Paternoster Square London EC4M 7LT

Numis Securities Limited 10 Paternoster Square London EC4M 7LT

Directors

Secretary

Company number

Registered office and business address

Bankers

Solicitors

Auditors

Nominated Adviser

Broker

70

2ergo Group plc 4th Floor Digital World Centre 1 Lowry Plaza The Quays Salford Manchester M50 3UB United Kingdom

Call +44 (0) 161 8744 222 Email [email protected] Web www.2ergo.com Mobile Web 2ergo.mobi

Global Head Office

2ergo- annual report year 2009

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