2011-04-29 16:10:00 CEST
2011-04-29 16:10:05 CEST
REGULATED INFORMATION
GeoSentric Oyj - Financial Statement Release
FINANCIAL STATEMENTS RELEASE FOR FINANCIAL YEAR 2010
GeoSentric Oyj Stock Exchange Release April 29, 2011 at 17:10
FINANCIAL STATEMENTS RELEASE FOR FINANCIAL YEAR 2010
The Annual Report 2010 of GeoSentric Oyj has been published on the Company's
web site. The Annual Report is available at www.geosentric.com.
Summary of key figures
Review of October - December 2010
Operational overview
Material events in the year 2010
Material events after the end of the financial year
Review of the financial position and the financial results
Sufficient Liquidity
Outlook
Assessment of significant operational risks
Review of R&D-activities
Change in Accounting Practices
Investments and financing
Personnel and organization
Environmental issues
Board of Directors and auditors
Group Structure
Board authorization
Structural arrangements and changes in amounts of shares
Company shares and shareholders
Board proposal for distribution of profit
SUMMARY OF KEY FIGURES
Key figures summarizing the Group's financial position and financial results
from continuing operations (teuros if not indicated otherwise):
In period 4Q/2010 2010 4Q/2009 2009
Net sales 39 54 0 4
Operating result -1752 -9536 -3358 -13916
Basic earnings per share (eur) -0.00 -0.01 -0.00 -0.02
At the end of period
Total assets 1420 8893
Shareholders´ equity -15024 -2236
Total liabilities 16444 11129
REVIEW OF OCTOBER - DECEMBER 2010
The Company has also continued implementing its business plan and the required
cost reductions to meet the conditions of the additional financing approved by
the Annual General Meeting on June 30, 2010. Cost reductions were implemented
as headcount reductions in all areas of the business as well as consolidation
of engineering resources from higher cost regions of the world into China.
In September 2010 it was announced that Dan Harple had resigned as CEO to be
replaced with immediate effect by Winston Guillory. In November it was
announced that Dan Harple had resigned as a member of the Board to focus full
time on his professional activities with Shamrock Ventures B.V. and that at the
same time the management services agreement made between the GeoSentric group
and Shamrock Ventures had ended.
TWIG business
The business of the Company's TWIG unit declined further over the year as the
TWIG Discovery Pro GSM/GPRS/GPS handset (for the safety and security market)
and the TWIG Locator tracking device (for the asset and vehicle tracking
market) reached the end of their product lives. The TWIG business has been loss
making and cash flow negative for at least the last 18 months and the
investment required to improve its performance would be substantial. The
Company concluded that this potential investment is not the best use of its
resources and that the TWIG business is better off outside of the GeoSentric
group in the hands of its specialist management team.
The Company reviewed a number of alternatives to get the best available deal
terms. Due to the niche positioning of the TWIG business, interest from
external purchasers was limited. The Company therefore negotiated the
divestiture of the TWIG business with the current TWIG management team, and, in
January 2011, concluded an agreement on the terms and conditions of the
purchase. The actual purchaser is a newly established company, Twig Com Oy,
majority held by the MBO team (“Twig Com”).
The parties agreed that the purchase price is a nominal EUR 1.00. However, as a
part of the consideration and an integral part of the transaction, Twig Com
assumes all liabilities and obligations with regards to the transferring
business, including in relation to its employees and assets. Together with the
liabilities that Twig Com assumes, the book value of the transaction for
GeoSentric is approximately 0.3M€, being the net book value of transferred
assets and liabilities. The following are the main terms of the agreement:
· The purchase transaction is for a nominal consideration of EUR 1.00,
is effective as of 31 December 2010 and comprises of all TWIG mobile handset
related inventories, fixed assets, manufacturing rights, trademarks, agreements
and employees
· The net book value of the TWIG inventory being transferred is
approximately EUR 225,000
· All relevant GeoSentric IPR's and third party IPR's are licensed
royalty free in perpetuity to Twig Com to enable continued production and
support of the TWIG products
· Twig Com has assumed all GeoSentric's liabilities, obligations and
other responsibilities related to the TWIG mobile handset business including
all product warranty responsibilities
· 14 TWIG employees are transferring their employment from GeoSentric
to Twig Com including the MBO leadership team of Jukka Nieminen, Tomi Raita and
Jouko Laine
· Twig Com has assumed all TWIG trade payables and receivables as of 31
December 2010 and has taken over the TWIG factory and office lease
The TWIG divestiture will have significant impact on the Company's financial
performance in the short term as the TWIG business has been the main revenue
generating business of the Company. As a result, although GyPSii revenue is
expected to grow significantly in 2011 compared to 2010, overall revenue for
2011 will be significantly lower than in the previous year. However, the cash
flow effect of the TWIG disposal is estimated to be approximately €1m positive
for the 2011.
In pursuance of the signing of the business purchase agreement Mr. Tomi Raita
resigned from the position of the Company's Managing Director, and the Board of
Directors has nominated board member Winston Guillory as GeoSentric's new
Managing Director.
OPERATIONAL OVERVIEW
GeoSentric is a developer and provider of solutions, products and technologies
for location based services and LBS-enabled social networks. It develops a
leading geo-integration platform for mobile devices, personal navigation
devices, web browsers, and other internet-connected devices, which provides
applications and bundled ODM/OEM solutions for consumer and B2B markets, built
on the convergence of location based services, social networking, search,
mobile & Web 2.0 technologies. Its intellectual property is delivered as
software and services in products which include the GyPSii product platform
(“GyPSii”).
The business model for the GyPSii platform services and applications is via
embedded licensing of IPR in terms of software technology and branded
trademarks, and downstream -revenue generation from services which generate
advertising and subscription revenue. Thus during the reporting period 2010 the
Group continued its focus on securing partnerships with the major distribution
partners to integrate product on to their new devices and services and to
broaden the range of GyPSii supported devices. Major marketing and launch plans
during 2010 by the distribution partners, and by GyPSii itself, have driven
significant volumes of GyPSii users, which have had a positive impact on
revenues from GyPSii during 2010.
The total net sales of the Group from continuing operations of the GyPSii
services in 2010 were 54 teuros, a significant increase on total net sales from
continuing operation in 2009 of 4 teuros. The Group disposed of its TWIG
handset business at the end of the financial year as more fully described below
so all of these revenues from continuing operations derive from the GyPSii
business and represent revenues from advertising delivered to the increasing
numbers of GyPSii users and IPR licensing.
Total operating expenses from continuing operations were significantly lower in
the reporting year compared to the prior year, going to 9590 teuros, from 13920
teuros in 2009, a 31% decrease. This was mainly driven by the Group
consolidating its development, business development and marketing efforts in
China while decreasing personnel and related costs in the rest of world. See
further details below.
As a result, the total result before taxes from continuing operations was
-11387 teuros in 2010, versus -14156 teuros in the prior year, a 20% decrease.
Earnings per share from continuing operations for the reporting period were
-0.01 euros per share.
The Group realized an overall loss from its discontinued operations (its TWIG
business) in 2010 of 1987 teuros (2009: loss of 1622 teuros). This is comprised
of an operating loss of 1743 teuros in 2010 (2009: loss of 1622 teuros) plus a
net loss on disposal of the assets and liabilities of the TWIG business of 244
teuros.
MATERIAL EVENTS IN THE YEAR 2010
During the year 2010, the Group has continued its efforts to broaden the range
of GyPSii supported devices, which is an essential element in Group's business
plan. As GyPSii's revenue model is based on income from embedded and upstream
licensing of IPR, subscription fees and advertising, broadening the range of
supported devices, entering into agreements with major distribution partners
and introduction of OEx has created a solid basis for achieving a critical mass
of users for GyPSii and also for future revenue generation.
The highlights of the year were:
In February 2010, at Mobile World Congress (MWC) in Barcelona Spain the Company
announced the following new applications and partnerships:
Tweetsii - GyPSii announced Tweetsii, a new Twitter application to connect
people with places and networks by growing the Twitter experience and grounding
it in the real world with multimedia and geo-location to support a free
exchange of content and ideas.
OpenDeveloper - GyPSii announced a plan to open their API to the developer
community with OpenDeveloper, a premier source of next generation technologies
to connect people; create, share and search content; and monetize applications
with contextual advertising. OpenDeveloper seeks to accelerate innovation in
the mobile and social media ecosystem by arming developers with powerful
technologies to create sticky apps.
China Telecom - GyPSii was selected to be the branded China Telecom solution
“le tu”, (Happy Trails in English) powered by GyPSii for the 2010 Shanghai Expo
with China Telecom Shanghai Telecom.
Genasys - GyPSii was selected to be the exclusive LBS social media partner in
Telefonica's application portfolio in Latin America. This deployment has been
delayed pending further contract discussions.
China Ad Partners - GyPSii announced several important on-line and mobile
advertising and coupon distribution partners in China.
Working with Shanghai coupon provider Kubang, GyPSii connected users with
coupons for nearby restaurants that the user views alongside user-created
content on the GyPSii network. If the user searched “food” for example they
received a coupon for a nearby restaurant. This not only added value to the
user experience but also drove transaction and referrals for the restaurant on
GyPSii.
GyPSii also partnered with leading Chinese mobile advertising network MADhouse
to help deliver inventory for major global and regional brands. GyPSii has
other deals in place with Admob, search engine company Baidu, and CHANet, the
leading mobile marketing affiliate network in China.
In addition, GyPSii continued to expand its extensive index of Points of
Interest for GyPSii users to search and explore. Content relationships with
5757577 and Gudumani that connected GyPSii users with new restaurants and
dining POIs: Avantouch for theatre information: and City8 for travel POI. This
additional content enhanced the GyPSii user experience, providing more
information and greater choice for members to access and use on their mobile
device.
The top industry group for Mobility and the Internet awarded GyPSii as the 2010
Most Innovative Location Based Service at the 7th annual 2010 Wireless
Communication Conference in Beijing. The organizers of the conference include
the major mobile carriers in China (China Mobile, China Telecom, and China
Unicom) and a host of other Internet companies such as Sina, Baidu, QQ/Tencent,
Kaixin.
Garmin and GyPSii elected to renew their existing contract into a 3rd year. The
extension of the contract allows Garmin to continue to leverage GyPSii's API
into Garmin's mobile phone and connected PND product lines.
Shanghai Media Group's(SMG) ChannelYoung and the Company entered into a
framework agreement in May 2010 to distribute a ChannelYoung branded client app
for iPhone and Android. The app was built using the Company's Open Experience
API Platform, and utilized its patent pending “check-in” features, among
others. With the agreement, SMG provided 15,000 partner businesses to be
accessed by the new app, including their address, contact information, and
offerings. This information is now a part of the GyPSii platform data set,
enabling users to search, check-in, and receive offers and coupons from the
partners. Further, ChannelYoung provided marketing outreach programs and
promotions through Direct Marketing, Online Marketing, and TV spots during
Enjoy Young's daily food channel as part of the framework agreement.
Other significant events in 2010 included:
In June 2010 the Company secured additional funding from its lead investor by
way of a €6m secured convertible loan note issued by its wholly owned Dutch
subsidiary, GeoSolutions Holdings NV (”GHNV”). The first tranche of €2.5m of
this loan note was drawn down in June 2010 with a second tranche of €2.5m drawn
down in September 2010. The final €1m tranche was drawn down in December 2010.
As part of this financing round the final conversion and other terms of the
€7.5m 2009 loan note issued by GHNV were agreed to and approved at the
Company's Annual General Meeting on June 30, 2010.The terms of financing are
presented below in section ”Financing and structural arrangements”.
Further, at the Company's AGM on June 30, 2010 the meeting approved the 2009
audited financial statements of the Group and agreed to re-elect the auditors,
Ernst & Young, to set the auditors' remuneration and the compensation of the
Board's non-executive directors as disclosed in the market bulletin at the
time. In addition the terms of the financing round as described above were
approved and approval was given for the Board to explore the possibilities of
the Group divesting its mobile handset business.
The AGM decided the number of the Board members to be seven and re-elected the
six then current directors: Hans van der Velde, Dan Harple (CEO), Mike
Vucekovich, Gary Bellot, Andy van Dam, Winston Guillory, and elected Michael Po
to the Board as a new member. The Board elected Hans van der Velde as the
Non-Executive Chairman of the Board. The meeting fee for each Board and
committee meeting was decided to be 1,500 Euros for at maximum eight meetings
per year.
The AGM re-elected Ernst & Young as the auditor of the Company with Erkka
Talvinko (CPA) as the auditor in charge.
The AGM authorized the Board to decide upon increase in share capital and the
issuance of new shares as well as special rights entitling to shares, against
or without payment, such that the maximum amount of increase is 4,000,000 Euros
and the maximum number of new shares is 400,000,000.
The AGM amended the Company's Articles of Association according to Board's
proposal such that the notice to the General Meeting shall be published in
accordance with the amended provisions of the Finnish Companies Act.
The AGM approved the Board's proposal that the Board been given discretionary
approval to seek a potential disposal of the Company's mobile handset business.
Raymond Kalley resigned from the Board on 9th June, 2010. During Q2 Robin
Halliday, CFO, announced his resignation from the service of the Company but
has agreed to continue as Interim CFO on a contractor basis.
On 9th July the Company announced that it was commencing a consultation
procedure with its Finnish workforce with a view to downsizing its workforce in
line with diminishing TWIG product sales. The Company announced the outcome of
this consultation procedure on 20th September, which was to make 24 employees
redundant and to make 11 employees subject to a forced leave procedure.
Legal Proceedings
The Company does not have any pending or threatening legal proceedings which
the Company would consider to have material impact on the Company's financial
position or profitability.
MATERIAL EVENTS AFTER THE END OF THE FINANCIAL YEAR
In January 2011, the Company agreed with its lead investor to extend the
current financing structure with an additional financing of a maximum aggregate
amount of 1.8M€ for the primary purpose of financing and supporting its GyPSii
operations in China. The additional financing was raised in two tranches both
received in January 2011 through the Company's wholly owned Dutch subsidiary
GeoSolutions Holdings N.V. on the same terms as agreed and approved by the
Annual General Meeting held on June 30, 2010. The Company has already before
placed the shares and assets of the Company and GeoSolutions Holdings N.V. and
its subsidiaries as a first ranking security to the financing, which security
will cover also this additional financing.
In connection with the additional financing the Board of Directors of the
Company has also, by virtue of the authorization granted by the Annual General
Meeting, decided to issue at maximum 144,000,000 special rights to the lead
investor, entitling them alternatively to convert their loan notes in
GeoSolutions Holdings N.V. directly into the shares of GeoSentric, as agreed in
the loan terms for the original 6M€ financing in June 2010.
In February 2011 Andy Van Dam resigned from the Board of Directors for personal
reasons.
In April 2011 the Board received a proposal for short-term financing from
Company's lead investor (“Proposal”). The Proposal sets the terms and
conditions on which the lead investor is willing to commit to further funding
for the business of the Group. According to the Proposal the lead investor
would convert its existing preferred convertible notes (“Notes”) issued by
GeoSolutions Holdings N.V. (“GHNV”) into the shares of GHNV, leaving the
Company as a minority shareholder in the GHNV with approximately a 21%
shareholding. The conversion of Notes would be followed by further
capitalization of GHNV in a form of rights offering (“GHNV Offering”), which
could lead into further dilution of Company's ownership in GHNV down to a 7%
level if the Company did not participate in the GHNV Offering to its pro-rata
share, corresponding to an investment of approximately 1M€. To raise the
required funds to participate in the GHNV Offering the Company needs to arrange
a share issue (“GSOY Offering”).
Under the Proposal the lead investor has also undertaken to provide the Group
with further short term financing of 0.6M€ in a form of new Notes issued by
GHNV, which financing the Company has now raised. Pursuant to the Proposal,
this financing was directed €250k to GHNV and its subsidiaries providing this
sub-group with financing through to the end of April and €350k to the Company
giving the Company runway through Q2 2011 and time to arrange the GSOY Offering
to raise funds for participating in the GHNV Offering and guaranteeing the
sufficient liquidity of the Company in the medium term. The Company estimates
that to achieve the above goal it should raise in the GSOY Offering
approximately 1.8M€. In case of a successful GSOY Offering the Company would
still hold a substantial share of approximately 21% of GHNV, which holds all
the GyPSii business assets, and would retain the ability to enjoy the future
upside potential of the business. As the Company has recently announced to the
markets, the GyPSii business is now starting to show some positive development
in China, especially through co-operation with Sina. The Company's own
operations would be reduced to a minimum and its sole business would be holding
the GHNV shares.
On the other hand, if the GSOY Offering was unsuccessful and the required funds
were not raised, the lead investor has undertaken to provide GHNV sufficient
funding through the GHNV Offering, itself subscribing part of the Company's
prorata entitlement, and offering the rest to other potential investors.
According to the Proposal, in this case, GHNV would give the Company a secured
loan, supported by the lead investor, securing the minimum capital requirements
of the Company until approximately mid 2012 and the Company would be left
holding approximately 7% of GHNV shares. Any further funding of the Company
would then be subject to support from the Company's shareholders.
The Board of the Company has discussed the Proposal in depth with the lead
investor to secure the best possible terms for the Company's shareholders and
other stakeholders and acknowledges that it is the only proposal for funding
that the Company has received. The Board has also assessed the proposal and
concluded that it represents a better alternative for the shareholders of the
Company compared to putting the Company into liquidation. Therefore, the Board
of Directors approved the Proposal and raised the first part of the funding,
i.e. 0.6M€ in accordance with the terms of the Proposal. The Board proposes to
the Extraordinary General Meeting to confirm the approval of the Proposal by
the Board of Directors except as regards to above mentioned 0.6M€ financing
raised already prior to Extraordinary General Meeting. A summary of the key
terms of the Proposal is attached to the Board's proposal and published on
Company's website.
REVIEW OF THE FINANCIAL POSITION AND THE FINANCIAL RESULTS
The Company has during the period retained solidity and liquidity.
Key figures summarizing the Group's financial position and financial results
from continuing operations (teuros if not indicated otherwise):
In period 2010 2009
Net sales 54 4
Operating result -9536 -13916
At the end of period
Total assets 1420 889
Shareholders´ equity -15024 -2236
Total liabilities 16444 11129
Cash 892 5939
Sufficient liquidity
The Company has, during the reporting period, retained sufficient liquidity.
The Company has in April 2011 received a funding proposal from its lead
investor (see note 33 below) which provides for the short term funding of the
Group. The funding proposal would result in the parent company losing control
of its subsidiaries with its own operations being reduced to that of a shell
holding company. The proposal provides time and funding for the parent company
to participate in a subsequent funding round of its current immediate
subsidiary, GeoSolutions Holdings NV, in which case it could retain
approximately a 21% stake in the subsidiaries. If the Company is not able to
raise additional funds from its shareholders and participate in this subsidiary
funding round, the parent company's stake would be reduced to approximately 7%.
In this case the funding proposal provides for an intercompany loan to be made
available from the current subsidiary company to the parent company to fund its
reduced operations through to approximately mid 2012. After that it would need
to look to its shareholders for further funding. The funding proposal has been
approved by the Company's Board and has been referred to an EGM on May 12, 2011
for shareholder confirmation of this approval. If the shareholders do not
confirm their approval and no alternative and acceptable funding proposals are
forthcoming, it is likely that the Company could be declared insolvent.
OUTLOOK
Market Outlook
There are over 4 billion mobile phone units in the market and over 1 billion
new phones shipped every year. Internet Access, camera, location capabilities,
and 3rd party application support has become standard on most devices.
GyPSii's applications are supported on the 7 major mobile platforms and allow
the Group to address not only the fast growing smartphone market (lead by
iPhone and Android) but also the feature phone market, which by industry polls
in 2009 represents substantial percentage of the mobile phones in the world
today.
With the widespread adoption of mobile internet and the ability to provide
location/GPS information in real-time, the market has created new revenue
opportunities around delivering location aware mobile advertising, promotional
offers and couponing to consumers. GyPSii's expertise, technologies, and
partnerships have positioned them to exploit this market opportunity on a very
broad scale.
Business Development Outlook
The Groups's business outlook and identified revenue during 2011 is based on
expanding its current level of business subscription, advertising sales and IPR
licensing.
The main focus of business development and the primary element for the business
model and revenue generation is rapid growth of the GyPSii membership base that
utilizes GyPSii's two main products in China, “Tuding” and “Weilingdi”. This
growth is being achieved almost exclusively in China by existing and developing
partnerships with Mobile Operators (MO), Original Equipment Manufacturers
(OEM), Original Device Manufacturers (ODM), Personal Navigation DeviceManufacturers (PND) and leading mobile and Internet commerce companies as well
as direct marketing campaigns by GyPSii. GyPSii membership has grown
significantly during 2010 and has climbed to a total subscriber base of almost
3,000,000 registered users with a substantial and growing base of recurring
monetizeable users. This membership base has begun to produce advertising
revenues and the Company is targeting to grow these revenues during 2011 and
beyond.
A second element of GyPSii's growing revenue base began with the development of
its Open APIs (OeX) at the beginning of 2010. The Group has furthered business
development opportunities with strategic service providers to deliver OeX into
non-emerging markets. This approach allows GyPSii to reduce the risk and
overhead associated with business development efforts in non-target markets
while assessing geographies that may prove to be long-term opportunistic for
the Company. Outside of China, GyPSii is developing partnerships for use of its
LBS and SNS software platform “OEX”. During 2010 a major agreement was signed
licensing OEX to a major PND provider in the United States. This agreement
provides for monthly recurring revenue based on total usage. GyPSii will
attempt to develop further partnerships for the licensing of OEX in 2011.
The third element of the GyPSii revenue strategy in 2011 was established by the
launch of its new service offering that focuses on providing for Small and
Medium Businesses (SMB) with location-based services and platforms. The “GyPSii
CRM Platform” provides SMB's with a toolset for creating, managing and
delivering promotional incentives to their customer base at a much lower
distribution cost. The self-service platform gives business owners the ability
to create customized coupon campaigns and discount programs for consumers that
are delivered directly to their mobile devices. Using its location-based
technology the GyPSii CRM Platform can assist businesses in converting these
consumers to loyal customers by incentivizing them at the Point of Sale (POS)
with relevant discounts and rewards. Additionally, the GyPSii CRM Platform
collects, analyzes and produces detailed reports on customer interactions at
the point of sale, granting businesses a new level of insight into marketing
and promotional spending that they have never had before. The GyPSii CRM
service “lingdi” was launched in China at the end of 2010. During 2011 this
service will be available for use by Small and Medium Businesses for a monthly
recurring subscription fee.
Finally, during 2010, the Company consolidated its efforts into developing the
Chinese market. Efforts in prior years to penetrate the markets in the United
States and Europe proved too costly for the Company to sustain compared to the
operating cash available. Therefore, during 2010, the Company began
consolidating operating, development, business development and marketing
resources into China with significant staff reductions elsewhere in the world.
This has resulted in a significant reduction in monthly operating costs within
the Group At the same time the Company began to focus its products and services
almost entirely in China. This decision has resulted in significant increases
in member acquisition and usage of the GyPSii products within China. This
member growth led directly to the growth of page views and hence the generation
of advertising revenues. This significant growth during 2010 establishes the
ability to further grow the monetization of page views with advertising in
2011.
ASSESSMENT OF SIGNIFICANT OPERATIONAL RISKS
The global financial crisis and current global recession have had and may
continue to have a negative impact also on the business of the Group. As
announced previously, the Company expected to see positive development in
GyPSii generated revenues starting from the last quarter of 2009. Continued
financing negotiations and, especially during the year 2009, the global
financing crisis have shifted the revenue expectations of GyPSii, yet revenues
have started to be generated in 2010 and the Company expects to see further
positive development in GyPSii generated revenues during 2011. The Company is
also exploring additional business development opportunities including
partnering arrangements with local media partners, which could lead to
accelerated user adoption.
There is no certainty of the success regarding the implementation and
realisation of the business plan. According to the business strategy, the Group
is pursuing entrance also to new business segments with competitive situations
new to it, or which may be only in the early market phase. Unless the Group is
able to successfully respond to these developments it may significantly impair
the Group´s operating results.
A key driver of the business model is sufficient and sufficiently rapid growth
of users of the services, and the speed of adoption of mobile, UGC and location
based advertising of which the Group has no certainty. Advertising budgets have
been reduced by major brands and advertisers in certain areas and this could
have an adverse affect on the adoption of mobile and location based advertising
in 2011 and beyond.
The most significant risk relating to the business plan is the sustained growth
of members. As the Company's business model is driven by the acquisition and
retention of new members, possible delays in funds available to the Company to
drive marketing efforts of their new products to the markets and therefore the
acquisition of new members, may have an adverse effect on the development of
the Company's business by decelerating the distribution and subscriber-adoption
rate of the Company's products and services.
Since 1997, the Company has not paid dividends. In the future, the re-payments
of capital and other preferred loans will restrict the possibility to
distribute dividends. The total amount of loans as at 31 December 2010 was
23613 teuros at nominal value. Regarding future dividend payments, there is
also uncertainty about the ability of the Company to accrue distributable
capital. According to the financial statements of the Company, there was no
distributable capital in the latest balance sheet of the Company.
The Group´s business plan has been prepared by assuming that the Group´s result
and cashflow will improve significantly. The Group's financing plan also
assumes additional external financing to be received, which financing has not
yet been agreed to. Should the result and cashflow essentially fail to meet the
planned figures, or the new financing be delayed, or the amount of financing
turn out to be insufficient to meet the Group's capital needs, this might force
the Company to introduce further significant cost cutting measures, which could
also have a material effect on the execution on the Company's current business
plan in the short term, and also cause an insolvency risk.
There are significant financial risks related to the Company's business,
competition and industry and it is possible that investors may lose all or a
part of their invested capital.
GeoHolding B.V., and investor groups led by Horizon Group and Schroders & Co
Limited have influence on GeoSentric, each of them separately. The Company
trusts that the regulation and information obligation binding public companies,
supported by the compliance with the corporate governance recommendations,
together with the continuous external auditing activity maintained by a skilled
and reputable auditing firm suffice to pre-empt a misuse of control power.
REVIEW OF R&D-ACTIVITIES
The volume of the Group's R&D activities during the reporting period was
significant due to the on-going R&D-programs by means of which the Group
intends to significantly expand its business over the next few years. No
capitalizations were made.
The Group maintains R&D units primarily in Warwick, RI (USA) and Shanghai
(China).
Additionally, GyPSii server facilities are maintained in the US and China at
present, with continued upgrades planned in the future.
The development of R&D costs from continuing operations in years 2008-2010 was
the following:
Year R&D costs teuros of which capitalized teuros % of sales
---------------------------------------------------------------
2009 7756 0 0
---------------------------------------------------------------
2010 4671 0 0
---------------------------------------------------------------
INVESTMENTS AND FINANCING
Gross investments in financial period were 40 teuros. In year 2009 gross
investments were 208 teuros and in year 2008 they were 119 teuros.
PERSONNEL AND ORGANIZATION
The number of employed personnel at GeoSentric in 2010 averaged 120, of which
35, at most, were affected by alternate forced leaves. The alternate forced
leave program, agreed to in autumn 2010 to apply for the time being continues
also in 2011. The average number of personnel in year 2009 was 120 and in year
2008 it was 94.
The members of the management team of the Company are: Winston Guillory (CEO)
Michael Po (COO, Senior Vice President, Engineering), Rich Pizzarro (Senior
Vice President & CTO), Bruce Hathaway (Senior Vice President, Finance,
Controller and Corporate Secretary), Robin Halliday (CFO), Jeff Lin (Managing
Director, Asia Pacific), Jay Cahill (Vice President, Strategic Accounts), Sam
Critchley (Vice President, Products).
ENVIRONMENTAL ISSUES
The Company changed into a no-lead manufacturing process according to so called
ROHS-directive during summer 2006. The Company pays for its products a
statutory recycling fee and has organized the recycling of disposed materials
contractually through Jalopinta Ky. Altogether, the Company's operations cause
no significant environmental impact.
BOARD OF DIRECTORS AND AUDITORS
According to the Company's articles of association the Board of Directors
consists of not less than three (3) but no more than nine (9) ordinary members.
The term of the members of the Board of Directors begins at the end of the
Annual General Meeting of shareholders and expires at the end of the next
Annual General Meeting of the shareholders following the election.
The Board consists of Hans van der Velde (Chairman), Gary Bellot, Michael
Vucekovich, Winston Guillory and Michael Po. Raymond Kalley resigned from the
Board on 9th June, 2010. In September 2010 it was announced that Dan Harple had
resigned as CEO to be replaced with immediate effect by Winston Guillory. In
November it was announced that Dan Harple had resigned as a member of the
Board. After the reporting period, in February 2011 Andy Van Dam resigned from
the Board of Directors for personal reasons.
GeoSentric Oyj has established committees to enhance the preparation of matters
falling within the competence of the Board. The -committees are 1) Audit and
Finance Committee; 2) Corporate Governance and Nominations Committee; 3)
Compensation Committee; and 4) Strategic Options Committee.
In financial year 2010, the audit firm Ernst & Young Oy continued to serve as
the ordinary auditor of the Company, with Mr. Erkka Talvinko, CPA, as the
responsible auditor. Audit firm PricewaterhouseCoopers continued as the deputy
auditor of the Company.
GROUP STRUCTURE
In addition to the parent company, GeoSentric Oyj, the Group comprises of 100 %
owned subsidiaries, GyPSii (Shanghai) Co. Ltd, GeoSolutions B.V., GyPSii Inc.,
GeoSolutions Holdings N.V. (formerly Benefon Solutions B.V.) and GeoSentric
(UK) Ltd. (formerly Benefon (UK) Ltd). All GeoSentric's subsidiaries are held
under its Dutch subsidiary, GeoSolutions Holding N.V. (formerly Benefon
Solutions B.V).
GeoSentric (UK) Ltd., GyPSii (Shanghai) Co., Ltd., GeoSolutions B.V. and GyPSii
Inc. are primarily engaged with the GyPSii business. GyPSii (Shanghai) Co.,
Ltd. has a primary focus for market development in Asia. Further, product
quality assurance, testing, and multi-lingual review are assisted by the
Shanghai team. GeoSentric Oyj is the group parent company and during the
reporting period was engaged in the TWIG-products and provides R&D services to
the GyPSii-products and services. GeoSolutions Holdings N.V. is a semi dormant
holding company.
BOARD AUTHORIZATION
The Annual General Meeting convened on June 30, 2010 authorized the Board to
increase the share capital by maximum of 4,000,000 euros and share amount by
maximum of 850,000,000 new shares, option rights or special rights. The
authorization is valid for two (2) years from the date of the Annual General
Meeting. At the same time all the other authorizations were terminated.
At the end of the reporting period the remaining amount of Board's
authorization was 4,000,000 euros and 807,902,000 shares corresponding to 87.37
% of the currently registered share amount and 27.65 % shares after all shares
and instruments entitled to shares, effecting a corresponding immediate
dilution to existing shareholdings (including current authorization).
STRUCTURAL ARRANGEMENTS AND CHANGES IN AMOUNTS OF SHARES
Financing round 2009:
The subscription period of the 2009 loan note for raising a maximum amount of
25000 teuros through Company's Dutch subsidiary GeoSolutions Holdings N.V.
(“GHNV”), which originally was to end on March 31, 2010, was extended in March
2010 until the end of the year 2010. The Group received and drew down an
investment commitment of 7500 teuros during the year 2009. The terms of the
2009 note were later amended by the Annual General Meeting held on June 30,
2010 as described below.
The loan note is fully transferrable and entitles to subscribe shares in GHNV
or the investors may, at their discretion convert their notes into GeoSentric
shares. The note will expire in five years. As a precondition for the
investment the Company has agreed to pay an industry standard placement fee of
6%, payable in equal portions in cash and in shares, to Raymond Kalley who
assisted with the fund raising. The note accrues interest at the rate of 5%
p.a. which, it has been agreed, shall be deferred until redemption or
conversion. The detailed terms of the financing have been disclosed and can be
found in the call to the Annual General Meeting released on June 9th 2010.
Financing round 2010:
The new 2010 loan note has the same terms as the 2009 note except that the note
accrues interest at the rate of 12% p.a. and is for a maximum amount of 6000
teuros of which 2500 teuros has been drawn on June 30, 2010 and a further 2500
teuros has been drawn on September 1, 2010. The remaining 1000 teuros was drawn
in December 2010. As a precondition for the investment the Company has agreed
to pay an industry standard placement fee of 5%, all payable in shares to be
issued without charge, to Raymond Kalley who assisted with the fund raising.
The fee was paid in September 2010 when the Board issued in total of 23,750,000
new shares of the Company to Raymond Kalley without charge.
The Board and AGM have approved the terms for additional financing of 6000
teuros to be adopted by issuing preferred convertible notes of Company's wholly
owned Dutch subsidiary GeoSolutions Holdings N.V. At the same the AGM decided
to issue 948,750,000 special subscription rights to the holders of the notes,
entitling them to alternatively subscribe for the shares of the Company, and
approved certain changes to the terms of Company's Convertible Bond Loan
2008-B.
Financing round 2011
In January 2011, the Company agreed with its lead investor to extend the
current financing structure with an additional financing of a maximum aggregate
amount of 1.8M€ for the primary purpose of financing and supporting its GyPSii
operations in China. The additional financing was raised in two tranches both
received in January 2011 through the Company's wholly owned Dutch subsidiary
GeoSolutions Holdings N.V. on the same terms as agreed and approved by the
Annual General Meeting held on June 30, 2010. The Company has already before
placed the shares and assets of the Company and GeoSolutions Holdings N.V. and
its subsidiaries as a first ranking security to the financing, which security
will cover also this additional financing.
In connection with the additional financing the Board of Directors of the
Company has also, by virtue of the authorization granted by the Annual General
Meeting, decided to issue at maximum 144,000,000 special rights to the lead
investor, entitling them alternatively to convert their loan notes in
GeoSolutions Holdings N.V. directly into the shares of GeoSentric, as agreed in
the loan terms for the original 6M€ financing in June 2010.
During the financial year the Company's share capital was increased by 4,800
euros and share amount by 480,000 new shares by virtue of Share subscription in
Option Plan 2004A. The shares were registered into the Finnish Trade Register
on November 26, 2010. The share amount was increased with a total amount of
23,750,000 new shares registered into the Finnish Trade Register on October 29,
2010. The free share issue directed to Raymond Kalley as a placement fee was
based on the decision by the Board of Directors on September 3, 2010.
As a conclusion the amount of registered securities of the Company changed over
the reporting year as follows:
Number of registered shares on 1.1.2010 897,926,354
--------------------------------------------------------
New shares issued in directed share issue 23,750,000
--------------------------------------------------------
New shares issued in securities conversions 480,000
--------------------------------------------------------
Number of registered shares on 31.12.2009 922,156,354
--------------------------------------------------------
Loan Amount /EUR Entitled shares Mature Date
------------------------------------------------
2004A 112,762.57 0 31.12.2008
------------------------------------------------
2008B 10,000,000 94,339,622 25.8.2013
------------------------------------------------
2009 7,500,000 468,750,000 31.3.2015
------------------------------------------------
2010 6,000,000 480,000,000 31.3.2015
------------------------------------------------
CAPITAL LOANS
The Company did not raise any new capital loans in 2010.
The loan decided on February 26, 2004 and remaining 112,762.57 euros has been
matured and entitles no longer new shares of the Company. Until now, no
payments have been made of the Loan. The loan will accrue a fixed annual
interest of 4 % also paid on mentioned date of June 30 of each year providing
that the requirements set in the Companies´ Act regarding interest payments on
equity loans are met. Until now, no interest has been paid on the loan.
COMPANY SHARES AND SHAREHOLDERS
The shares of GeoSentric Oyj are listed on the NASDAQ OMX Helsinki (NASDAQ OMX:
GEO1V) and issued in the book entry system held by Euroclear Finland, address
PL 1110, FIN-00101 Helsinki, Finland. The ISIN-code of the share is FI
0009004204. The Company's shares have been on the surveillance list since
February 11, 2003.
The Company and its subsidiaries do not have any Company´s shares owned by or
administered on behalf of the Company.
The Company's registered share capital on December 31, 2010, was 8,955,761.65
euros, consisting of 922,156,354 shares. The number of outstanding shares in
the beginning of the financial year 2010 was 897,926,354.
As of 31.12.2010 according to share register of the Euroclear Finland
shareholders who hold their shares under a name of a nominee own a total amount
of 778,119,748 shares corresponding 84.38 % of the Company's registered shares
and votes
Shareholder Shares Vote and share %
-------------------------------------------------------------------------------
Nordea Pankki Suomi Oyj (custodian shares) 507,450,954 55.02 %
-------------------------------------------------------------------------------
Skandinaviska Enskilda Banken (custodian shares) 248,339,478 26.93 %
-------------------------------------------------------------------------------
Svenska Handelsbanken AB (custodian shares) 17,706,101 1.92 %
-------------------------------------------------------------------------------
TOTAL 773,496,533 83.87 %
-------------------------------------------------------------------------------
According to flagging the notices received by the Company during the reporting
year, the thresholds of the following shareholders are:
Shareholder Shares Convertible
securities
--------------------------------------------------------------------------------
Luben Limited 91,162,652
--------------------------------------------------------------------------------
MMA Investments Limited 16,930,861
--------------------------------------------------------------------------------
Nobolles Investments Limited 43,123,442
--------------------------------------------------------------------------------
Schroder Investment Management Limited (on 109,294,444 1,043,089,622
behalf of its clients)
--------------------------------------------------------------------------------
ANSA Mc AL Limited 93,377,779 202,847,456
--------------------------------------------------------------------------------
PNG Sustainable Development Fund Limited 141,037,751
--------------------------------------------------------------------------------
Mr and Mrs Bramall 138,812,498
--------------------------------------------------------------------------------
Tiberio Limited and Laytons Trustees Company 341,945,338
Limited
--------------------------------------------------------------------------------
Other clients 15,916,665 218,446,579
--------------------------------------------------------------------------------
TOTAL 260,511,399 1,043,089,622
--------------------------------------------------------------------------------
According to the Flagging notice received in 2009 GeoHolding and its beneficial
shareholder, Dan Harple, owns aggregate amount of 251,171,068 shares and
43,418,055 option rights.
The number of fully diluted shares as of 31.12.2010 was as follows:
Registered listed shares 922,156,354
----------------------------------------------------
Registered rights entitling to shares 1,189,258,095
----------------------------------------------------
-
----------------------------------------------------
Board authorization 807,902,000
----------------------------------------------------
TOTAL 2,919,316,449
----------------------------------------------------
The Company's all issued instruments including authorization entitled to shares
together correspond to - approximately 68.41 % of the share amount after all
instruments entitled to shares issued by the Company and board authorization,
effecting a corresponding direct dilution to existing holdings.
SHAREHOLDINGS OF THE BOARD MEMBERS AND MANAGING DIRECTOR
The share holdings and potential holdings by virtue of instruments entitling to
share subscriptions of the Board members and managing director, including the
holdings by controlled corporations, are as follows:
Person Direct Securities entitling to Total
shares shares securities
--------------------------------------------------------------------------------
Bellot, Gary 323,571 7,000,000 7,323,571
--------------------------------------------------------------------------------
Guillory, Winston - 7,000,000 7,000,000
--------------------------------------------------------------------------------
Po, Mike 3,000,000 3,000,000
--------------------------------------------------------------------------------
Van Dam, Andries - 7,205,000 7,205,000
--------------------------------------------------------------------------------
Van der Velde, 1,190,476 7,000,000 8,190,476
Johannes
--------------------------------------------------------------------------------
Vucekovich, Michael 91,397 7,000,000 7,091,397
--------------------------------------------------------------------------------
RELATED PARTY TRANSACTIONS
As a part of the terms relating to the investors investment to the Note,
previous financing round arranged in August-September 2007 and simultaneously
agreed restructuring of Company's ownership, the Board approved an incentive
carve-out agreement entered into with key senior managers who are holders in
GeoHolding B.V. for a successfully completed exit transaction. The incentive
carve-out is based on the valuation of the Company in pre-defined exit events,
requiring shareholders' approval to take place, and may not exceed 10 percent
of the valuation. The agreement shall be valid until July 31, 2017.
Based on the assistance provided in connection with the convertible loans
raised in 2009 and 2010, Raymond Kalley was issued without charge 23,750,000
shares as part of an agreed placement fee.
As more fully described in the section “Material events in the year 2010”,
effective December 31, 2010, the Company sold its TWIG mobile handset business,
to a newly established company, Twig Com Oy, majority held by the former
managers of that business including Tomi Raita and Jukka Nieminen.
BOARD PROPOSAL REGARDING THE HANDLING OF THE RESULT
The Board proposes to the general meeting that no dividend is distributed and
that the loss for the period is booked to the prior years´ result account.
NOTICE
The GeoSentric's financial statements release has been prepared according to
the accounting standard IAS 34, Interim Reports. The accounting principles for
the financial statements have been presented in the Financial Statements 2010
published on April 29, 2011. The information presented in this report has been
audited.
In the Notes to the Financial Statements there is more detailed and additional
information about the Company's operations in the financial year 2010.
It should be noted that certain statements herein which are not historical
facts are based on management's best assumptions and beliefs in light of the
information currently available to it.
According to Finnish Securities Market Act, Chapter 2, Section 10 c, GeoSentric
Oyj has published the annual summary of the stock exchange releases and
announcements published during the year 2008. The summary is available at:
www.geosentric.com.
In Salo April 29, 2011
GeoSentric Oyj
The Board of Directors
GROUP STATEMENT OF COMPREHENSIVE INCOME
1000 EUR Note 4Q/201 2010 4Q/200 2009
0 9
Continuing operations
Net sales 39 54 0 4
Cost of goods sold 5 0 0 0 0
-------------------------------
Gross margin 39 54 0 4
Other operating income 0 0 0 0
General & Administrative expenses 5 665 2673 766 3004
Research & Development expenses 5 672 4671 1824 7756
Sales & Marketing expenses 5 454 2246 768 3160
-------------------------------
Operating result -1752 -9536 -3358 -13916
Financial income 1 78 0 74
Financial expenses -683 -1783 -231 -723
-------------------------------
Result before taxes -2434 -11241 -3589 -14565
Income taxes -30 -146 110 409
-------------------------------
Result for the period from continuing -2464 -11387 -3479 -14156
operations
Discontinued operations
Result for the period from discontinued 4 -209 -1987 -339 -1622
operations
-------------------------------
Result for the period -2673 -13374 -3818 -15778
Translation difference 142 -13 8 11
-------------------------------
Comprehensive income -2531 -13387 -3810 -15767
Earnings per share, eur:
Basic earnings per share,continuing -0,00 -0,01 -0,00 -0,02
operations
Basic earnings per share,discontinued -0,00 -0,00 -0,00 -0,00
operations
Diluted earnings per share have not been computed because dilution effect would
improve the key figure.
GROUP STATEMENT OF FINANCIAL POSITION
1000 EUR Note 31.12.2010 31.12.2009
ASSETS
Non-current assets
Property, plant and equipment 82 240
Goodwill 216 216
Other intangible assets 1 510
Other financial assets 5 66
Deferred tax assets 0 0
-----------------------
304 1032
Current assets
Inventories 0 1216
Trade receivables and other receivables 224 696
Prepaid expenses 0 10
Cash and cash equivalents 892 5939
1116 7861
-----------------------
Total assets 1420 8893
EQUITY AND LIABILITIES
Shareholders´equity
Share capital 6 8956 8951
Share premium account 6 13631 13631
Translation difference 122 135
Invested distributable equity account 6 30912 30603
Retained earnings -68645 -55556
-----------------------
Total shareholders´ equity -15024 -2236
Non-current liabilities
Deferred tax liabilities 0 128
Interest-bearing debt 8 13112 7061
-----------------------
13112 7189
Current liabilities
Trade payables and other payables 3219 2634
Provisions 0 37
Interest bearing debt 8 113 1269
-----------------------
3332 3940
Total liabilities 16444 11129
Total shareholders´ equity and liabilities 1420 8893
GROUP CASH FLOW STATEMENT
1000 EUR 2010 2009
Cash flow from operations
Result for the period -13374 -15778
Adjustments 1505 3991
Changes in working capital:
Change of trade and other receivables 482 1946
Change of inventories 761 -295
Change of trade and other liabilities 548 632
Paid interests -630 -930
Received interest payments 18 145
Cash flow from operations, net -10690 -10289
Cash flow from investments, net 46 -208
Cash flow from financing
Proceeds from issue of share capital 67 0
Transaction expenses of share issues -3 -68
Transaction expenses of loans -467 -750
Proceeds from long term borrowings, equity 0 2591
Proceeds from long term borrowings, liability 6000 4909
Net cash flow from financing 5597 6682
Change in cash -5047 -3815
Cash on January 1 5939 9754
Cash on December 31 892 5939
GROUP STATEMENT OF CHANGES IN SHAREHOLDERS´ EQUITY
Share Translatio Share Inv. Accrued Total
capital n premium distributed result (1000
(1000 difference account equity (1000 eur)
eur) (1000 eur) (1000 account eur)
eur) (1000 eur)
Shareholders´ 8951 124 13631 28039 -40692 10053
equity
31.12.2008
Items booked 0 11 0 0 0 11
directly into
shareholders´
equity
Result for the 0 0 0 0 -15778 -15778
period
----------------------------------------------------------------
Comprehensive 0 11 0 0 -15778 -15767
income
Share issue 0 0 0 -68 0 -68
expenses
Booked expense 0 0 0 0 914 914
of stock
options to key
personnel and
partners
Equity portions 0 0 0 2632 0 2632
of liabilities
----------------------------------------------------------------
Shareholders´ 8951 135 13631 30603 -55556 -2236
equity
31.12.2009
Items booked 0 -13 0 0 0 -13
directly into
shareholders´
equity
Result for the 0 0 0 0 -13374 -13374
period
----------------------------------------------------------------
Comprehensive 0 -13 0 0 -13374 -13387
income
Share issue, 5 0 0 62 0 67
cash
Share issue 0 0 0 -3 0 -3
expenses
Booked expense 0 0 0 0 285 285
of stock
options to key
personnel and
partners
Equity portions 0 0 0 250 0 250
of liabilities
----------------------------------------------------------------
Shareholders´ 8956 122 13631 30912 -68645 -15024
equity
31.12.2010
KEY FIGURES, ALL OPERATIONS
4Q/2010 2010 4Q/2009 2009
Net sales, 1000 EUR 413 1851 475 2491
Operating result, 1000 EUR -1961 -11523 -3697 -15538
Result before taxes, 1000 EUR -2643 -13228 -3928 -16187
Gross investments, 1000 EUR 10 40 8 208
Average personnel 89 116 126 120
Earnings per share, EUR -0,00 -0,01 -0,00 -0,02
Equity per share, EUR -0,02 -0,02 -0,00 -0,00
Weighted average number of shares in period, 920802 903645 897926 897651
1000 pcs
Number of shares at the end of the period, 922156 922156 897926 897926
1000 pcs
1. BASE INFORMATION OF THE COMPANY
GeoSentric is a developer and provider of solutions, products and technologies
for location based services and LBS-enabled social networks. It develops a
leading geo-integration platform for mobile devices, personal navigation
devices, web browsers, and other internet-connected devices, which provides
applications and bundled ODM/OEM solutions for consumer and B2B markets, built
on the convergence of location based services, social networking, search,
mobile & Web 2.0 technologies. Its intellectual property is delivered as
software and services in products which include the GyPSii product platform
("GyPSii"). The company has deep expertise and technology IP in User Generated
Content Management, Location Based Services, Open Social Networking,
Ad-Targeting and Integration, for Social Media markets and users on mobile
phones, the web, personal navigation and internet connected devices.Based in
Salo, Finland, and Amsterdam, The Netherlands, GeoSentric operates offices in
North America, Europe and Asia Pacific. GeoSentric is listed in NASDAQ OMX
Helsinki Ltd (NASDAQ OMX: GEO1V).The parent company of the group is GeoSentric
Oyj (formerly Benefon Oyj). The registered domicile is Salo, Finland, with
street address Meriniitynkatu 11, 24100 Salo, Finland, and mail address PL 84,
FIN-24101 Salo, Finland. A copy of the group financial statements is available
at the internet address www.geosentric.com or at the company head office at
address Meriniitynkatu 11, FIN-24100 Salo, Finland. According Finnish Companies
Act, the shareholders has possibility to accept or reject the financial
statements, even the General Meeting is after financial statements is released.
General Meeting has also possibility to make desicion about changing financial
statements.
2. ACCOUNTING PRINCIPLES FOR THE FINANCIAL STATEMENTS
Foundation:
The group financial statement bulletin has been prepared in accordance with
International Financial Reporting Standards ("IFRS") and has been prepared to
the accounting standard IAS 34, Interim Reports. Information is based to
audited financial statement for year 2010.
Accounting principles:
The used preparation principles have been presented in the Financial Statements
from year 2010.
Since 1.1.2010 the group has applied the following new standards and
interpretations: Reformed IFRS 3, Business combinations. Changes affect the
goodwill amount of recognised acquisition and profit effect items. According to
the rules of change-over to IFRS, business combinations which are already
carried out will be not corrected.
Changed IAS 27, Consolidated financial statements and separate financial
statements. May have impact on the recognition of possible changes in
subsidiaries ownership´s.
Change to IAS 39, Financial instruments: recognition and measurement to hedged
items acceptable items. The group has no hedged items as defined.
IFRIC 17, Non cash dispensation to ownerships. Concerning dispensation of
dividends. No effect on the group.
IFRIC 18, Asset transfers from customers. No effect on the group.
Changes for "Improvements to IFRS". Small changes relate to 12 different
standards but they have no significant effects on the financial statements.
Changes to IFRS 2, Share-based payments - Share-based businesses paid in cash
in group. Concerning non cash paid share-based payments. No effect on the group
financial statements.
3. SEGMENT INFORMATION
The group has only one distinct segment, location based services and devices
utilising them. Its share of net sales has been 100% in the period and in the
reference period.
4. DISCONTINUED OPERATIONS
The group divested on December 2010 its TWIG mobile handset business through
MBO by oral agreement. The majority of business transferred to Twig Com Oy on
December 31, 2010 and the parties signed a business purchase agreement on
January 10, 2011. The result of business, result of divesting and share of cash
flows are presented below:
1000 EUR 4Q/2010 2010 4Q/2009 2009
Result of TWIG mobile handset business
Net sales 374 1797 475 2487
Cost of goods sold -229 -1823 -419 -2141
Other operating income 3 4 2 2
General & Administrative expenses 146 -425 -24 -107
Research & Development expenses -59 -366 -121 -455
Sales & Marketing expenses -200 -930 -252 -1408
Income taxes of discontinued operations 0 0 0 0
-------------------------------
Profit before/after taxes 35 -1743 -339 -1622
Result of divesting before/after taxes -244 -244 0 0
Income taxes of divesting 0 0 0 0
-------------------------------
Result for the period from discontinued -209 -1987 -339 -1622
operations
General & Administrative expenses
Cash flow of TWIG mobile handset business
Cash flow from operations -1031 201
Cash flow from investments 45 0
Effect of Twig mobile handset business divesting to financial 31.12.2010
position of group
Fixed assets 24
Other intangible assets 1
Other financial assets 20
Inventories 223
Trade receivables and other receivables 192
Prepaid expenses 5
Trade payables and other payables -184
Provisions -37
-----------
Assets and liabilities total 244
Purchase price in cash 0
5. COSTS BY CATEGORY
1000 EUR 4Q/2010 2010 4Q/2009 2009
Increase/decrease in inventories of finished 36 375 97 -164
products
Impairment loss in inventories 0 455 98 484
Use of raw materials and consumables 144 571 84 1288
Total expense of direct employees 49 422 140 533
-------------------------------
Cost of goods sold total 229 1823 419 2141
Discontinued operations -229 -1823 -419 -2141
Total expense of indirect employees 1314 6993 2100 8710
Redundancy provision 0 509 0 0
Depreciations 41 682 550 2172
Other operating expenses 793 3371 1105 5008
-------------------------------
Expenses by cost category, total 2148 11555 3755 15890
Discontinued operations -357 -1965 -397 -1970
-------------------------------
Continuing operations 1791 9590 3358 13920
6. SHAREHOLDERS´ EQUITY
Number of Share Share Invested Total
shares capital premium distributed (1000
(1000) (1000 account equity account eur)
eur) (1000 eur) (1000 eur)
31.12.2008 895096 8951 13631 28039 50621
Share issue free 2830 0
5.2.2009
Costs of share -68 -68
issues
Equity 2632 2632
components
separated from
liabilities
---------------------------------------------------------------
31.12.2009 897926 8951 13631 30603 53185
Share issue free 23750 0
4.10.2010
Share issue, 480 5 62 67
cash 26.11.2010
Costs of share -3 -3
issues
Equity 250 250
components
separated from
liabilities
---------------------------------------------------------------
31.12.2010 922156 8956 13631 30912 53499
According to the Company´s articles of association registered there is no
maximum for the shares and there is only one category of shares at the Company.
Also the clause about maximum amount of share capital has been removed. The
shares carry no nominal value. All outstanding shares are fully paid.
7. OPTION RIGHTS
The Company carries twenty on-going stock option programs. In all of these, one
option right entitles to subscribe for one new share of the Company.
Option program 2004A:
The extraordinary general meeting on 26.2.2004 decided in connection of
arrangements related to the reorganisation about issuance of option rights. The
number of option rights was finally set at 39,597,988 and share subscription
price at 0.14 euros per share. Number of granted option rights was 35,500,000.
Share subscription period with the options expired on June 15, 2010 when in
total of 480,000 shares were subscribed. A total of 3,580,000 option rights
have been used for share subscription. The rest 32,220,000 of the granted
option rights have permanently expired.
Option programs 2010-1and 2010-2:
The Board decided in its meeting on September 3, 2010 to adopt Option Plans
2010-1 and 2010-2 and issue a total maximum amount of 15,848,000 new option
rights to the employees and key engineering resources of the group without
charge. The options are issued on standard terms used by the company in its
option plans. Each option right entitles its holder to subscribe for one new
share at subscription price of 0.03 euros that equals to volume weighted
average price of company´s share on stock exchange during September 2010. The
options will vest on quarterly basis and the share subscription period on all
options ends on October 1, 2016.
Special right:
The Board decided to issue 23.750.000 shares without price to Raymond Kalley as
part of the agreed placement fee of drawn loans. The shares have been
registered in trade register on 4.10.2010. Cost of options booked in the period
according to IFRS 2. Consideration is given as options. The counter-item of
costs bookings is income statement is shareholders´equity.
1000 EUR 2010 2009
Key persons 160 276
Board 74 557
Other interest groups 52 81
-----------
Total 286 914
8. FINANCIAL LIABILITIES
1000 EUR Nominal loan value 2010 2010 2009
Non-current:
Loan 2008 10000 2392 2605
Loan 2009 7500 4853 4456
Loan 2010 6000 5867 0
------------
Non-current total 13112 7061
Current:
Cbl 2004A 113 113 113
Loan 2008 0 1156
------------
Current total 113 1269
Convertible bond loan 2004A:
This loan with a nominal principal of 1130 teuros was raised on year 2004 and
was converted during the conversion period before 31.12.2008 in all 1017
teuros. The remaining amount of loan is 113 teuros. The interest is 4%. No
interest was paid. The loan capital, interest and other benefit may be paid in
case of dismantling or bankruptcy of company only with priority after the other
creditors. The principal may be returned otherwise only providing that a full
coverage for the bound equity and other non-distributable items in the
confirmed financial statements for the latest expired financial year is
retained. Interest or other benefits may be paid only in case the paid amount
may be used for profit distribution in the confirmed balance sheet for latest
expired financial period.
Financing round 2008:
The subscription period of the loan note for raising a maximum amount of 16,000
teuros ended on May 15, 2009 and the total amount of subscription was 10,000
teuros. The maximum amount of new shares to be subscribed by virtue of the
subscribed note is 94,339,622. As a result of the note the Company´s share
capital may increase by a maximum of 943 teuros. The annual interest of the
loan is 12.5 %, paid twice a year, however interest of period 1.7.-31.12.2009
was paid in January 2010. The loan will end on August 25, 2013. Effective it
was agreed that interest payments are suspended and all interest will accrue
and roll up until maturity.
Financing round 2009:
The subscription period of the loan note for raising a maximum amount of 25,000
teuros was originally to end on March 31, 2010, but has been extended until the
end of the year 2010. The group has received and withdrawn the investment
commitment of 7,500 teuros during the year 2009. The loan note was raised by
the subsidiary GeoSolutions Holdings N.V. (GHNV"). The loan note entitles to
subscribe shares of GHNV. The amount of shares will in all events be less than
half of GHNV´s outstanding shares and share capital. Alternatively the
investors have the option to convert their notes into GeoSentric´s shares
corresponding the same proportional amount of fully diluted shares as the
investor otherwise would have received of GHNV´s shares. The note will expire
in five years. As a precondition for the investment the Company has agreed to
pay an industry standard placement fee of up to 6% of the amount raised. The
note accrues interest at the rate of 5% p.a. Which shall be deferred until
redemption of conversion. The conversion rate shall be calculated based on the
lower of the market capitalisation of GeoSentric at March 31, 2010, the market
capitalisation at the date of conversion and the valuation implied by an
external financing round or bid, all discounted by 50%. In the event that the
notes have not been redeemed or converted by the maturity date or in the event
of insolvency, a further 15% discount shall be applied to the conversion rate.
The note is secured by a pledge over the share capital of GeoSentric and GHNV
and over other assets of the group.
Financing round 2010:
The 2010 loan note has the same terms as the 2009 note except that the note
accrues interest at the rate of 12% p.a. and is for a maximum amount of 6,000
teuros of which 2,500 teuros has been drawn on June 30, 2010 and 2,500 teuros
on September 1, 2010 and 1,000 teuros on November 10, 2010. The above
convertible loans has been divided in the financial statements into equity and
debt as required by IAS 32. The deviation is based on careful evaluation of the
actual and contractual terms of the convertible loan as well as judgments made
by the management of the group. The part of the convertible loan presented as
debt consist of the discounted present value of the future interest payments
not avoidable to the group regardless of the conversion. The remaining interest
and main part of the convertible loan is presented as equity, as the management
of the group considers using the conversion right as hightly probable. The part
of the loan presented as debt will be amortized during the contractual maturity
of the loan. The discount interest rate used in valuation of the debt part of
the convertible loan is based on the interest rate the group could expect to
negotiate for a corresponding loan from third parties. The interest rate used
consist of risk free interest rate and of a group specific risk premium. Risk
premium estimated by management is 5 %. Effective loan interests range from
16,2 to 28,3 %.
9. COLLATERAL COMMITMENTS AND CONTINGENCIES
1000 EUR 2010 2009
Collateral for own liabilities:
Pledged non-current financial assets 5 5
Pledged current financial assets 0 57
10. RELATED PARTY TRANSACTIONS
The parent and subsidiary company relations in the group were as follows:
Parent company GeoSentric Oyj. Subsidiaries with parent company ownership and
voting rights of 100 % are GeoSolutions Holdings N.V., and its through (100%)
subsidiaries GeoSolutions B.V., GeoSentric (UK) Ltd., GyPSii (Shanghai) Co Ltd.
and GyPSii Inc..
1000 EUR 2010 2009
Employee benefits of the management:
Salaries and bonuses 2070 2954
Pension payments 53 56
Other costs 865 836
Cost of granted option rights to management and other key persons 234 833
-----------
Total 3222 4679
The Annual General Meeting on June 30, 2010 elected the following persons to
the Board: Hans van der Velde, Daniel Harple, Michael Vucekovich, Gary Bellot,
Andy van Dam, Winston Guillory and Mike Po. The Board meeting elected Hans van
der Velde as Chairman. Daniel Harple resigned from the Board on November 9,
2010. The top team comprised Winston Guillory, Michael Po, Rich Pizzaro, Bruce
Hathaway, Robin Halliday, Shane Lennon, Jack Early, Jeff Lin, Sam Critchley,
Gavin Nicol, Jay Cahill, Jukka Nieminen and Adrian Anderson. The Managing
Director has been Tomi Raita.
Related party transactions have been presented in the Financial Statements from
year 2010.
11. EVENTS AFTER THE END OF THE PERIOD
In January 2011, the Company agreed with its lead investor to extend the
current financing structure with an additional financing of a maximum aggregate
amount of 1.8M€ for the primary purpose of financing and supporting its GyPSii
operations in China. The additional financing was raised in two tranches both
received in January 2011 through the Company´s wholly owned Dutch subsidiary
GeoSolutions Holdings N.V. ("GHNV") on the same terms as agreed and approved by
the Annual General Meeting held on June 30, 2010. The Company has already
before placed the shares and assets of the Company and GeoSolutions Holdings
N.V. and its subsidiaries as a first ranking security to the financing, which
security will cover also this additional financing.
In April 2011 the Board received a proposal for short-term financing from
Company`s lead investor("Proposal"). The Proposal sets the terms and conditions
on which the lead investor is willing to commit to further funding for the
business of the Group. According to the Proposal the lead investor would
convert its existing preferred convertible notes ("Notes") issued by
GeoSolutions Holdings N.V. ("GHNV") into the shares of GHNV, leaving the
Company as a minority shareholder in the GHNV with approximately a 21%
shareholding. The conversion of Notes would be followed by further
capitalization of GHNV in a form of rights offering ("GHNV Offering"), which
could lead into further dilution of Company`s ownership in GHNV down to a 7%
level if the Company did not participate in the GHNV Offering to its pro-rata
share, corresponding to an investment of approximately 1M€. To raise the
required funds to participate in the GHNV Offering the Company needs to arrange
a share issue ("GSOY Offering")
Under the Proposal the lead investor has also undertaken to provide the Group
with further short term financing of 0.6 M€ in a form of new Notes issued by
GHNV, which financing the Company has now raised. Pursuant to the Proposal,
this financing was directed €250k to GHNV and its subsidiaries providing this
sub-group with financing through to the end of April and €350k to the Company
giving the Company runway through Q2 2011 and time to arrange the GSOY Offering
to raise funds for participating in the GHNV Offering and guaranteeing the
sufficient liquidity of the Company in the medium term. The Company estimates
that to achieve above goal it should raise in the GSOY Offering approximately
1.8M€. In case of a successful GSOY Offering the Company would still hold a
substantial share of approximately 21% of GHNV, which holds all the GyPSii
business assets, and would retain the ability to enjoy the future upside
potential of the business. As the company has recently announced to the
markets, the GyPSii business is now starting to show some positive development
in China, especially through co-operation with Sina. The Company`s own
operations would be reduced to a minimum and its sole business would be holding
the GHNV shares.
On the other hand, if the GSOY Offering was unsuccessful and the required funds
were not raised, the lead investor has undertaken to provide GHNV sufficient
funding through the GHNV Offering, itself subscribing part of the Company`s
prorata entitlement, and offering the rest to other potential investors.
According to the Proposal, in this case, GHNV would give the Company a secured
loan, supported by the lead investor, securing the minimum capital requirements
of the Company until approximately mid 2012 and the Company would be left
holding approximately 7% of GHNV shares. Any further funding of the Company
would then be subject to support from the Company´s shareholders.
The Board of the Company has discussed the Proposal in depth with the lead
investor to secure the best possible terms for the Company´s shareholders and
other stakeholders and acknowledges that it is the only proposal for funding
that the Company has received. The Board has also assessed the proposal and
concluded that it represent a better alternative for the shareholders of the
Company compared to putting the Company into liquidation. Therefore, the Board
of Directors approved the Proposal and raised the first part of the funding,
i.e. 0.6M€ in accordance with the terms of the Proposal. The Board proposes to
the Extraordinary General Meeting which has been called for May 12, 2011 to
confirm the approval of the Proposal by the Board of Directors except as
regards to above mentioned 0.6M€ financing raised already prior to
Extraordinary General Meeting. A summary of the key terms of the Proposal is
attached to the Board´s proposal and published on Company´s website.
If the Proposal is confirmed at the EGM and the parent company loses control of
its current subsidiaries, its role will be reduced to that of a shell holding
company. In the separate stand alone parent company accounts included within
this report, the parent´s investment in subsidiaries has been written down to
reflect a 21% stake in the subsidiaries based upon the pre new financing
valuation implified by the lead investor in its Proposal.
12. IMPAIRMENT TESTING AND GOING CONCERN
Base on the likely outcome of the Proposal noted above, the Group has tested
its tangible fixed assets and goodwill based on a net realisable value
approach. The carrying value tested comprised of tangible fixed assets 82 t€
and goodwill and other intangibles of 217 t€, totalling 299 t€. The test showed
no impairment of the tested assets.
As noted above the Company has received a funding proposal from its lead
investor (see note 32) which provides for the short term funding of the Group.
The funding proposal would result in the parent company losing control of its
subsidiaries with its own operations being reduced to that of a shell holding
company. The proposal provides time and funding for the parent company to
participate in a subsequent funding round of its current subsidiaries in which
case it could retain appriximately 21% stake in the subsidiaries. If it is not
able to raise additional funds from its shareholders and participate in this
subsidiary funding round, the parent company´s stake would be reduced to
approximately 7%. In this case the funding proposal provides for an
intercompany loan to be made available from the current subsidiary company to
the parent company to fund its reduced operations through to approximately mid
2012. After that it would need to look to its shareholders for further funding.
The funding proposal has been approved by the Company´s Board and has been
referred to an EGM on May 12, 2011 for shareholder confirmation of this
approval. If the shareholders do not confirm their approval and no alternative
and acceptable funding proposal are forthcoming, it is likely that the Company
could be declared insolvent.
The management forecast used is based on the 2011 business plan, the planned
revenue models and identified revenue sources and availability of external
financing if the revenue from operations is inadequate to meet the working
capital needs. The business model and main sources of revenue are expected to
come via business subscription, advertising sales and IPR licensing.
The primary element for the business model and revenue generation is rapid
growth of the GyPSii membership base that utilizes GyPSii´s two main products
in China, "Tuding" and "Weilingdi". This growth is being achieved almost
exclusively in China by existing and developing partnerships with Mobile
Operators (MO), Original Equipment Manufacturers (OEM), Original Device
Manufacturers (ODM), Personal Navigation Device Manufacturers (PND) and leading
mobile and Internet commerce companies as well as direct marketing campaigns by
GyPSii. Growth of the GyPSii membership has grown significantly during 2010 and
has climbed to a total subscriber base of almost 3,000,000 registered users
with a substantial and growing base of recurring monetizeable users. This
membership base has begun to produce advertising revenues and the Company is
tarketing to grow these revenues during 2011 and beyond.
A second element of GyPSii´s growing revenue base began with the development of
its Open APIs (OeX) at the beginning of 2010. The Group has furthered business
development opportunities with strategic service providers to deliver OeX into
non-emerging markets. This approach allows GyPSii to reduce the risk and
overhead associated with business development efforts in non-target markets
while assessing geographies that may provide to be long-term opportunistic for
the Company. Outside of China, GyPSii is developing partnerships for use of its
LBS and SNS software platform "OEX". During 2010 a major agreement was signed
licensing OEX to a major PND provider in the United States. This agreement
provides for monthly recurring revenue based on total usage. GyPSii will
attempt to develop further partnerships for the licensing of OEX in 2011.
The third element of the GyPSii revenue strategy in 2011 was established by the
launch of its new service offering that focuses on providing for Small and
Medium Businesses (SMB) with location-based services and platforms. The "GyPSii
CRM Platform" provides SMB´s with a toolset for creating, managing and
delivering promotional incentives to their customer base at a much lower
distribution cost. The self-service platform gives business owners the ability
to create customized coupon campaigns and discount programs for consumers that
are delivered directly to their mobile devices. Using its location-based
technology the GyPSii CRM Platform can assist businesses in converting these
consumers to loyal customers by incentivizing them at the Point of Sale (POS)
with relevant discounts and rewards. Additionally, the GyPSii CRM Platform
collects, analyzes and produces detailed reports on customer interactions at
the point of sale, granting businesses a new level of insign into marketing and
promotional spending that they have never had before. The GyPSii CRM service"lingdi" was launched in China at the end of 2010. During 2011 this service
will be available for use by Small and Medium Businesses for a monthly
recurring subscription fee.
Finally, during 2010, the Company has consolidated its efforts into developing
the Chinese market. Efforts in prior years to penetrate the markets in the
United States and Europe proved too costly for the Company to sustain compared
to the operating cash available. Therefore, during 2010, the Company began
consolidating operating, development, business development and marketing
resources into China with significant staff reductions elsewhere in the world.
This has resulted in a significant reduction in monthly operating costs. At the
same time the Company began to focus its target market for its products and
services almost entirely in China. This decision has resulted in significant
increases in member acquisition and usage of the GyPSii products within China.
This membership growth led directly to the growth of page views and hence the
generation of advertising revenues. This significant growth during 2010
establishes the ability to further grow the monetization of page views with
advertising in 2011.
The most significant risk relating to the business plan is the sustained growth
of members and the availability of adequate finance to sustain the business
through to profitability. As the Company´s business model is driven by the
acquisition and retention of new members, possible delays in funds available to
the Company to drive marketing efforts of their new products to the markets and
therefore the acquisition of new members, may have an adverse effect on the
development of the Company's business by decelerating the distribution and
subscriber-adoption rate of the Company´s products and services.
BOARD PROPOSAL TO THE GENERAL MEETING FOR MEASURES REGARDING THE LOSS OF THE
PERIOD
The Company has no distributable assets.
The result of the period of the parent company is -25,210,364.67 euros (FAS).
The Board proposes to the General Meeting that no dividend is distributed and
that loss for the period is booked on the account of Retained earnings.
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