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2011-11-24 09:00:00 CET 2011-11-24 09:00:08 CET REGULATED INFORMATION GeoSentric Oyj - Interim report (Q1 and Q3)INTERIM REPORT 1-9/2011GEOSENTRIC OYJ Q3 2011 INTERIM REPORT 24.11.2011 at 10:00 INTERIM REPORT 1-9/2011 Contents 1. Summary of key figures and results 2. Operational overview 3. Material events in the period 4. Material events after the end of the period 5. Review of the financial position and the financial results 6. Sufficient liquidity 7. Future outlook 8. Assessment of significant operational risks 9. Review of R&D activities 10. Investments 11. Personnel and organization 12. Financing and structural arrangements 13. Board authorization 14. Company's shares and shareholders 15. About the Company 16. Financial Statements, Q3 2011 (not audited) IMPORTANT NOTICE: During the reporting period a number of material transactions took place, which have a material impact on the Company's future outlook and ownership structure. On August 4, 2011, as a result of the implementation of the financing package described in more detail in Section 3 “Material events in the period” below, the Company became a minority shareholder in its previously wholly owned subsidiary, GeoSolutions Holdings NV (“GHNV”). Further, as described in more detail in Section 3 “Material events in the period” below, in September 2011, GHNV concluded a joint venture agreement with a major media company in China becoming a minority 40% shareholder in its previously wholly owned Chinese subsidiary. Henceforth, the Company's sole business is the holding of its investment in GHNV. It currently has no further direct operational activities of its own. As a result of the de-consolidation of GHNV, the Company realized a one time, non cash gain of 16690 teuros in the reporting period. In connection with the above-mentioned financing package the Company has also repaid its Convertible Bond Loan 2008-B as explained more detail in Section 4” Material events after the end of the period” below. As a result of the repayment of the Convertible Bond Loan 2008-B, the Company realised in Q4 a one time gain of approximately €4.2 million, to be booked and recognized in Q4 and having similar effect on the 2011 full year financial statements. 1. Summary of key figures and results The key figures summarizing the Group's financial position and financial results from continuing operations were as follows (teuros unless indicated otherwise): In period 7-9/2011 1-9/2011 7-9/2010 1-9/2010 2010 Net sales 4 49 12 15 54 Operating Result 16076 12987 -1997 -7784 -9536 Basic earnings per share (eur) 0.02 0.01 -0.00 -0.01 -0.01 At the end of the period Total assets 656 3052 1420 Shareholders' equity -3803 -12881 -15024 Total liabilities 4459 15933 16444 2. Operational overview As described in more detail in Section 3, “Material events in the period”, during the reporting period the Company became a minority shareholder in its former subsidiary GeoSolutions Holdings N.V. (“GHNV”) with approximately a 15% holding. As further described in Section 4, “Material events after the end of the period” below, the Company concluded after a directed rights offering to its largest shareholders a €1m investment in GHNV and repaid the €10M Convertible Bond Loan 2008-B, these transactions together increasing the Company's holding in GHNV to approximately 24%. The Company has not had direct operational activities of its own since disposing of the TWIG business at the end of 2010 and all of its indirect operational activities were under GHNV and its respective subsidiaries, the Company acting as a holding company. As a result of the above-mentioned transactions the Company continues as a holding company for its shareholding in GHNV but instead of holding 100% of GHNV it holds approximately 24%. GHNV carries on its business as a developer and provider of solutions, products and technologies for location based services and LBS-enabled social networks. GHNV 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 revenue generation from services which generate advertising and subscription revenue. The total net sales from continuing operations of the Group, which during the reporting period included 100% of GHNV's operations up to the date of de-consolidation (August 4, 2011), were 49 teuros in 1-9/2011, up from 15 teuros total net sales from continuing operation in 1-9/2010. The Group disposed of its TWIG handset business at the end of the 2010 financial year so all revenues from continuing operations derive from the GyPSii business and represent revenues from IPR licensing and advertising delivered to GyPSii users. As announced in March 2011, the Company engaged, via GHNV, in a co-operation agreement in China with a major media company, Sina Corp. The agreement resulted in the launch of Sina's new Weilingdi product on March 4, 2011. Later, in June 2011, the Company announced that GHNV had signed an agreement with Sina to take the necessary next steps to create a joint venture with Sina to address the Chinese market and this joint venture was successfully created in September 2011. To support the successful and timely launch of this new product to the Chinese market and the finalisation of the joint venture arrangements, the Company focused all its available resources in this co-operation project. The consequence of this was a decline in revenue from GyPSii products. Therefore, partly as a result of this, the reported net sales in Q3 2011 of 4 teuros were below the Q2 2011 reported net sales of 16 teuros. In addition, GHNV was not consolidated into the group results for the entire period in Q3 2011. A significant (non cash) gain of 16690 teuros was booked as Other operating income in Q3 2011 (Q3 2010: 0 teuros) as a result of the de-consolidation of the GHNV sub group on August 4, 2011. This transaction is described in more detail in Section 3, “Material events in the period”. The gain arises because the Company no longer consolidates the net liabilities of the GHNV sub-group but instead carries its investment in GHNV as an Investment in Associate Company as a new line item in the Non-Current Assets section of its group balance sheet, valued at estimated fair market value. Also included within the group result before taxes in Q3 2011 is 34 teuros (Q3 2010: 0 teuros) representing the Company's estimated share of the net profit after taxes of GHNV, prepared on a consolidated basis. The net profit after taxes has been estimated by management on an IFRS basis, as GHNV prepares its group accounts on the basis of Dutch GAAP. Total operating expenses from continuing operations were significantly lower in the reporting period compared to the prior period, decreasing to 3752 teuros in 1-9/2011, from 7799 teuros in 1-9/2010, a 52% decrease. This was mainly driven by the de-consolidation of the GHNV sub-group from August 4, 2011. Also, prior to the de-consolidation there was considerable effort made to re-focus GHNV's product development, business development and marketing efforts in China. This resulted in a significant decrease in personnel and related costs in the rest of world. In addition the intangible assets/IPR that was booked on the acquisition of GeoSolutions BV in 2007, which was being written off over a three-year period, was fully written off by the end of Q1 2010. This resulted in a lower amortization charge in 1-9/2011 of 0 teuros compared to a charge of 500 teuros in 1-9/2010. As a result of the above factors, the total result before taxes from continuing operations was 10993 teuros in 1-9/2011, versus -8807 teuros in 1-9/2010, a significant improvement. 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 the financial year 2010 of 1987 teuros (1-9/2010: loss of 1778 teuros). This is comprised of an operating loss of 1743 teuros in the financial year 2010 (1-9/2010: loss of 1778 teuros) plus a net loss on disposal of the assets and liabilities of the TWIG business of 244 teuros, which was realized in Q4 2010. 3. Material events in the period The main events in the period 7-9/2011 were as follows: Decisions by the AGM At the Company's Annual General Meeting (“AGM”) on June 29, 2011 as extended to July 1, 2011, the meeting approved the 2010 audited financial statements of the Group, 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 and agreed to discharge the members of the Board and the Managing Director from liability. In addition the meeting resolved that the number of Board members shall be three and elected Michael Po, Victor Franck and Jeffrey Crevoiserat to the board, with a subsequent Board meeting later electing Victor Franck as Chairman and Michael Po as Managing Director. Further the meeting confirmed the Board's prior approval of the terms of the lead investor's financing Proposal as described below. Finally the meeting granted authorization to the Board to issue up to 5,000,000,000 new shares, option rights or special rights entitling to shares in the Company. Financing arrangements Earlier in the year (April 2011) the Board received a financing proposal from the Company's lead investor, Schroder & Co. Ltd (“Proposal”) regarding further funding for the business of the Group. The main terms of the Proposal included: 1) the conversion of the existing preferred convertible notes (“Notes”) issued by GHNV into shares of GHNV; 2) a rights offering by GeoSolutions Holding N.V. (“GHNV Offering”) to its shareholders resulting in material dilution of the Company's shareholding in GHNV, especially if the Company did not participate in the GHNV Offering to its pro-rata share, corresponding to an investment of approximately €1 million; and 3) to raise the required funds to participate in the GHNV Offering the Company planned to arrange its own share issue (“GSOY Offering”). After lengthy and detailed discussions between the parties had taken place, in August, the Company confirmed that full agreement had been reached between Schroder & Co. Ltd and a group of the Company's largest shareholders concerning the manner of execution of the Proposal described above, introducing some changes to the terms of the Proposal, and the planned support and participation of this group of largest shareholders in this planned financing. Separately, the Company called an Extraordinary General Meeting (“EGM”) of shareholders to be held on September 8, 2011 to approve certain aspects of the financing package and full details of the package were released with the EGM call on August 16, 2011. On August 3 2011, Schroder & Co. Ltd, GHNV and the Company entered into a Subscription and Shareholders Agreement (“SSA”) in respect of GHNV which, amongst other things, provided the Company with additional minority shareholder rights protection in respect of its ownership of GHNV. On August 4, 2011, the first part of the Proposal, which has already been approved at the Company's AGM on June 29, 2011 as extended to July 1, 2011, was implemented and involved Schroder & Co. Ltd converting its existing Notes plus accrued interest as issued by the Company's then wholly owned subsidiary, GHNV, into the shares of GHNV. The conversion left the Company as a minority shareholder in GHNV with approximately a 20% shareholding. The SSA provided for this conversion of Notes to be followed by further capitalizations of GHNV in the form of rights offerings (“GHNV Offerings”). As agreed in the SSA, Schroder & Co. Ltd fully subscribed for an initial 750 teuros in a first tranche of the GHNV Offering and GHNV paid to the Company a fee of 150 teuros. The SSA provides that this fee, together with a further fee of 350 teuros to be paid to the Company following the second tranche of the GHNV offering in October, would be non-refundable if the Company fully subscribed for its agreed share of the GHNV Offering amounting to an investment in GHNV of €1 million. These transactions in August 2011 secured the Company's and GHNV's cash runway until the end of September 2011. Following this first tranche of the GHNV Offering, the Company's ownership in GHNV became approximately 15%. As a result of the conversion and the fact that the Company now owns a minority percentage of GHNV, the Company has, as from August 4, 2011, been no longer consolidating its previously wholly owned subsidiaries but is applying the equity method of accounting for its investment in GHNV in its group accounts. This has the effect of reducing its reported group accounts revenues and costs in 2011. In September, the Company secured shareholder approval at the EGM for the required elements of the financing package including approval for the repayment of the €10 million Convertible Bond Loan 2008-B issued by the Company. It also confirmed that, to raise the required funds to participate in the GHNV Offerings, the Company was arranging a directed share issue (“GSOY Offering”) to its largest shareholders. The GSOY Offering was primarily intended to allow the Company to participate in the planned second tranche of the share offering of GHNV, its previously wholly owned subsidiary (now an associate company). The second tranche of the GHNV share offering, which was agreed to be executed on 14 October 2011 at the latest, was intended to raise €2 million directed equally to Schroder & Co. Ltd and to the Company, each being entitled to subscribe for new GHNV shares for the amount of €1 million. The key terms of the GSOY Offering were announced in September to be as follows: -- Target amount to be raised: €1.25 million with a minimum amount of 250 teuros -- Shares to be issued at a 96% discount to the current quoted market price of €0.01 -- Targeted initially to known individual shareholders (or consortia) owning 5,000,000 or more shares (approximately 0.54%), so that the number of subscribers shall be less than 100; below this ownership level at the discretion of the Board The Company also announced that it was planning to execute a reverse share split after the GSOY Offering in ratio of approximately ten to one to improve the marketability and liquidity of the Company's shares. Other arrangements As noted in previous bulletins and quarterly reports, the Company's then, through GHNV, wholly owned Chinese subsidiary, GyPSii (Shanghai) Co. Ltd. (“GSSH”) had, on March 18, 2011 signed a Cooperation Agreement with Sina (Beijing) Information Technology Co., Ltd., whose parent company, Sina Corp. is listed on the US NASDAQ market under the symbol (SINA). The Cooperation Agreement provided for development, marketing and distribution cooperation between the two companies for a newly launched "Weilingdi" Location Based Services (“LBS”) and Social Networking Services (“SNS”) service in China. Under this agreement, GSSH and Sina jointly developed a new “Weilingdi” service and Sina have been actively marketing it to its 100m+ "Weibo" application users. The "Weilingdi" service combines Sina's exclusive content such as entertainment, lifestyle information and VIP assets built on top of the existing "Lingdi" service launched by GSSH last year. The Cooperation Agreement was a vital step forward in progressing discussions about a deeper relationship between the two companies working towards a joint venture agreement. The Company had concluded that, in order to be able to exploit the potential of the Chinese market, it was necessary to partner with an established local partner who can bring large numbers of local users and also local marketing expertise and financing. Further to this Cooperation Agreement with Sina, the Company announced in June 2011 that GHNV had signed an agreement with Sina Hong Kong Ltd (“Sina HK”) for both companies to take the necessary next steps towards establishing a Joint Venture (“JV”) between GSSH and Sina HK. Once the necessary preconditions for completion had been fulfilled (which could take up to 90 days), including obtaining Chinese government and regulatory approval, Sina HK would invest approximately €4.5m into GSSH by way of newly created share capital thereby obtaining a 60% controlling interest in GSSH. Sina is then contributing to the JV its 100M+ "Weibo" user base, marketing resources and distribution channels to promote the new products and data center services. GSSH will then exclusively operate all of Sina's LBS and SNS services in China. It will then continue to develop and progress the initiatives outlined by the two companies in the March 18, 2011 Cooperation Agreement, specifically the delivery of the"Weilingdi" and “Tuding” products. GHNV has granted in June 2011, through its then wholly owned Dutch subsidiary, GeoSolutions BV, to GSSH an exclusive royalty free license to use the GyPSii IP within China and will enjoy joint IP ownership rights to all new or enhanced IP created by GSSH plus exclusive royalty free rights to use such IP outside of China. The JV will be one of the largest social networks of mobile consumers and merchants in China and will also be focused on providing merchants with a robust set of tools to improve customer loyalty and relationship management and consumers with financially incentive driven mobile applications. In July 2011, the Company announced that, as a result of the agreement described above with Sina to form a joint venture in China using the Company's then GHNV wholly owned Chinese subsidiary, GSSH, as the vehicle, Sina had provided advance funding to GSSH, pursuant to implementing the JV agreement, of 400 teuros. This was sufficient to finance GSSH through to the expected date of final government approval and final creation of the joint venture, which was expected to take place before the end of Q3. This cash advance indirectly extended the cash runway for the remaining group outside of China to the end of July. In September 2011, it was announced that the Company had been informed by GHNV that the necessary preconditions for completion of the JV have been fulfilled, including obtaining Chinese government and regulatory approval. As a result, Sina HK had invested approximately €4.5 million, including the advance funding received earlier in June, into GSSH by way of newly created share capital thereby obtaining a 60% controlling interest in GSSH. This investment will secure the JV's operations through 2012 and beyond. It should be noted that, as a result of the implementation of the funding package for the Company as outlined above, the Company now owns a minority percentage of GHNV, the parent company of GSSH, which in turn owns 40% of GSSH. It is expected that GHNV will not be consolidating the results of the JV in its group accounts but will apply the equity method of accounting to its 40% investment. Current projections indicate that the JV will not be profitable in its initial user acquisition phase and it may be several years before there may be dividends flowing from the JV to GHNV and further from GHNV to the Company. 4. Material events after the end of the period On October 12, 2011, it was announced that the Company had raised a total amount of 757 teuros in a first tranche of the GSOY Offering by issuing a total amount of 1,893,750,000 new shares at €0.0004 per share. In addition the Company received a short-term convertible loan for the amount of 250 teuros (“Loan”) from one of its largest shareholders. The Loan may, at the option of the noteholder before October 31, 2011, be repaid or converted into shares or special subscription rights on the same terms as the GSOY Offering providing that, at all times, the total amount raised in the GSOY Offering shall remain at least €1 million. The aforementioned funds raised in the first tranche of the GSOY Offering, including the Loan, enabled the Company to subscribe, on 14 October 2011, for all the new GHNV shares offered to it in the second tranche of the GHNV Offering for the amount of €1 million. On October 24, 2011, it was announced that the Company had resolved to issue a further 643,750,000 new shares at €0.0004 per share in a second tranche of the GSOY Offering thereby raising 257.5 teuros and making the total amount raised in the GSOY Offering 1,015 teuros. This amount includes 22.75 teuros as Loan conversion. The remaining part of the Loan of 227.25 teuros was retained as a short-term loan on the same terms as described above except that its end date was extended until November 30, 2011. On November 18, 2011, at the election of the noteholder, the Loan was repaid in full. On November 10, 2011, the Company announced that it had resolved to issue a further 28,090,000 new shares to participants at €0.0004 per share in a third and final tranche of the GSOY Offering thereby raising 11.24 teuros and making the total amount raised in the GSOY Offering 1,026 teuros. The total 2,565,590,000 new shares issued in the GSOY Offering outlined above represent 73.5% of the Company's outstanding shares and votes and approximately 52% of the fully diluted shares and votes. As referred to above, the Company has participated fully in the second and final tranche of the GHNV share offering as agreed in the SSA by investing €1 million in GHNV. In addition, as agreed in the SSA and approved at the EGM, it has, on November 4, 2011 fully repaid the Convertible Bond Loan 2008-B by transferring to Schroder & Co. Ltd the agreed number of GHNV shares. After subscribing all the shares offered to it in the second tranche of the GHNV share offering and repaying the Convertible Bond Loan 2008-B, the Company's shareholding in GHNV has increased to approximately 24%. As agreed in the SSA, GHNV may issue an option pool to its Board and management of up to 15% of its issued share capital. This may decrease the Company's ownership of GHNV down to approximately 21%. Further, as agreed in the SSA, the Minority Rights Agreement and other security agreements in favour of Schroder & Co. Ltd have, on October 28, 2011, been terminated. As a result of the repayment of the Convertible Bond Loan 2008-B, the Company realised in Q4 a one time gain of approximately €4.2 million. The Company had intended to call an Extraordinary General Meeting (“EGM”) as soon as the new shares issued in the GSOY Offering had been registered in the Trade Register to decide on a proposed reverse stock split in the ratio of approximately ten to one to improve the marketability and liquidity of the Company's shares. It has appeared, that due to technical reasons not attributable to the Company, the planned reverse stock split cannot be affected until the new shares issued in the GSOY Offering have been listed following the publication of a Prospectus. This process can take several months and accordingly the Company must wait until this has been completed before implementing the planned reverse stock split. 5. Review of the financial position and the financial results The Company has during the period retained solidity and liquidity. The key figures summarizing the Group's financial position and financial results from continuing operations were as follows (teuros unless indicated otherwise): In period 7-9/2011 1-9/2011 7-9/2010 1-9/2010 2010 Net sales 4 49 12 15 54 Operating Result 16076 12987 -1997 -7784 -9536 Basic earnings per share (eur) 0.02 0.01 -0.00 -0.01 -0.01 At the end of the period Total assets 656 3052 1420 Shareholders' equity -3803 -12881 -15024 Total liabilities 4459 15933 16444 Cash 70 1862 892 6. Sufficient liquidity The Company has, during the reporting period, retained sufficient liquidity. As noted above, after the end of the reporting period, the Company secured incoming new equity investment totalling 1,026 teuros in the GSOY Offering. This amount was 224 teuros short of the Company's targeted amount to be raised in the GSOY Offering of €1.25 million. In October, as agreed in the SSA (Subscription and Shareholders Agreement in respect of GHNV, as explained above), the Company invested €1 million in GHNV shares as part of the second tranche of the GHNV Offering. As a result and as agreed in the SSA, the Company received a non refundable fee from GHNV in October of 350 teuros and secured confirmation that the 150 teuros fee received from GHNV in August following the first tranche of the GHNV Offering was also non-refundable. As a result of the above transactions and in particular the fact that the amount raised in the GSOY Offering was short of the targeted amount, the Company is continuing to explore all options available to it to ensure that it has sufficient liquidity. This may include another directed rights offering, further cost cutting measures where possible, asset sales and other possible sources of external finance. The Company's current cash resources are sufficient to finance the business into Q1 2012. Any alternative funding options should therefore be completed by the end of Q1 2012. 7. Future Outlook Market Outlook Due to the signing of the Sina Joint Venture and refocus of the GHNV development, sales and marketing activities into China, the future business outlook of the Company's associate company, GHNV, is almost completely focused on the China market. In partnership with Sina, China's third largest internet company, the immediate focus is to leverage the 150M+ Sina user base to spread the use of the GyPSii platform and applications to as many mobile phone users as possible over the next few years. The JV will combine the IP of GeoSolutions B.V., a 100% owned subsidiary of GHNV, with Sina's large user base, marketing and sales activities to develop the China market for the Tuding and Weilingdi products. Seeding this market should give rise to opportunities in 2013 and beyond for income to the JV based on advertising, IP licensing and small to medium business subscriptions. The China market for mobile technology is experiencing extremely rapid growth compared to the rest of the world. This is expected to continue alongside China's economic expansion well into the decade. This strong growth of mobile technology is a natural pull for the Sina and GyPSii products. Outside of China GHNV is exploring opportunities to leverage its IP and products in other developing countries. This involves creating other potential partnerships with a business model similar to the JV with Sina. Financial and Business Development Outlook Following the conversion of the Notes into the shares of GHNV by Schroder & Co. Ltd, as described in Section 3 above, the Company's currently remaining business comprises solely its minority holding in GHNV. This in turn currently is focussed mainly on its holding in its wholly owned Chinese subsidiary, GSSH. And this in turn, as described above, has now become a JV with Sina addressing the Chinese market. As further stated above, the current projections indicate that the JV will not be profitable in its initial phase and it may be several years before there may be dividends flowing from the JV to the Company via GHNV. Unless the Company decides to start some new operational activities of its own, it is likely that the Company will not generate any income of its own and will not recognise dividend income from the JV until the JV turns profitable or becomes liquid through merger or acquisition and starts to distribute profits. Therefore, despite minimized operational costs, the Company is likely to make losses through this period. The Company may also sell part or all of its holding in GHNV in the future, which may generate an accounting and distributable profit. During 2010 and 2011, the Group 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 and continuing into 2011, the Company had been consolidating operating, development, business development and marketing resources into China with significant staff reductions elsewhere in the world. As a result of the business consolidation, the main focus of business development and the primary element for the business model and revenue generation in China is rapid growth of the GyPSii membership base, in partnership with Sina that utilizes GyPSii's two main products in China, “Tuding” and “Weilingdi”. This growth is being achieved exclusively in China primarily through its Joint Venture with Sina and secondarily through 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. GyPSii membership has grown significantly during 2010 and 2011 and has climbed to a total subscriber base of almost 4,500,000 registered users with a substantial and growing base of active recurring users. A second element of GyPSii's strategy began with the development of its Open APIs (OeX) at the beginning of 2010. This approach allows GyPSii to reduce the risk and overhead associated with business development efforts and at the same time tap into the rapidly expanding base of mobile applications that have need for GyPSii functionality. In partnership with Sina, GSSH is developing an Application Programming Interface (API) set for release in the Chinese market in Q4 this year. This should give rapid rise to the GyPSii user base. Outside of China, GyPSii is exploring partnerships for use of its LBS and SNS software platform “OEX”. During 2010 an 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 through the remainder of 2011 and into 2012. 8. Assessment of significant operational risks As a result of the financial arrangements described in Section 3 and 4 above, the Company became a minority shareholder in GHNV with its currently approximately 24% holding. As a minority shareholder of GHNV the Company does not have the control over the activities of GHNV and is dependent on the actions of the other shareholders of GHNV. The Company's future value and cash flow is highly dependent on the success of GSSH's business and JV in China. There is no certainty that these efforts will succeed. The global financial crisis and current global recession have had and may continue to have a negative impact also on the GyPSii business although the business is now almost exclusively focussed on China which continues to enjoy strong economic growth. There is no certainty of the success regarding the implementation and realisation of the GHNV business plan. According to the business strategy, GHNV 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 GHNV is able to successfully respond to these developments it may significantly impair its operating results. A key driver of the GHNV 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 there is no certainty. Since 1997, the Company has not paid dividends and, in the future, there may be restrictions on the ability to distribute dividends. 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 total amount of loans as at 30 September 2011 was 10,113 teuros at nominal value. Since the period end, the Company has repaid the €10 million 2008 CBL 2008-B and plans to convert with shares the remaining portion of the CBL 2004A loan. This would then leave the Company debt free. The Company´s business plan has been prepared by assuming that the Company can derive long term value from its holding in GHNV but this potential value creation is uncertain. The Company's financing plan assumes that additional external financing will be required by the end of Q1 2012, in addition to which the Company may need further external funding to secure sufficient liquidity in the long term and also to enable possible further investments in GHNV. Should the new financing be delayed or prove to be unavailable, this could cause an insolvency risk and/or further dilution of Company's holding in GHNV. The Company's going forward budget and cash sufficiency estimates have been prepared assuming further decreased cost levels. Should the actual cost levels be higher, the Company would need to raise additional external capital and the availability of this additional capital is uncertain. 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. Schroders & Co Limited and investor groups led by Horizon Group, have influence on GeoSentric. 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. 9. Review of R&D-activities Prior to the de-consolidation of GHNV, the volume of the Group's R&D activities during the reporting period was significant due to the on-going R&D-programs in China. No capitalizations were made. Prior to the de-consolidation of GHNV, the Group's main R&D unit was in Shanghai (China). Additionally, GyPSii server facilities were maintained in the US and China. After the de-consolidation of GHNV, no further R & D activity has been undertaken by the Company. 10. Investments Gross investments in period 1-9/2011 were 43 teuros (30 teuros in the period 1-9/2010). In the full year 2010 gross investments were 40 teuros. 11. Personnel and organization The number of employed personnel in the Group in period 1-9/2011 averaged 58, of which 10, at most, were affected by alternate forced leaves. 12. Financing and structural arrangements The financing arrangements and latest developments have been described above in section ”Material events after the end of the period”. 13. Board authorization The Annual General Meeting convened on June 29, 2011 as extended to July 1, 2011 authorized the Board to increase the share capital by maximum of 5,000,000 euros and share amount by maximum of 5,000,000,000 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, as granted by the extended meeting on July 1, 2011, was 5,000,000 euros and 5,000,000,000 shares corresponding to 541.0 % of the currently registered share amount and 68.0 % shares after all shares and instruments entitled to shares, effecting a corresponding immediate dilution to existing shareholdings (including current authorization). 14. Company's 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 does not have any Company´s shares owned by or administered on behalf of the Company. At the end of the reporting period the Company's registered share capital was 8,955,761.65 Euros, consisting of 924,656,354 shares. 15. About the Company GeoSentric is an investor in a business GeoSolutions Holdings N.V., a former subsidiary of GeoSentric, and a Dutch company which together with its subsidiaries and affiliates is a developer of location-based technologies, delivering products and services with a market-leading mobile digital lifestyle application and geo-mobility social networking platform: connecting people, places and communities across networks and devices. GyPSii provides a geo-location social networking platform and services for mobile and web Internet-connected devices, and provides applications and bundled ODM/OEM solutions, built on the convergence of location based services, social networking, search, mobile & Web 2.0 technologies. For more information, visit www.geosentric.com or www.gypsii.com or www.gypsii.com.cn. © 2011 GeoSentric Oyj. All rights reserved. The Company is based in Salo, Finland. GeoSentric (NASDAQ OMX Helsinki-GEO1V) is listed on the NASDAQ OMX Exchange in Helsinki. The Company has been on the surveillance list since February 2003. GEOSENTRIC OYJ For more information, please contact: investors@gypsii.com Distribution: NASDAQ OMX Helsinki Principal news media GEOSENTRIC OYJ INTERIM REPORT 3Q/2011 (Unaudited) GROUP STATEMENT OF COMPREHENSIVE INCOME 1000 EUR Note 3Q/201 1-3Q/20 3Q/201 1-3Q/20 2010 1 11 0 10 Continuing operations Net sales 4 49 12 15 54 Cost of goods sold 6 0 0 0 0 0 Gross margin 4 49 12 15 54 Other operating income 5 16690 16690 0 0 0 General & Administrative 6 416 1729 587 2009 2673 expenses Research & Development 6 137 1216 853 3999 4671 expenses Sales & Marketing expenses 6 65 807 569 1791 2246 Operating result 16076 12987 -1997 -7784 -9536 Financial income 0 1 56 77 78 Financial expenses -373 -2029 -531 -1100 -1783 Share of Associate Company 7 34 34 0 0 0 result Result before taxes 15737 10993 -2472 -8807 -11241 Income taxes 0 129 -98 -116 -146 Result for the period from 15737 11122 -2570 -8923 -11387 continuing operations Discontinued operations Result for the period from 4 0 0 -773 -1778 -1987 discontinued operations Result for the period 15737 11122 -3343 -10701 -13374 Translation difference -39 -36 -154 -155 -13 Comprehensive income 15698 11086 -3497 -10856 -13387 Earnings per share, eur: Basic earnings per share, 0,02 0,01 -0,00 -0,01 -0,01 continuing operations Basic earnings per share, -0,00 -0,00 -0,00 -0,00 -0,00 discontinued 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 30.9.2011 30.9.2010 31.12.2010 ASSETS Non-current assets Property, plant and equipment 2 135 82 Goodwill 0 216 216 Other intangible assets 0 4 1 Investment in Associate Company 7 497 0 0 Other financial assets 0 66 5 Deferred tax assets 0 0 0 499 421 304 Current assets Inventories 0 309 0 Trade receivables and other receivables 87 450 224 Prepaid expenses 0 10 0 Cash and cash equivalents 70 1862 892 157 2631 1116 Total assets 656 3052 1420 EQUITY AND LIABILITIES Shareholders´equity Share capital 8 8956 8951 8956 Share premium account 8 13631 13631 13631 Translation difference 0 -20 122 Invested distributable equity account 8 28030 30603 30912 Retained earnings -54420 -66046 -68645 Total shareholders´ equity -3803 -12881 -15024 Non-current liabilities Deferred tax liabilities 0 0 0 Interest-bearing debt 10 1783 12132 13112 1783 12132 13112 Current liabilities Trade payables and other payables 2563 3651 3219 Provisions 0 37 0 Interest bearing debt 10 113 113 113 2676 3801 3332 Total liabilities 4459 15933 16444 Total shareholders´ equity and 656 3052 1420 liabilities GROUP CASH FLOW STATEMENT 1000 EUR 1-3Q/2011 1-3Q/2010 2010 Cash flow from operations Result for the period 11122 -10701 -13374 Adjustments -14502 969 1505 Changes in working capital: Change of trade and other receivables 137 246 482 Change of inventories 0 452 761 Change of trade and other liabilities -656 1017 548 Paid interests 0 -630 -630 Received interest payments 1 17 18 Cash flow from operations, net -3898 -8630 -10690 Cash flow from investments, net -43 -30 46 Cash flow from financing Proceeds from issue of share capital 0 0 67 Transaction expenses of share issues 0 0 -3 Transaction expenses of loans -31 -417 -467 Proceeds from long term borrowings, equity 0 0 0 Proceeds from long term borrowings, liability 3150 5000 6000 Net cash flow from financing 3119 4583 5597 Change in cash -822 -4077 -5047 Cash at beginning of period 892 5939 5939 Cash at end of period 70 1862 892 GROUP STATEMENT OF CHANGES IN SHAREHOLDERS´ EQUITY Share Translatio Share Inv. Accrued Total capital n premium distrib. result (1000e (1000eu difference account equity (1000eur ur) r) (1000eur) (1000eur) account ) (1000eur) Shareholders´ 8951 135 13631 30603 -55556 -2236 equity 31.12.2009 Items booked 0 -155 0 0 0 -155 directly into shareholders´ equity Result for the 0 0 0 0 -10701 -10701 period Comprehensive 0 -155 0 0 -10701 -10856 income Booked expense of 0 0 0 0 211 211 stock options to key personnel and partners Equity portions 0 0 0 0 0 0 of liabilities Shareholders´ 8951 -20 13631 30603 -66046 -12881 equity 30.9.2010 Shareholders´ 8956 122 13631 30912 -68645 -15024 equity 31.12.2010 Items booked 0 -122 0 0 86 -36 directly into shareholders´ equity Result for the 0 0 0 0 11122 11122 period Comprehensive 0 -122 0 0 11208 11086 income Booked expense of 0 0 0 0 135 135 stock options to key personnel and partners Equity portions 0 0 0 -2882 2882 0 of liabilities Shareholders´ 8956 0 13631 28030 -54420 -3803 equity 30.9.2011 KEY FIGURES, ALL OPERATIONS 3Q/201 1-3Q/20 3Q/201 1-3Q/20 2010 1 11 0 10 Net sales, 1000 EUR 4 49 384 1438 1851 Operating result, 1000 EUR 16076 12987 -2770 -9562 -11523 Result before taxes, 1000 EUR 15737 10993 -3245 -10585 -13228 Gross investments, 1000 EUR 0 43 5 30 40 Average personnel 29 58 114 125 116 Earnings per share, EUR 0,02 0,01 -0,00 -0,01 -0,01 Equity per share, EUR -0,00 -0,00 -0,01 -0,01 -0,02 Weighted average number of shares in 924656 924592 897926 897926 903645 period, 1000 pcs Number of shares at the end of the 924656 924656 897926 897926 922156 period, 1000 pcs 1. BASE INFORMATION OF THE COMPANY Prior to August 4, 2011, GeoSentric wholly owned its subsidiary, GeoSolutions Holdings NV ("GHNV"). On August 4, 2011, its holding in GHNV became a minority holding and GeoSentric´s sole business then became holding its minority investment in GHNV. GHNV 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"). It 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. GeoSentric is based in Salo, Finland. 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. 2. ACCOUNTING PRINCIPLES FOR THE FINANCIAL STATEMENTS Foundation: The group interim report has been prepared in accordance with International Financial Reporting Standards ("IFRS") and has been prepared to the accounting standard IAS 34, Interim Reports. An interim report shall be read together with the financial statements for year 2010. Accounting principles: The utilised principles of preparation are identical with those utilised by the Group in financial statements for year 2010. IASB has published new standards and interpretations and changes in existing standards, application of which is mandatory on 1.1.2011 or thereafter, and which the group has not adopted earlier voluntarily. The group will adopt the following standards (and their amendments) and interpretations from 1.1.2011 onwards: Change to IAS 32, Financial instruments: presentation method - Classification of Rights Issues. Change concerns booking of options, subscription rights or other rights regarding shares made in other currency than issuer´s functional currency. IFRIC 19, Liquidation of financial debt with equity terms instruments. Interpretation make clearer booking in case that issues to creditor equity terms instruments to liquidate financial debt. Changes to interpretation IFRIC 14, Payments in advance based minimum funding demand. The group has not this kind of payments. Reformed IAS 24, Information regarding related party in financial statements. The group is specifying definition of related party. IFRS 9, Financial instruments (in force 1.1.2013 or in beginning account period after it). Valuation methods simplifies and classification changes. Numbers from previous period need not correct if standard takes to use before 1.1.2012 beginning account period. Standard is not yet accepted to apply in EU. Improvements to IFRS's -changes. Small changes without material effect to financial statement. 3. SEGMENT INFORMATION The group has only one distinct segment, location based services. Its share of net sales has been 100% in the period and in the reference period. 4. DISCONTINUED OPERATIONS The group divested on December 31 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 3Q/201 1-3Q/201 3Q/201 1-3Q/201 2010 1 1 0 0 Result of TWIG mobile handset business Net sales 0 0 372 1423 1797 Cost of goods sold 0 0 -311 -1594 -1823 Other operating income 0 0 0 1 4 General & Administrative expenses 0 0 -530 -571 -425 Research & Development expenses 0 0 -79 -307 -366 Sales & Marketing expenses 0 0 -225 -730 -930 Income taxes of discontinued 0 0 0 0 0 operations Profit before/after taxes 0 0 -773 -1778 -1743 Result of divesting before/after -244 taxes Income taxes of divesting 0 Result for the period from -1987 discontinued operations General & Administrative expenses Cash flow of Twig mobile handset business Cash flow from operations -1031 Cash flow from investments 45 Effect of TWIG mobile handset business divesting to financial position of group 31.12.2010 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. OTHER OPERATING INCOME The parent company´s interest in GeoSolutions Holdings N.V. reduced from 100% to 15% in August 2011,when it became an associate company. It caused one time income of 16690 teuros to the Company. 6. COSTS BY CATEGORY 1000 EUR 3Q/201 1-3Q/20 3Q/201 1-3Q/20 2010 1 11 0 10 Increase/decrease in inventories of 0 0 59 339 375 finished products Impairment loss in inventories 0 0 0 455 455 Use of raw materials and consumables 0 0 133 427 571 Total expense of direct employees 0 0 119 373 422 Cost of goods sold total 0 0 311 1594 1823 Discontinued operations 0 0 -311 -1594 -1823 Total expense of indirect employees 320 2304 1621 5679 6993 Redundancy provision 0 0 509 509 509 Depreciations 8 66 53 641 682 Other operating expenses 290 1382 660 2578 3371 Expenses by cost category, total 618 3752 2843 9407 11555 Discontinued operations 0 0 -834 -1608 -1965 Continuing operations 618 3752 2009 7799 9590 7. INVESTMENT IN ASSOCIATE COMPANY (1000 eur) Value of investment at beginning of August 2011 463 Share of result, August-September 2011 34 Value of investment at end of period 497 Domicile of GeoSolutions Holdings N.V. is Holland. GeoSentric´s interest was 15% at end of period. Assets at end of period 4199 Liabilities at end of period 321 Net sales, August-September 2011 8 Result, August-September 2011 225 8. SHAREHOLDERS´ EQUITY Number of Share Share premium Invested Total shares capital account distributed. (1000eu (1000) (1000eur) (1000eur) equity acc r) (1000eur) 31.12.2010 922156 8956 13631 30912 53499 Share issue 2500 0 free 7.1.2011 Equity -2882 -2882 portions of liabilities 30.9.2011 924656 8956 13631 28030 50617 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. 9. OPTION RIGHTS Option programs 2007-2 and 2007-3: Share subscription period has expired, shares has not subscribed. 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 1-3Q/2011 1-3Q/2010 2010 Key persons 135 85 160 Board 0 74 74 Other interest groups 0 52 52 --------------------------- --------------------------- Total 135 211 286 10. FINANCIAL LIABILITIES 1000 EUR Nominal loan value 3Q/2011 3Q/2011 3Q/2010 2010 Non-current: Loan 2008 10000 1783 2573 2392 Loan 2009 0 0 4747 4853 Loan 2010 0 0 4812 5867 Loan 2011 0 0 0 0 ------------------------ ------------------------ Non-current total 1783 12132 13112 Current: Cbl 2004A 113 113 113 113 Loan 2008 0 0 0 ------------------------ ------------------------ Current total 113 113 113 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. 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. It has been agreed that interest payments are suspended and all interest will accrue and roll up until maturity. Financing round 2009: This loan note with a nominal principal of 7,500 teuros was raised on year 2009. The loan note was raised by the subsidiary GeoSolutions Holdings N.V. (GHNV"). The loan note entitled to subscribe shares of GHNV or alternatively the inventors had the option to convert their notes into GeoSentric´s shares. The note expired in five years. The note accrued interest at the rate of 5% p.a. Which deferred until redemption of conversion. The note secured by a pledge over the the share capital of GeoSentric and GHNV and over other assets of the group.The note with accrued interest converted to GHNV´s shares in the beginning of August. Financing round 2010: The 2010 loan note had the same terms as the 2009 note except that the note accrued interest at the rate of 12% p.a.. This loan note with a nominal principal of 6,000 teuros was raised on year 2010.The note with accrued interest converted to GHNV´s shares in the beginning of August. Financing round 2011: The 2011 loan note had the same terms as the 2009 note except that the note accrued interest at the rate of 12% p.a. This loan note with a nominal principal of 3,150 teuros was raised on year 2011, of which was drawn 1,800 teuros in January 2011, 600 teuros in April 2011 and 750 teuros in June 2011. The note with accrued interest converted to GHNV´s shares in the beginning of August. 11. COLLATERAL COMMITMENTS AND CONTINGENCIES 1000 EUR 3Q/2011 3Q/2010 2010 Collateral for own liabilities: Pledged non-current financial assets 0 5 5 Pledged current financial assets 0 58 0 12. RELATED PARTY TRANSACTIONS The parent and subsidiary company relations in the group were to beginning of August 2011 as follows: Parent company GeoSentric Oyj. Subsidiaries with parent company ownership and voting rights of 100 % were GeoSolutions Holdings N.V., and its through (100%) subsidiaries GeoSolutions B.V., GyPSii (Shanghai) Co Ltd. and GyPSii Inc. GeoSentric (UK) Ltd was sold in June 2011. In August 2011 the parent company´s interest in GHNV was reduced to a minority holding of approximately 15%. Related party transactions have been presented in the Financial Statements from year 2010. Annual General Meeting on June 29, 2011 and extended meeting on July 1, 2011 elected the following persons to the Board: Michael Po, Jeffrey Crevoiserat and Victor Franck. The Board elected Victor Franck as Chairman. Michael Po was elected as the Managing Director of GeoSentric on July 8, 2011. 13. EVENTS AFTER THE END OF THE PERIOD On November 10, 2011, the Company announced that it had raised 1026 teuros in a directed rights offering to its largest shareholders by issuing 2,565,590,000 new shares at €0.0004 per share. In addition, in October 2011, the Company received €227 teuros as a short term loan from one of its largest shareholders. This loan may, by the end of November 2011 at the election of the noteholder, be either converted into Company shares or a convertible note by issuing special subscription rights on the same terms as the directed rights offering or may be repaid. On October 14, 2011, the Company participated in the second tranche of the share offering of GeoSolutions Holdings NV (“GHNV”), its previously wholly owned subsidiary (now an associate company). The second tranche of the GHNV share offering raised €2m from Schroder & Co. Ltd and the Company each subscribing for new GHNV shares for the amount of €1 million. On November 4, 2011, the Company repaid the Convertible Bond Loan 2008-B by transferring to Schroder & Co. Ltd an agreed number of GHNV shares. After subscribing all the shares offered to it in the second tranche of the GHNV share offering and repaying the Convertible Bond Loan 2008-B, the Company's shareholding in GHNV has increased to approximately 24%. As a result of the repayment of the Convertible Bond Loan 2008-B, the Company realised in Q4 a one time gain of approximately €4.2 million. |
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