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Nektan PLC (NKTN)

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Thursday 27 December, 2018

Nektan PLC

Final Results

RNS Number : 4814L
Nektan PLC
27 December 2018
 

27 December 2018

NEKTAN PLC

("Nektan", the "Company" or the "Group")

Final results for the year ended 30 June 2018

 

Nektan plc (AIM: NKTN), a leading international gaming solutions and services provider, announces its audited final results for the year ended 30 June 2018, and announces separately today that it has received in principle support to raise £3.5m in cash through the sale of 57.5% of its US subsidiary Respin for £2.0m and to raise £1.5m through an equity placing and subscriptions for new ordinary shares at a price of 15p per share (the "Placing Price").

This announcement has been published on the Company's website www.nektan.com.

 

Nektan PLC (the "Company" or the "Group") - Financial highlights

 

Year ended 30 June 2018

Year ended 30 June 2017

Total revenue (£000)

20,069

13,250

Adjusted EBITDA loss* (£000)

(2,355)

(3,419)

Operating loss (£000)

(5,475)

(4,624)

Loss before taxation (£000)

(7,182)

(6,219)

Basic and diluted loss per share (pence)

(16.6)

(21.8)

Financial, operational and strategic highlights

·      Revenue growth of 52% to £20.1m (2017: £13.3m)

·      All KPIs showed a marked improvement during the year:

Net Gaming Revenue (NGR) up by 48% to £19.4m (2017: £13.1m)

New First Time Depositing Players (FTDs) up by 20% to 156,703 (2017: 130,105)

Total cash wagering up by 43% to £560m (2017: £390m)

·      Adjusted EBITDA loss* reduced to £2.4m (2017: £3.4m), and an operating loss for the year of £5.5m (2017: £4.6m).  These numbers include 12 months of the Group's US division compared to 6 months in the prior year.  Excluding the US, adjusted EBITDA loss* reduced to £1.4m (2017: £2.7m) which saw an operating loss of £0.5m in H2 versus £0.9m in H1

·      Significant product improvements, including further multi-language and currency functionality, helping to increase the number of new casino partners and new geographies

·      Major enhancements to games portfolio from some of the leading global studios taking the total number of games to over 750, helping to strengthen Nektan's attraction to B2C and B2B partners

·      In December 2017, the Company announced that it had raised £1,759,535 through a placing of 5,095,243 new ordinary shares and subscriptions for 3,283,495 new ordinary shares both at a price of 21p per share

·      In July 2017, the Company secured commitments to raise £2,500,000 through an unsecured loan facility, with two of its Directors, Gary Shaw and Sandeep Reddy, of which £1,985,000 was drawn down with the balance having now expired

·      The Company has entered into negotiations with HMRC in order to agree a payment schedule for £2.9m of owed UK point of consumption tax 

B2C

·      Launched 38 new casinos on its network taking the total at year end to 113 casinos from 55 partners

B2B

·      Evolve Lite, Nektan's B2B content aggregation platform, went live in November 2017, opening up new more profitable revenue streams

·      Signed first global platform deal for Evolve Lite with Malta based gaming company, Tyche Digital Malta Limited ("Tyche")

Post year-end highlights

·      Lucy Buckley joined as Chief Executive Officer on 3 December 2018

·      BetVictor went live with Nektan's B2B global casino aggregation platform which sees BetVictor take the Evolve Lite casino platform's content and distribute it across three of its casino brands

·      On 27 December 2018, the Company announced that it had received in principle support to raise £3.5m in cash through the sale of 57.5% of its US subsidiary Respin for £2.0m and to raise £1.5m through an equity placing and subscriptions for new ordinary shares at a price of 15p per share (the "Placing Price")

·      In addition, the Company has reached agreement with holders of approximately £4.3m of the outstanding balance of the £8.1m Series A convertible loan notes and loan noteholders who own £1.2m of the outstanding convertible loan note interest to convert into new ordinary shares at the Placing Price resulting in the issue of, in aggregate, approximately 36.6m new ordinary shares

·      Following the conversions, reduction of the coupon on the Series A convertible loan notes to 2.5%

·      Furthermore, Gary Shaw, Executive Director of the Company, has agreed to convert £650k of his shareholder loan and the accrued interest on the full loan of £148k at the Placing Price resulting in the issue of 5,321,680 new ordinary shares

*The Group defines adjusted EBITDA as the operating result before depreciation, amortisation, income or expenditure relating to exceptional items and non-cash charges relating to share based payments and impairments.  Exceptional items are considered to be one-off, non-trading items. 

 

For further information on the Group, please contact:

Nektan

Lucy Buckley, Chief Executive Officer

Patrick Sinclair, Chief Financial Officer

+44 20 3463 8735

 

 

 

Stockdale Securities Limited (Nominated Advisor and Joint Broker)

Tom Griffiths / Ed Thomas

+44 20 7601 6100

 

 

Smaller Company Capital Limited (Joint Broker)

Rupert Williams / Jeremy Woodgate

+44 20 3651 2911

 

 

Nominis Advisory (PR Adviser)

Angus Campbell

+44 7 881 625 098

Email: [email protected]

 

 

 

Further information on Nektan can be found on the Group's website at www.nektan.com.

 

About Nektan:

Nektan is an international B2B and white label gaming software and services provider, operating in the regulated, interactive real money gaming (RMG) space, delivering original and innovative solutions to commercial organisations that have established online audiences.

 

Nektan's full end-to-end technology platform, Evolve, simplifies and supports the route to mobile and desktop gaming revenues, managing the full customer experience and back-office operations, allowing commercial partners to focus on marketing the product to their consumers.

 

Nektan's US operating subsidiary, provides US land-based casinos with in-venue mobile gaming solutions which allow operators to add mobile technology and content to their existing offerings, with products accessible to players across both cabinets and mobile devices inside the casinos. Respin has a strong intellectual property portfolio including game patents for Rapid Games™ (on-property mobile entertainment), and other captivating concepts and brands.

 

Nektan is headquartered in Gibraltar, regulated by the Gibraltar Licensing Authority and the UK Gambling Commission, as well as in the Irish market and maintains sales and customer support operations in Europe and North America.  The proprietary Evolve technology is developed and maintained by a talented and experienced team of employees from Nektan's Indian office. 

 

Nektan plc was admitted to the AIM market of the London Stock Exchange in November 2014.

 

 

Gary Shaw, Founder and Executive Director's Review

I am delighted to present Nektan's results for the year ended 30 June 2018, for what was a transformational year for the business that saw substantial operational enhancements which have led to a significant increase in commercial opportunities for the Group. During the year, Nektan continued to develop its mobile casino product offering, expanded into new geographic markets, launched new product offerings and grew significantly in each quarter achieving growth at 8.6% quarter on quarter on average with an annual NGR growth figure at 48.1%.

We believe that our proprietary technology is unique in the market place and we are now attracting major global partners who wish to use the feature rich gaming content we have worked so hard to populate our platforms with. By working closely with the best developers of casino games, we can provide our partners with engaging, socially responsible and compliant content. The growth we have seen during this financial year reflects the progress we have made in adding more content and providing this to a growing list of partners. This is a growth trajectory that we continue to see not just domestically, but globally in emerging markets such as Asia.

Our core B2C white label casino business is expanding across Europe and we continue to see additional market opportunities developing.  During the year, the number of Nektan managed sites increased from 75 to 113 and we are now operating 152 casinos for 66 partners with first time depositors increasing from 130,105 to 156,703.  Our commitment to supplying the best casino content and experience to players saw us integrate further game providers, launch new products including NetEnt's live dealer offering, and add new payment methods including PayPal. The Evolve platform now has over 750 games from 27 game providers.  In addition to ramping up our CPD accredited multi-jurisdictional compliance and regulatory training content, we have added new payment methods including Paypal during the year, created a new CRM and affiliates function and, as a result, all player and acquisition marketing is now managed in-house.

Product innovation has been a key driver of B2C revenue, particularly our newly developed business intelligence tools, which have significantly improved our data insight and operational capabilities from acquisition and player loyalty to game positioning. This data is also being used to track player trends for new product development and for player protection. Nektan takes its responsibility of preventing problem gambling very seriously and we were one of the first online casino technology providers to fully integrate with GamStop. The integration ensures that the Evolve platform detects all players who have signed up to GamStop and prevents them from registering and playing on Nektan managed sites, reflecting the emphasis on duty of player care.

Our emerging B2B software supply and content distribution division is now supporting sites across a number of countries in 16 languages.  Due to Nektan's speed of integration, it is now attracting global operators, such as BetVictor, and there are further contracts with top tier operators on track to be launched in the coming months.  Our proven capabilities in B2C white label casino allows us to leverage our technology and business intelligence expertise into the B2B industry to drive increased revenues for our partners.  Our bonus tools, in particular, allow operators to offer marketing campaigns across all partner games and are driving improved player loyalty.  

In addition to B2B software supply and content distribution, Nektan is working with global independent game studios to provide technology, expertise and distribution for small and medium developers.  A number of these studios are exclusive to Nektan, thereby increasing our unique competitive position in the market of providing the best gaming content in the industry.

In the US, we have developed and certified a mobile casino gaming solution that allows players to download an app and play Class II and Class III games for real money anywhere in the property.  It is due to go live with a number of casino partners in the first few months of 2019.  In US states that have or are in the process of legalising iGaming, such as New Jersey and Pennsylvania, the Nektan platform and games can be accessed seamlessly by players within the casino property, on the go or at home. We see ourselves as a first mover in the US market which is gradually opening up.

Performance

For the year-ended 30 June 2018, the Group's European Managed Solutions business has seen significant growth in all KPIs - Net Gaming Revenue (NGR) in the year ended 30 June 2018 was £19.4m (2017: £13.1m), First Time Depositors (FTDs) were 156,703 (2017: 130,105) and cash wagering was £559.8m (2017: £390.3m).  At the year end, the casino network included 113 white label casinos (2017: 75 casinos).

 

 

FY18

FY17

Change

Net Gaming Revenue

£19.4m

£13.1m

48.1%

First Time Depositors

156,703

130,105

20.4%

Cash wagering

£559.8m

£390.3m

43.4%

 

For the year ended 30 June 2018, the operating loss was £5.5m (2017: £4.6m) and adjusted EBITDA loss* was £2.4m (2017: £3.4m).  The adjusted EBITDA loss* included £0.9m loss from Respin for the year ended 30 June 2018 (2017: £0.8m loss for 6 months following acquisition).

*The Group defines adjusted EBITDA as the operating result before depreciation, amortisation, income or expenditure relating to exceptional items and non-cash charges relating to share based payments and impairments.  Exceptional items are considered to be one-off non-trading items.

Operations

Europe

We continue to make significant improvements across all aspects of casino management, including maximising player entertainment and engagement, through the enhancement of our Evolve platform and associated services across CRM, payments, customer service and player marketing. 

The continuing improvement of our Evolve platform's back office during the year positions the casino network well for further growth and geographic expansion, which we are seeing reflected in a strong pipeline of prospective new partners and regular roll out of new casinos.  Controlling our product roadmap offers flexibility and the opportunity to differentiate our casino offering from other casinos in a competitive market, which benefits our white label partners.

We continue to add high quality partners and, at the year-end, had 113 live casinos from 55 partners.  We expect to continue to see strong growth in our Managed Solutions business as we improve further our CRM, in particular through data intelligence, and operational capabilities as well as place further emphasis on overseas markets.

The B2B business is becoming a significant part of Nektan's future global strategy which is being achieved by leveraging the Evolve platform into new, significantly higher margin business lines as the Company moves towards EBITDA break-even in Europe, which is expected during FY19.

Nektan generated revenue during the year from the B2B business for the first time and the business stream is now growing strongly and currently has 14 contracts live globally.  The first global platform deal with Tyche now has four partners live and a significant pipeline of further integrations expected over the coming months, where we are benefiting from our speed of integration and breadth of content offering. 

Nektan has made its proprietary remote gaming server ("RGS") available to third party games studios who can integrate their content directly onto it.  This strategic move has created an opportunity to work with leading industry partners to produce premium content with higher margins and we recently announced that we are now partnering with Japanese games company Rising Entertainment to distribute 12 of their games on an exclusive basis across our B2B and B2C networks.

The Group is in discussions with a number of industry partners to integrate E-Lite on a platform to platform basis giving access to Nektan's content and other functionality in the next two quarters which would be an additional global revenue stream for the Group and is part of the higher margin B2B division.

North America

Respin LLC (Respin), our US operating subsidiary, now rebranded as Rapid Games, is focused on mobile on-premise digital gaming, primarily for the Class II tribal gaming market, offering players and casinos the opportunity to play bingo and slot games on mobile devices when in the casino.

In the year, the Rapid Games team has developed and released several software updates to their platform.  These include enhancements that have secured independent test lab certifications for several strategic standards, including GLI 11 Standards for gaming devices in casinos, GLI 16 cashless systems in casinos, GLI 21 client-server systems and GLI 26 Mobile Gaming.  The additional certifications along with Rapid Games NIGC 547 certifications position them as the only current interactive platform in the US with both Class II and III on-premise certifications that can operate within casino boundaries or outside the casino on tribal lands.

The team has maintained its live deployment in northern California and is positioned to launch at several tier 1 tribal casinos in southern California.  We are in the process of securing contracts at further tier 1 casinos.

Respin made an adjusted EBITDA loss in the period of £911k (2017: £752k).

Compliance & Social Responsibility

Licensed and regulated by the Gibraltar Licensing Authority, the Gambling Commission for Great Britain, and ICO (Information Commissioners Office), Nektan upholds an ISO 27001:13 certification.

 

As a socially responsible licence holder, Nektan has always operated with a detailed level of data management options. It has incorporated a comprehensive list of built-in functions on its white label platform to give players the ability to manage and be fully in control of their gaming experience.

 

Anti-money laundering and player security has been at the heart of Nektan's core strategy and aims to ensure that its gaming environments remain safe, secure and compliant. It has invested heavily in technological developments to its software so that it delivers on this promise.

Providing players with a responsible gambling environment that does not impact on the quality of play is made easier by Nektan's enhanced, industry leading age verification procedures that have been built into its proprietary platforms. These checks are done via automated systems and manual procedures.

Nektan's staff undergo rigorous compliance and social responsibility awareness training to ensure the care of vulnerable players.

As well as introducing Gamcare and Gamstop safety measures, which allow players to initiate self-exclusion and visit limits, Nektan broadcasts responsible gaming messages across its casino sites and offers a full-range of expert advice via its internal training schedule. CRM messaging is responsible and purposefully written, with all communications compliant under ASA and CAP guidelines.

Financial review

Revenue

Net gaming revenue in the year ended 30 June 2018 was £19,414k (2017: £13,092k), an increase of 48%. This is due to the increase in new partners signed up during the year, an increase in the number of casinos offered by those partners and also improved operational efficiencies across the network.  Total revenue for the year was £20,069k (2017: £13,250k), an increase of 51%, the difference between Net Gaming Revenue and total revenue of £655k (2017: £221k) consists of B2B revenue and site set-up and management fees.

Expenses

The B2C business operates largely under the revenue share model and, as such, the marketing, partner and affiliate costs increase with revenues and during the year were £9,494k (2017: £7,203k).  However, as a percentage of total revenues, costs decreasing from 54% to 47% demonstrating efficiencies in spend as the Company grows.

Administrative expenses, excluding exceptional items, depreciation, amortisation and share based payment charges, increased during the year to £5,414k (2017: £4,703k), which includes 12 months of the US division which was only fully consolidated for 6 months during the prior year.  The Europe administrative expenses increased during the year to £4,404k (2017: £3,938k) due to the significant growth experienced in Managed Solutions as well as the small headcount required for the new B2B business unit.  As a percentage of revenue, Europe decreased from 30% to 22% reflecting the considerable operational gearing that exists within the Company.

The administrative expenses are broken down further below:

 

Year ended

 30 June 2018

Year ended

 30 June 2017

 

£'000

£'000

Europe adjusted administrative expenses

(4,404)

(3,938)

US adjusted administrative expenses (6 months in FY17)

(1,010)

(765)

Adjusted administrative expenses

(5,414)

(4,703)

Exceptional items

(404)

1,463

Depreciation

(170)

(126)

Impairment of fixed assets

(152)

-

Amortisation

(2,184)

(1,976)

Share based payment charge

(210)

(566)

Total administrative expenses

(8,534)

(5,908)

 

Exceptional costs moved from a gain of £1,463k to a charge of £404k. The previous year's gain was primarily due to the profit on the disposal of brands after legal costs of £1,897k; excluding this, the charge was £434k which related to fund-raising costs, a provision for an onerous contract and restructuring costs.

Adjusted EBITDA

The operating loss for the year was £5,475k (2017: £4,624k). Adjusted EBITDA loss* was £2,355k (2017: £3,419k).  This figure includes 12 months of Respin, Nektan's US subsidiary, being fully consolidated, versus 6 months in the prior year, the impact being a loss of £911k (2017: £752k).

*The Group defines adjusted EBITDA as the operating result before depreciation, amortisation, income or expenditure relating to exceptional items and non-cash charges relating to share based payments and impairments.  Exceptional items are considered to be one-off, non-trading, items.

Cash flow

The Group's cash balance at 30 June 2018 was £1,402k (30 June 2017: £638k).  Net proceeds of £1,692k (2017: £2,191k) were raised in the year from issuing new shares and a new debt facility (net of transaction costs) of £1,985k (2017: £nil). During the year £1,358k (2017: £813k) was spent on capitalised development costs.  In addition, the Group raised £1,950k in the previous year from the sale of 3 casino brands to Buckingham HMB LLP.

Convertible Loan Note (CLN)

During the year, the Company received conversion notices from Series A CLN holders to the value of £780,000 (2017: £1,094,500).  These were converted at the prevailing conversion price of 26.25p (2017: 34.375p) resulting in the issue of 2,971,428 new shares (2017: 3,184,000 new shares).  The CLN Series A currently has £8.1m outstanding and the Series B has £1.1m outstanding.

Nektan Marketing Services

During the prior year, the Group reached an agreement to buy out its joint venture partners in Nektan Marketing Services Limited ("NMS") and terminate the put option held by it for consideration of £500,000 payable in cash.  An initial payment of £250,000 was made in August 2017 and a further £150,000 was paid in February 2018 and £100,000 in August 2018. This liability was reduced by certain credit notes received from NMS prior to acquisition resulting in a net settlement of £105k with the remaining investment of £97k being impaired.

Point of consumption tax (POCT)

The Company has entered into negotiations with HMRC in order to agree a payment schedule for £2.9m of owed UK point of consumption tax.

Post balance sheet events

On 27 December 2018, the Company announced that it had received in principle support to raise £3.5m in cash through the sale of 57.5% of its US subsidiary Respin for £2.0m and to raise £1.5m through an equity placing and subscriptions for new ordinary shares at the Placing Price.

In addition, the Company has reached agreement with holders of approximately £4.3m of the outstanding balance of the £8.1m Series A convertible loan notes and loan noteholders who own £1.2m of the outstanding convertible loan note interest to convert into new ordinary shares at the Placing Price resulting in the issue of, in aggregate, approximately 36.6m new ordinary shares.   Following the conversions, the coupon on the Series A convertible loan notes will be reduced from 10% to 2.5%.

Furthermore, Gary Shaw, Executive Director of the Company, has agreed to convert £650k of his shareholder loan and the accrued interest on the full loan of £148k at the Placing Price resulting in the issue of 5,321,680 new ordinary shares.

Outlook from Lucy Buckley, Chief Executive Officer

I am delighted to have joined Nektan at this pivotal point in the Company's evolution. The global gaming market, in particular on mobile, is still growing rapidly and I believe Nektan is well positioned to increase its market share and capture new value from emerging markets.

Our next-generation mobile casino platform, Evolve, is new technology that has been built mobile-first; a key competitive advantage as we see mobile play outstrip desktop and tablet globally. Nektan's extensive experience in managing over 150 casino brands in competitive and highly regulated markets, ensures that new platform features are data driven and experience-led.  As we enter new regulated markets, such as Sweden, I am confident we have the unique business intelligence and CRM tools needed to attract and retain players.

Beyond regulated markets in Europe, the US is one of the most exciting opportunities in the industry. While internet gambling may be subject to further regulation globally, it is likely to gather momentum over several years and the sheer scale of the potential opportunity is undeniable.  In the immediate term, Nektan's in-casino mobile platform provides a legal mobile gaming solution to Class II and Class III operators in states without iGaming legislation. Engaging with mobile-first, millennial consumers is a key challenge for traditional casino properties; Nektan's app, platform and content provides the solution.

Finally, we are pleased to have received in principle support to raise £3.5m in cash through the sale of 57.5% of the Company's US subsidiary Respin for £2.0m and to raise £1.5m through an equity placing and subscriptions for new ordinary shares at the Placing Price from a combination of existing and new shareholders as well as certain members of senior management and the Board in order to continue to invest in the platform and exploit further growth opportunities.

On behalf of the Board, I would like to thank all of Nektan's employees for their efforts in the last year and our business partners, loan noteholders and shareholders for their continued commitment, all helping to support the continued growth of our business.

Gary Shaw

Director

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 June 2018

 

 

 

 

Year ended 30 June 2018

Year ended 30 June 2017

 

Notes

£'000

£'000

 

 

 

 

Revenue

2

20,069

13,250

Cost of sales

 

(7,516)

(4,763)

Gross profit

 

12,553

8,487

 

 

 

 

Marketing, partner and affiliate costs

 

(9,494)

(7,203)

Administrative expenses

 

(8,534)

(5,908)

 

 

 

 

Adjusted EBITDA

 

(2,355)

(3,419)

Exceptional items

3

(404)

1,463

Depreciation

9

(170)

(126)

Impairment of fixed assets

9

(152)

-

Amortisation

8

(2,184)

(1,976)

Share based payment charges

28

(210)

(566)

 

 

 

 

Operating loss

3

(5,475)

(4,624)

Finance income

6

92

257

Finance expense

6

(1,799)

(1,357)

Share of loss of joint ventures

10

-

(495)

Loss before taxation

 

(7,182)

(6,219)

Tax credit

7

230

98

 

 

 

 

Loss for the year

 

(6,952)

(6,121)

 

 

 

 

Other comprehensive income for the year

 

 

 

Exchange differences arising on translation of foreign operations which may be reclassified to profit or loss

 

106

(227)

 

 

 

 

Total comprehensive loss for the year

 

(6,848)

(6,348)

 

 

 

 

 

 

 

 

Loss per share attributable to the Ordinary equity holders of the parent

 

 

 

 

 

 

 

Basic (pence)

5

(16.6)

(21.8)

Diluted (pence)

5

(16.6)

(21.8)

 

 

NEKTAN PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2018

 

 

 

30 June 2018

30 June 2017

 

Notes

£'000

£'000

 

 

 

 

Non-current assets

 

 

 

Intangible assets

8

6,083

6,900

Property, plant and equipment

9

145

432

 

 

6,228

7,332

 

 

 

 

Current assets

 

 

 

Trade and other receivables

11

2,602

1,805

Cash and cash equivalents

12

1,402

638

 

 

4,004

2,443

 

 

 

 

Total assets

 

10,232

9,775

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

13

(8,779)

(6,562)

Derivative financial liabilities

14

(2,348)

(800)

 

 

(11,127)

(7,362)

 

 

 

 

Non-current liabilities

 

 

 

Convertible loan notes

16

(9,411)

(9,094)

Trade and other payables

15

-

(24)

Shareholder loans

17

(898)

-

Deferred tax

20

(1,157)

(1,482)

 

 

(11,466)

(10,600)

 

 

 

 

Total liabilities

 

(22,593)

(17,962)

 

 

 

 

 

 

 

 

Net liabilities

 

(12,361)

(8,187)

 

 

 

 

Equity attributable to equity holder:

 

 

 

Share capital

19

474

360

Share premium

 

29,679

27,331

Merger reserve

 

(2)

(2)

Capital contribution reserve

 

3,306

3,306

Share option reserve

 

1,038

828

Foreign exchange reserve

 

(304)

(410)

Retained earnings

 

(46,552)

(39,600)

 

 

 

 

Total deficit

 

(12,361)

(8,187)

 

 

NEKTAN PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 June 2018

 

 

 

Share capital

Share premium

Merger reserve

Capital contribution reserve

Share option reserve

Foreign exchange reserve

Minority interest reserve

Retained earnings

Total equity

 

 

 

 

 

 

 

 

 

 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

 

At 30 June 2016

241

24,115

(2)

3,306

262

(183)

-

(33,914)

(6,175)

 

 

 

 

 

 

 

 

 

 

Loss for the year

-

-

-

-

-

-

-

(6,121)

(6,121)

Other comprehensive income

-

-

-

-

-

(227)

-

-

(227)

Increased ownership of Respin

-

-

-

-

-

-

496

-

496

Acquisition of minority interest

-

-

-

-

-

-

(496)

435

(61)

Issue of shares (net of costs)

119

3,216

-

-

-

-

-

-

3,335

Share based payments

-

-

-

-

566

-

-

-

566

 

 

 

 

 

 

 

 

 

 

At 30 June 2017

360

27,331

(2)

3,306

828

(410)

-

(39,600)

(8,187)

 

 

 

 

 

 

 

 

 

 

Loss for the year

-

-

-

-

-

-

-

(6,952)

(6,952)

Other comprehensive income

-

-

-

-

-

106

-

-

106

Issue of shares (net of costs)

114

2,348

-

-

-

-

-

-

2,462

Share based payments

-

-

-

-

210

-

-

-

210

 

 

 

 

 

 

 

 

 

 

At 30 June 2018

474

29,679

(2)

3,306

1,038

(304)

-

(46,552)

(12,361)

 

The following describes the nature and purpose of each reserve within equity:

 

Share capital

Represents the nominal value of shares allotted, called up and fully paid.

 

Share premium

Represents the amount of subscribed for share capital in excess of nominal value net of share issue costs.

 

Share option reserve

Represents the cumulative value of share option charges recorded in the consolidated statement of comprehensive income.

 

Minority interest reserve

Represents the minority share of the assets and liabilities of Respin in the year ended 30 June 2017 following the move from 50% to 85% ownership and subsequent transfer to retained earnings when the remaining 15% was acquired.  The loss during the period prior to the ownership increasing from 85% to 100% was immaterial and hence has not been shown on the income statement.

 

Capital contribution reserve

Represents:

(a)   Nominal value of shares held by a shareholder in a subsidiary Company and contributed to Nektan plc.

(b)   The release of the Group's obligation to repay borrowings of £3,304,000 by a shareholder.

 

 

Merger reserve

The difference between the nominal value of the Nektan (Gibraltar) Limited shares acquired in May 2011 and the nominal value of shares in Nektan plc issued to acquire these shares as part of a Group restructuring.

 

Foreign exchange reserve

Represents the gains/losses arising on retranslating the net assets of overseas operations into UK Pound Sterling.

 

Retained earnings

Represents the cumulative net gains and losses recognised in the consolidated statement of comprehensive income.

 

NEKTAN PLC

CONSOLIDATED STATEMENT OF CASHFLOWS

For the year ended 30 June 2018

 

 

Year ended

 30 June 2018

Year ended

 30 June 2017

 

Notes

£'000

£'000

Cash flow from operating activities

 

 

 

Loss for the year

 

(6,952)

(6,121)

Adjustments for:

 

 

 

Amortisation of intangible assets

8

2,184

1,976

Profit on brand disposal

 

-

(1,950)

Depreciation of property, plant and equipment

9

170

126

Share based payment expense

 

210

566

Finance expense

6

1,799

1,357

Finance income

6

(92)

(257)

Impairment of tangible assets

9

152

-

Joint venture impairment

10

-

97

Share of loss of joint ventures

10

-

495

Income tax credit

7

(230)

(98)

Operating cash outflow before movement in working capital

 

(2,759)

(3,809)

(Decrease)/Increase in trade and other receivables

 

(797)

116

Increase in trade and other payables

 

2,217

2,442

Cash used in operations

 

(1,339)

(1,251)

 

Cash flow from investing activities

 

 

 

Purchase of intangible fixed assets

8

(1,358)

(813)

Purchase of property, plant and equipment

9

(83)

(67)

Proceeds on brand disposals

 

-

1,950

Investments in joint ventures

10

-

(1,014)

Cash acquired on acquisition

22

-

35

Net cash (used in) / generated from investing activities

 

(1,441)

91

 

 

 

 

Cash flow from financing activities

 

 

 

Interest paid

 

(109)

(406)

Capital payments on finance lease

 

(24)

(25)

Purchase of non-controlling interest in Respin

 

-

(61)

Issue of debt

17

1,985

-

Proceeds on subscription for shares (net of costs)

19

1,692

2,191

Net cash generated from financing activities

 

3,544

1,699

 

 

 

 

Net increase in cash and cash equivalents

 

764

539

 

 

 

 

Cash and cash equivalents at beginning of period

12

638

99

 

 

 

 

Cash and cash equivalents at end of period

12

1,402

638

 

Notes

 

 

 

1.    Accounting policies

 

Basis of preparation

 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards including International Accounting Standards ('IASs') and interpretations (collectively 'IFRS') as published by the International Accounting Standards Board ("IASB") which have been adopted by the European Commission and endorsed for use in the EU for the purposes of the Group's full year financial statements.

The company financial statements have been prepared under FRS 102 The financial statements are presented in UK Pounds Sterling ('Sterling') and rounded to the nearest £'000.  

The financial information does not constitute the Group's statutory accounts for the year ended 30 June 2018 or the year ended 30 June 2017 but is derived from those accounts.

Statutory accounts for the year ended 30 June 2018 will be filed with Companies House Gibraltar following the Company's Annual General Meeting. The audit report for the year ended 30 June 2018 includes a material uncertainty in respect of going concern. Statutory accounts for the year ended 30 June 2018 will be filed with Companies House Gibraltar following the Company's Annual General Meeting. The audit report for the year ended 30 June 2018 includes a material uncertainty in respect of going concern.

The auditors draw attention to the fact that in forming their opinion on the financial statements, which is not modified, that they have considered the adequacy of the disclosures made in note 1 to the financial statements concerning the Group and the Company's ability to continue as a going concern. The report states that this is dependent on the ability of the directors to successfully secure sufficient funding for the foreseeable future including further funds should Board approved forecasts not be met.

 

Going concern

 

The financial statements have been prepared on a going concern basis. The Group continues to be loss making and, in addition, funds its capital expenditure and the development of its US business, ReSpin LLC, which is also loss making.

On 27 December 2018, the Company announced that it had received in principle support for an equity fundraising of £1.5m at the placing price of 15p with conditional subscription agreements having been received for £1.08m subject to agreement of a payment schedule with HMRC as noted below.  The Directors are also at an advanced stage of agreeing a further equity investment of £2.0m for the disposal of 57.5% of the US business, Respin, which would comprise a £1.0m initial payment followed by a £1.0m deferred payment prior to 31 December 2019.  In addition, the investing entity would provide a working capital facility of £300k to Respin.

Shareholder loans as detailed in note 17 have been amended to extend the repayment date from July 2019 to 31 March 2020. Furthermore, Gary Shaw has agreed to convert £650k of his shareholder loan and the accrued interest on the full loan of £148k at the placing price of 15p resulting in the issue of 5,321,680 new ordinary shares. Certain Directors have additionally agreed to provide advances up to £400,000 should the Company require this.

The Directors are also in discussions with UK HMRC in order to agree a payment schedule for amounts owed for UK point of consumption tax which it is anticipated will be significantly cleared by virtue of funds received from the equity fundraising and part disposal of Respin noted above.

The Directors have reviewed forecast cash flows for the forthcoming 12 months from the date of approval of the financial statements and consider that the Group will have sufficient cash resources available for that period to meet its liabilities as they fall due. However, this is dependent on meeting the performance and timings in the forecasts which has required significant judgement and estimation and as such the Group may require further funding should trading or other timings of cashflows fall short of forecasts. The Directors would, if required, seek additional capital through further equity and/or loan fundraising and/or asset sales or part sales.

Having reviewed the forecasts of the business, the conditional undertakings received and the initial discussions with UK HMRC, and, based on the ability to raise further funds should this be required, the Directors have a reasonable expectation to believe that it is appropriate to continue to prepare the financial statements on a going concern basis.  There are therefore material uncertainties related to events or conditions that may cast significant doubt on the Group and Company's ability to continue as a going concern. If the business is unable to raise additional finance it may be unable to realise its assets and discharge its liabilities in the normal course of business.

Adoption of new and revised Standards and Interpretations

 

There were no new Standards and Interpretations issued by the International Accounting Standards Board ('IASB') that were effective for the first time in the current financial year and had an impact on the Group.

 

The following relevant standard and interpretation were issued by the IASB or the IFRIC before the year-end but are as yet not effective for the 2018 year-end:

 

                IFRS 16                                   Leases (effective date 1 January 2019)

 

The above standard has not been early adopted and the Directors, based on the review and assessment completed to date, do not expect that the adoption of these standards will have a material impact on the financial statements of the Group in future periods.

 

Critical accounting policies, estimates and judgements

 

The preparation of consolidated financial statements under IFRS requires the Group to make estimates and judgements that affect the application of policies and reported amounts. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

 

Reference is made in this note to accounting policies which cover areas that the Directors consider require estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year. These policies, together with references to the related notes which include the judgements made, can be found below:

 

-       Revenue recognition (note 1)

-       Going concern (note 1)

-       Capitalisation of intangible assets (note 8)

-       Impairment of goodwill (note 8)

-       Convertible loan notes (note 16)

-       Acquisition accounting and fair value of consideration (note 22)

-       Share based payments (note 28)

 

 

Basis of consolidation

The consolidated financial statements incorporate the financial information of the Company and entities controlled by the Company made up to 30 June 2018. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Entities included within the consolidation that have been acquired by the Company are accounted for using acquisition or merger accounting as appropriate.

The consolidated financial statements include the combination of businesses achieved through a Group restructuring that falls outside the scope of IFRS 3 Business Combinations. Accordingly, following the guidance regarding the selection of an appropriate accounting policy provided by IAS 8 Accounting policies: Changes in accounting estimates and errors, these financial statements have been prepared using the principles of merger accounting set out in FRS 6 Acquisitions and Mergers and UK Generally Accepted Accounting Practice ('UK GAAP').

When merger accounting is applied, the investment is recorded in the Company's balance sheet at the nominal value of shares issued together with the fair value of any consideration paid.

In the consolidated financial statements, merged subsidiary undertakings are treated as if they had always been a member of the Group.  Any differences between the nominal value of the shares acquired by the Company and those issued by the Company to acquire them are taken to a separate merger reserve.

Where acquisition accounting is applied, the results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate.

Where the Group enters into a step-acquisition and moves from being a joint-venture investment to a controlled subsidiary, this is accounted for as a business combination.  On acquisition, the joint venture investment is fair valued with the difference being recorded in the income statement. Where a non-controlling interest is held, the fair value of assets and liabilities acquired is recorded in the minority interest reserve.

Where the companies acquire a non-controlling interest, the amount payable is recorded directly in retained earnings and the necessary minority interest reserve transferred to retained earnings.

Uniform accounting policies have been adopted across the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

Foreign currencies

The consolidated financial statements of the Group are prepared in Sterling, this is in line with the functional and presentational currency of the Parent company and main operating subsidiaries. Transactions and balances in foreign currencies are converted into Sterling as follows;

Transactions entered into by the Group in a currency other than the functional currency are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on retranslation of unsettled monetary assets and liabilities are recognised immediately in the profit and loss.

On consolidation, the results of overseas operations are translated into Sterling at rates ruling when the transaction took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at the opening rate and the results of overseas operations at the actual rate are recognised in other comprehensive income and accumulated in the foreign exchange reserve.

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal.

Revenue recognition

Revenue in the current year arises on real money gaming, website set up and management fees for partners and certain B2B activities including sheltering and platform revenue.  In the US, revenue is from in-venue gaming set-up fees and porting 3rd party content onto our platform.

Net gaming revenue derives from online gambling operations and is defined as the difference between the amounts of bets placed by players less amounts won by players. It is stated after deduction of promotional bonuses and jackpot contributions.

Net gaming revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is recognised in the accounting periods in which the transactions occur.

Other revenue comprises website set up and management fees for partners and B2B activities including sheltering and platform revenues and is recognised in the period that the services are rendered.

Cost of sales

Cost of sales consists primarily of licensing fees, gaming taxes, regulatory and compliance expenses, merchant fees, chargebacks and platform licensing expenses.  All expenses are recognised on an accruals basis and in line with the underlying revenue.

Marketing, partner and affiliate costs

Marketing, partner and affiliate costs consists primarily of revenue share, commission, affiliate expenses and online advertising.

Goodwill

Goodwill represents the excess of the cost of a business combination over the total acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired.

Cost comprises the fair value of assets given, liabilities assumed and equity instruments issued, plus the amount of any non-controlling interests in the acquiree.  Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent consideration classified as a financial liability, remeasured subsequently through profit or loss.

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income.

Externally acquired intangible assets

Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives which is typically over a period of three years.

Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual or legal rights. The amounts ascribed to such intangibles are arrived at using appropriate valuation techniques.

In-process research and development programmes acquired in such combinations are recognised as an asset even if subsequent expenditure is written off because the criteria specified in the policy for development costs below are not met.

The significant intangibles recognised by the Group, their useful economic lives and methods used to determine the cost of intangibles acquired in a business combination are as follows:

 

Intangible asset

Useful economic life

Valuation method

Developed software

Three years

Replacement cost

Contractual relationships

Term of contract

Discounted cash flows

Licenses

Five years

Residual value

Internally generated intangible assets (development costs)

Expenditure incurred on development activities including the Group's software development is capitalised only where the expenditure will lead to new or substantially improved products, the products are technically and commercially feasible and the Group has sufficient resources to complete development.

Capitalised development costs are amortised over three years.  The amortisation expenses are included within administrative expenses in the consolidated statement of comprehensive income.

Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the consolidated statement of comprehensive income as incurred.

Subsequent expenditure on capitalised intangible assets is capitalised only where it clearly increases the economic benefits to be derived from the asset to which it relates.   All other expenditure, including that incurred in order to maintain the level of performance of an intangible asset, is expensed as incurred.

Property, plant and equipment

Depreciation is calculated to write off the cost of fixed assets on a straight-line basis over the expected useful lives of the assets concerned. The principal annual rates used for this purpose are:

Fixtures, fittings and equipment      -               20 - 33 per cent straight-line

Office equipment                                 -               20 - 33 per cent straight-line

Computer equipment                          -               33 per cent straight-line

Subsequent expenditures are included in the carrying amount of an asset or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits will flow to the Group and the cost of the item can be measured reliably. All repairs and maintenance are charged to the consolidated statement of comprehensive income during the financial period in which they are incurred.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in the consolidated statement of comprehensive income.

Impairment of property, plant and equipment and internally generated assets

Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end.  Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.  Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating units ("CGUs").  Goodwill is allocated on initial recognition to each of the Group's CGUs that are expected to benefit from the synergies of the combination giving rise to goodwill.

Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income.  An impairment loss recognised for goodwill is not reversed.

Financial assets

The Group classifies its financial assets as loans and receivables.  The classification depends on the purpose for which the financial assets were acquired.  Management determines the classification of its financial assets at initial recognition.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. The Group's loans and receivables comprise trade and other receivables and cash equivalents and receivables are carried at amortised cost using the effective interest method.

Derivative financial assets, including call options, are recognised initially at their fair value, and subsequently re-measured at each balance sheet date, with the fair value gain or loss taken to the income statement.

Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. .

Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less provision for impairment.  Appropriate provisions for estimated irrecoverable amounts are recognised in the statement of comprehensive income when there is objective evidence that the assets are impaired.  Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable.  For trade receivables, which are reported net; such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the statement of comprehensive income.  On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits, and other short-term highly liquid investments that have maturities of three months or less from inception, are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Financial liabilities

Financial liabilities are classified as financial liabilities at fair value through profit or loss or as financial liabilities measured at amortised cost, as appropriate.  The Group determines the classification of its financial liabilities at initial recognition.

The measurement of financial liabilities depends on their classification: (i) financial liabilities at fair value through profit or loss are carried on the balance sheet at fair value with gains or losses recognised in the income statement; and (ii) financial liabilities measured at amortised cost are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.  Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.  Gains and losses arising on the repurchase, settlement or cancellation of liabilities are recognised respectively in interest and other revenues and finance costs.  The Group derecognises a financial liability from its balance sheet when the obligation specified in the contract or arrangement is discharged, cancelled or expires.

Trade and other payables

Trade payables are initially measured at their fair value and are subsequently measured at their amortised cost using the effective interest rate method; this method allocates interest expense over the relevant period by applying the 'effective interest rate' to the carrying amount of the liability.

Convertible debt

Where the convertible debt issued converts into a variable number of shares the proceeds received on issue are allocated between the derivative financial liability and the host debt based upon their fair values.  Subsequently the conversion option is measured at fair value through profit and loss and the debt component as a financial liability measured at amortised cost until extinguished on conversion or maturity of the debt.

Transaction costs directly attributable to the raising of convertible debt are allocated across the derivative financial liability component and the debt liability component.  Transaction costs allocated to the derivative financial liability component are expensed to the income statement as they are incurred.  Transaction costs allocated to the debt liability component are deducted from the residual value recognised as the debt liability on recognition.

On receipt of a conversion request, the appropriate number of shares are issued to the loan noteholder and the debt is cancelled.  The difference between the nominal value of debt and the nominal share value is allocated to the share premium account.

Share capital

Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset.

Current and deferred tax

Taxation represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year.  Taxable profit differs from net profit reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.   The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the statement of financial position date.

Tax losses arising as a result of research and development expenditure and subsequently surrendered for tax credit are recognised within other income and as an other debtor.

Deferred tax

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based upon tax rates that have been enacted or substantively enacted by the balance sheet date.  Deferred tax is charged or credited in the statement of comprehensive income, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is not discounted.

Leased assets

Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a 'finance lease'), the asset is treated as if it had been purchased outright.  The amount initially recognised as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease.  The corresponding lease commitment is shown as a liability.  Lease payments are analysed between capital and interest.  The interest element is charged to the consolidated statement of comprehensive income over the period of the lease and is calculated so that it represents a constant proportion of the lease liability.  The capital element reduces the balance owed to the lessor.

Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an 'operating lease'), the total rentals payable under the lease are charged to the consolidated statement of comprehensive income on a straight-line basis over the lease term.   The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis.

Share based payments

Where equity-settled share options are awarded to employees or service providers, the fair value of the options at the date of grant is charged to the consolidated statement of comprehensive income over the vesting period.  Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest.  Non-vesting conditions and market vesting conditions are factored into the fair value of the options granted.  As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied.  The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the consolidated statement of comprehensive income over the remaining vesting period.

Where equity instruments are granted to persons other than employees, the consolidated statement of comprehensive income is charged with the fair value of goods and services received.

Adjusted EBITDA

The Group defines adjusted EBITDA as the operating result before depreciation, amortisation, income or expenditure relating to exceptional items and non-cash charges relating to share based payments and impairments.  Exceptional items are considered to be one-off non trading items.  Adjusted EBITDA is considered to be the most appropriate measure as it reflects the underlying trading performance of the Group and allows ease of comparison with the prior year.

Joint ventures

A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control; that is, when the strategic, financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control.

The Group reports its interests in jointly controlled entities using the equity method of accounting. Under the equity method, investments in joint ventures are carried in the consolidated statement of financial position at cost as adjusted for post-acquisition changes in the Group's share of the net assets of the joint venture, less any impairment in the value of the investment.  Losses of a joint venture in excess of the Group's interest in that investment are not recognised.  Additional losses are provided for, and a liability is recognised, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture.

 

       2.      Segmental information

 

The accounting policies of the reportable segments follow the same policies as described in note 1.  Segment result represents the gross profit earned by each segment without allocation of the share of administrative costs including Directors' salaries, finance costs and income tax expense.  This is the measure reported to the Group's Chief Executive for the purpose of resource allocation and assessment of segment performance.  Administrative expenses comprise principally the employment and office costs incurred by the Group.

Year ended 30 June 2018

Managed Gaming Solutions & B2B

On Premise Gaming

Group

 

£'000

£'000

£'000

 

 

 

 

Net Gaming Revenue

19,414

-

19,414

Other revenue

556

99

655

Revenue

19,970

99

20,069

Cost of sales

(7,516)

-

(7,516)

Gross profit

12,454

99

12,553

Marketing, partner and affiliate costs

(9,494)

-

(9,494)

Administrative expenses

(4,404)

(1,010)

(5,414)

Adjusted EBITDA

(1,444)

(911)

(2,355)

Depreciation, amortisation, exceptional items and share based payment charges

 

 

(3,120)

Net finance expense

 

 

(1,707)

Taxation

 

 

230

Loss for the year

 

 

(6,952)

      

               

Year ended 30 June 2017

Managed Gaming Solutions & B2B

On Premise Gaming

Group

 

£'000

£'000

£'000

 

 

 

 

Net Gaming Revenue

13,092

-

13,092

Other Revenue

145

13

158

Revenue

13,237

13

13,250

Cost of sales

(4,763)

-

(4,763)

Gross profit

8,474

13

8,487

Marketing, partner and affiliate costs

(7,203)

-

(7,203)

Administrative expenses

(3,938)

(765)

(4,703)

Adjusted EBITDA

(2,667)

(752)

(3,419)

Depreciation, amortisation, exceptional items and share based payment charges

 

 

(1,205)

Net finance expense

 

 

(1,100)

Share of loss of joint ventures

 

 

(495)

Taxation

 

 

98

Loss for the year

 

 

(6,121)

                Segment assets and liabilities

Assets and liabilities are not separately analysed or reported to the Group's Chief Executive and are not used to assist in decisions surrounding resource allocation and assessment of segment performance.  As such, an analysis of segment assets and liabilities has not been included in this financial information. 

                Geographical analysis of non-current assets

The following table provides an analysis of the Group's non-current assets, excluding goodwill, by geographical segment:
 

 

30 June 2018

30 June 2017

 

£'000

£'000

 

 

 

Gibraltar

5,100

5,993

UK

5

6

India

32

37

US

172

377

 

5,309

6,413

 

Geographical analysis of revenues

The following table provides an analysis of the Group's revenue by geographical segment:
 

 

Year ended

 30 June 2018

Year ended

 30 June 2017

 

£'000

£'000

 

 

 

UK

18,006

12,593

Rest of the World

2,063

657

 

20,069

13,250

 

 

 

3.    Operating Loss

Operating loss has been arrived at after charging/(crediting):

 

 

Year ended

 30 June 2018

Year ended

 30 June 2017

 

£'000

£'000

 

 

 

Staff costs (note 4)

3,100

2,645

Auditor's remuneration:

 

 

Audit of the Company's annual accounts

66

69

Audit of the subsidiaries' annual accounts

32

24

Other assurance services

6

6

Tax compliance services

3

6

Other non-audit services

6

-

 

 

 

Rent payable under operating leases

278

327

Amortisation

2,184

1,976

Depreciation

170

126

Impairment of tangible assets

152

-

Loss on foreign exchange

134

47

Exceptional charge / (gain)

404

(1,463)

 

During the year, the Group has incurred certain costs of a significant and one off nature that warrant separate disclosure. Included within exceptional items are:

 

Year ended

 30 June 2018

Year ended

 30 June 2017

 

£'000

£'000

 

 

 

Fundraising costs

65

191

Provision for onerous contracts

134

-

Restructuring costs

119

-

Net settlement of Nektan Marketing Services put option (note 10)

-

105

Impairment of joint venture (note 10)

-

97

Profit on brand disposals (net of legal costs)

-

(1,897)

Other

86

41

 

404

(1,463)

Fundraising costs incurred in the year ended 30 June 2018 relate to professional costs incurred in the equity raise in the year, and those incurred in the year ended 30 June 2017 relate primarily to professional costs incurred in relation to the issue of loans and equity fundraising in the year.

Where the unavoidable costs under a contract exceed the economic benefit expected to be received from that contract, the Group recognises a provision for the present value of the obligations under the contract.  A provision has been recognised in the year ended 30 June 2018 for onerous contracts with a professional services provider following the group making the decision to move some services to Gibraltar which resulted in a charge of £134,000.

During the year ended 30 June 2018, the decision was made to close the London office and relocate some of the key roles to Gibraltar, this led to a restructuring cost of £119,000 in the period.

The net settlement in the year ended 30 June 2017 relates to the termination of the put option previously held by the joint venture partner of Nektan Marketing Services Limited.  This was achieved through the acquisition of the business and was subsequently wound up and therefore was been fully impaired.

 

4.    Staff costs

 

 

Year ended

 30 June 2018

Year ended

 30 June 2017

 

 

 

The average number of employees (including Directors) employed was:

 

 

Management

3

3

Administration and technical staff

95

72

 

98

75

 

 

 

Year ended

 30 June 2018

Year ended

 30 June 2017

 

£'000

£'000

 

 

 

The aggregate remuneration of the above employees comprised (including Directors):

 

 

Wages and salaries

3,503

3,039

Social security costs

240

203

Pension costs

103

115

Benefits in kind

148

87

 

3,994

3,444

Staff costs capitalised in respect of internally generated intangible assets

(894)

(799)

 

3,100

2,645

 

In the statement of comprehensive income, total staff costs are included within administrative expenses.

 

5.    Loss per share

 

Basic loss per share is calculated by dividing the loss attributable to Ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

 

Year ended

 30 June 2018

Year ended

 30 June 2017

Basic and diluted

 

 

Loss after tax (£'000)

(6,952)

(6,121)

Weighted average number of shares

41,918,199

28,111,340

Weighted average loss per share (pence)

(16.6)

(21.8)

 

The result for the year ended 30 June 2017 and 2018 was a loss and therefore there was no difference between the basic and diluted loss per share. The Group has convertible loan notes, share options and warrants which are all potentially dilutive.  At 30 June 2018, the number of fully diluted shares was 105,665,685.

 

6.    Finance income and costs

 

 

Year ended

 30 June 2018

Year ended

 30 June 2017

 

£'000

£'000

 

 

 

Finance income:

 

               

Gain on movement in fair value of derivative financial instruments

92

257

 

 

 

Total finance income

92

257

 

 

 

Finance expense:

 

 

Loss on movement in fair value of derivative financial instruments

(38)

-

Interest payable

(1,761)

(1,357)

Total finance costs

(1,799)

(1,357)

 

7.    Taxation

 

Year ended

 30 June 2018

Year ended

 30 June 2017

 

£'000

£'000

 

 

 

Current tax charge/(credit)

99

79

Deferred tax credit

(329)

(177)

Tax credit on loss on ordinary activities

(230)

(98)

 

 

The total tax credit can be reconciled to the overall tax charge as follows:

 

Year ended

 30 June 2018

Year ended

30 June 2017

 

£'000

£'000

Factors affecting tax charge for year:

The tax assessed for the relevant period is higher than the average standard rate of corporation tax in Gibraltar of 10 per cent. (2017: 10 per cent.).  The differences are explained below:

 

Loss before taxation

 

(7,182)

 

(6,219)

Loss before taxation multiplied by the average standard rate of tax in the year of 10 per cent. (2017: 10 per cent.) 

(725)

(622)

Effects of:

 

 

Expenses not deductible for tax purposes 

222

300

Other tax differences

(181)

(67)

Current year tax losses not recognised

454

486

Income not taxable

-

(195)

Tax credit for year

(230)

(98)

 

The Group has maximum corporation tax losses carried forward at each period end as set out below:

 

 

Year ended

 30 June 2018

Year ended

 30 June 2017

 

£'000

£'000

 

 

 

Corporation tax losses carried forward

38,049

33,514

 

 

 

 

In addition, the Group has an unrecognised deferred tax asset in respect of losses which do not expire as follows:

 

 

Year ended

 30 June 2018

Year ended

 30 June 2017

 

£'000

£'000

 

 

 

Tax losses carried forward

4,076

3,351

 

8.    Intangible assets

 

 

Developed software

Acquired Licences

Computer software

Patents and Trademarks

Goodwill

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

At 1 July 2016

4,067

88

236

-

919

5,310

Externally acquired additions

-

-

14

-

-

14

Internally capitalised additions

799

-

-

-

-

799

Acquisition of subsidiary*

-

4,828

-

35

-

4,863

At 30 June 2017

4,866

4,916

250

35

919

10,986

Externally acquired additions

-

-

-

17

-

17

Internally capitalised additions

1,341

-

-

-

-

1,341

Disposals

(2,688)

-

(42)

-

-

(2,730)

At 30 June 2018

3,519

4,916

208

52

919

9,614

 

 

 

 

 

 

 

Accumulated amortisation

 

 

 

 

 

 

At  1 July 2016

1,858

88

164

-

-

2,110

Charge for the year

1,408

482

86

-

-

1,976

At 30 June 2017

3,266

570

250

-

-

4,086

Charge for the year

1,163

966

9

46

-

2,184

Disposals

(2,688)

-

(51)

-

-

(2,739)

At 30 June 2018

1,741

1,536

208

46

-

3,531

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

At 1 July 2016

2,209

-

72

-

919

3,200

At 30 June 2017

1,600

4,346

-

35

919

6,900

At 30 June 2018

1,778

3,380

-

6

919

6,083

 

* During the previous year the Group acquired the remaining 50% share of its joint venture in Respin LLC resulting in the Group owning 100% of the entity.  This was accounted for as a step-up acquisition (see note 22 for more details).

Developed software primarily relates to expenditure on software and applications that have been developed and generated internally.  Management judgement is required in determining the useful economic life of development software and computer software intangible assets.

Impairment

In accordance with IAS 36 Impairment of Assets, the Group regularly monitors the carrying value of its intangible assets. A detailed review was undertaken at 30 June 2018 to assess whether the carrying value of assets was supported by the net present value of future cashflows derived from those assets. 

The Goodwill is wholly in the managed gaming solutions CGU in the current and prior years.

                Managed Gaming Solutions CGU

The recoverable amount of the European cash generating unit of £9,695,000 (2017: £6,233,000) is  in excess of the CGU net liabilities by £16,704,000 and has been determined using a value in use calculation.  The calculation of the value in use is based on a 3 year forecast model containing assumptions including the following key items:

·      Discount rate of 20 per cent.

·      Cashflows in FY19, FY20 and FY21 based on the Board approved budgets including revenue growth in 2019 of 42% and 2020 and 2021 of 15%

·      Terminal Growth rate of 2 per cent.

These assumptions were based upon management's estimates based on their experience.  The key assumptions that would need to change in order for an impairment to arise is the application of a discount rate of 60% and zero growth over the period FY 20 and FY21.

On-Premise Gaming CGU

The recoverable amount of the US cash generating unit of £3,576,840 is in excess of the CGU net assets by £25,000 and has been determined using a value in use calculation.  The calculation of the value in use is based on a 6 year forecast model containing assumptions including the following key items:

·      Discount rate of 25 per cent.

·      Cashflows in FY19, FY20 and FY21 based on the Board approved budgets including revenue growth in 2019 of 0%, 2020 of 1,200%, 200% in FY21 and 5% in FY22, FY23 and FY24.

·      The use of a 6 year model is based on the overall expectations of this being a growth market

·      Terminal Growth rate of 2 per cent.

These assumptions were based upon management's estimates based on their experience.  The key assumptions that would need to change in order for an impairment to arise is the application of a discount rate of 25.1%, a reduction in the terminal growth to 1.79% or a reduction in the forecast growth in FY22 to FY24 to 4.75%, or a combined discount rate at 25%, terminal growth of 1% and reduction in the forecast growth to 4.9%.

9.    Plant, property and equipment

 

 

Computer equipment

Office equipment

Fixtures, fittings and equipment

 

Total

 

£'000

£'000

£'000

£'000

 

 

 

 

 

Cost

 

 

 

 

At 1 July 2016

743

41

21

805

Additions

67

-

-

67

Acquisition of subsidiaries

293

17

45

355

FX movement

(12)

-

-

(12)

Disposals

(1)

-

-

(1)

At 30 June 2017

1,090

58

66

1,214

Additions

65

15

3

83

FX movement

-

-

-

-

Disposals

(973)

(55)

(25)

(1,053)

At 30 June 2018

182

18

44

244

 

 

 

 

 

Accumulated depreciation

 

 

 

 

At 1 July 2016

604

35

18

657

Charge for the year

107

8

11

126

Eliminated on disposal

(1)

-

-

(1)

At 30 June 2017

710

43

29

782

Charge for the year

123

12

35

170

Impairment

152

-

-

152

Disposals

(925)

(55)

(25)

(1,005)

At 30 June 2018

60

-

39

99

 

 

 

 

 

Net book value

 

 

 

 

At 1 July 2016

139

6

3

148

At 30 June 2017

380

15

37

432

At 30 June 2018

18

145

 

10.  Joint ventures

 

 

2018

2017

 

£'000

£'000

 

 

 

At 1 July

-

2,256

Additions

-

1,014

Share of losses

-

(495)

Eliminated on Respin acquisition

-

(2,678)

Impairment of Nektan Marketing Services

-

(97)

At 30 June

-

 

During the previous year, the Group increased its shareholding in Respin LLC, incorporated in the US, from 50% to 85% in December 2016 following the failure of the joint venture partner to meet certain equity funding requirements.  This was subsequently increased to 100% through the buy-out of the remaining 15% non-controlling interest in January 2017.  The investment was equity accounted prior to the increase in shareholding to 85%, at which point it became a subsidiary and therefore met the definition of a business combination (see note 22 for more details).  The acquisition of the 15% non-controlling interest for £61,000 (US$75,000) has been recorded directly into retained earnings.

During the previous year, the Group reached agreement to buy out its joint venture partners in Nektan Marketing Services Limited ("NMS") and terminate the put option held by them for consideration of £500,000 payable in cash.  An initial payment of £250,000 was made in August 2017 with a further £150,000 in February 2018 and £100,000 in August 2018.  This was offset by certain credit notes received by the Group to arrive at net settlement cost of £105,000.  The remaining investment of £97k was impaired in full.

 

11.  Trade and other receivables

 

 

 

At

 30 June 2018

At

 30 June 2017

 

£'000

£'000

 

 

 

Trade Receivables

126

79

Client segregated funds

600

131

Payment provider receivables

1,201

748

Prepayments and other debtors

675

847

 

2,602

1,805

 

 

 

The ageing of receivables that are past due but not impaired is shown below, these relate to customers with no default history:

 

 

At

 30 June 2018

At

 30 June 2017

 

£'000

£'000

 

 

 

Between one and two months

-

-

Between two and three months

5

7

More than three months

7

19

 

12

26

 

In determining the recoverability of receivables the Group considers any change in the credit quality of the receivable from the date credit was granted up to the reporting date.

 

The Group utilises one principal payment service provider that processes approximately 80% (2017: 87%) of the Group's payment receipts. The amount outstanding from this payment service provider at 30 June 2018 was £765k (30 June 2017: £390k). 

 

The Directors consider that the carrying amount of the trade receivables and other approximate to their fair value due to their short term maturity. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable shown above. The Group does not hold any collateral as security.

 

12.  Cash and cash equivalents

 

 

At

 30 June 2018

At

 30 June 2017

 

£'000

£'000

 

 

 

Cash in bank accounts

1,402

638

 

Interest is earned at floating rates on cash held on short-term deposit.  All of the Group's cash and cash equivalents are held with major UK, Gibraltar or US banks.

 

The following cash and cash equivalent amounts were held in foreign currencies. The remaining balance was denominated in UK Pound Sterling (£).

 

At

 30 June 2018

At

 30 June 2017

 

£'000

£'000

 

 

 

United States Dollars

32

38

Euros

2

7

Indian Rupees

58

34

 

92

79

 

The Directors consider that the carrying value of cash and cash equivalents is approximate to their fair value.

 

 

13.  Trade and other payables

 

 

At

30 June 2018

At

 30 June 2017

 

 

£'000

£'000

 

 

 

 

Trade payables

613

1,481

Player balances

647

384

Other payables

703

380

Owed to former NMS joint venture partner

100

500

Corporation tax liability

92

79

Partner revenue shares

1,265

980

Gaming duty

2,872

1,576

Jackpot contribution accruals

872

339

Other accruals

1,614

835

Finance lease obligations

1

8

 

8,779

6,562

 

Player balances represents amount due to customers including net deposits received, undrawn winnings, progressive jackpots and certain promotional bonuses.  The Group's policy is to ensure that these balances are fully covered by either cash or by funds held with payment processors (note 11).

 

The Directors consider that the carrying value of trade and other payables is approximate to their fair value.

 

14.  Derivative financial liabilities

 

The derivative financial liabilities arise on two separate elements.  Firstly the fair value derivative component of the convertible loan notes issued in previous periods and secondly the derivative element of the warrants issued in conjunction with the loans from Sandeep Reddy and Gary Shaw during the year.  Both these derivative elements will unwind during the course of the life of the instruments to which they attach.

 

 

At 30 June 2018

At 30 June 2017

 

£'000

£'000

 

 

 

Fair value derivative component of convertible loan notes (note 16)

931

800

Fair value derivative component of July 2017 loans (note 17)

1,417

-

 

2,348

800

 

15.  Finance lease creditor

 

During the year to 30 June 2016, the Group entered into finance leases for computer equipment with a net book value of £62,000.

Future lease payments are as follows:

 

Minimum lease payments

Interest

Present value

 

£'000

£'000

£'000

 

 

 

 

Not later than one year

1

-

1

Between one year and five years

-

-

-

 

1

-

1

      

16.  Convertible Loan Notes

 

The Company raised £5,829k in the year to 30 June 2015 ("Tranche 1 and 2") and a further £5,271k in the year to 30 June 2016 ("Tranche 3 and 4").  The conversion price is at a 25% premium to the price at the most recent equity issue price prior to the conversion of the loan notes, subject to a maximum conversion price. The maximum conversion price is subject to rebasing in the event of a share issue. At the balance sheet date, the conversion price was 26.25p and the maximum conversion price was 101.25p.

Interest of 10 per cent. per annum is payable quarterly in arrears, however during the previous year the Company reached agreement with the loan noteholders to defer the interest on the Series A CLNs until April 2020 with the Company having the option quarterly to restart interest payments.  At the same time, it was agreed that if the Company exercises its right to defer interest, the Series A CLN holders will be granted a warrant to buy Ordinary Shares, exercisable immediately at the lowest prevailing equity issue price per share up to the value of the interest so deferred.  The issue of the warrants gives rise to a share based payment charge (see note 28 for more details).  In December 2017, it was agreed with the loan noteholders that the warrants for any future interest deferral would be removed.  As at 30 June 2018, seven quarters of interest payments had been deferred leading to an interest accrual of £1,604k (2017: £750k).

Any notes that have not been converted will be redeemed in full on 28 April 2020.

 

 

At 30 June 2018

At 30 June 2017

 

£'000

£'000

 

 

 

Convertible loan notes (nominal value less transaction costs)

7,325

8,105

Effective interest less accrued interest

482

239

Accrued interest

1,604

750

Non-current liabilities

9,411

9,094

 

 

2018

2017

Balance at 1 July

9,094

9,199

Principal amount converted

(780)

(1,094)

Effective interest less accrued interest in the period

243

239

Accrued interest in the period

854

750

Balance at 30 June

9,411

9,094

 

The number of shares that will be issued upon conversion of the notes is variable and therefore, on recognition the proceeds received from the issue of the notes, net of directly attributable transaction costs, have been allocated between the derivative financial liability based upon the fair values on inception of the conversion option and the host debt.  During the year ended 30 June 2018, £780,000 (2017: £1,094,500) of the Series A CLN were converted at a price of 26.25p (2017: 34.375p) leading to 2,971,428 ordinary shares being issued (2017: 3,184,000).

The debt component has subsequently been measured at amortised cost based on an effective interest rate of 13.6% for Tranches 1 &2 (2017: 11.12%) and 19.1% for Tranches 3 & 4 (2017: 16.20%). The difference between the carrying amount of the liability component at the date of issue and the amount reported at 30 June 2018 represents the effective interest rate less the interest paid to that date.

The derivative financial liability has been revalued at the balance sheet date (note 14) assuming an expected life of 1.5 years                 and a volatility of 50%, which has resulted in a fair value loss to the income statement of £131,000 (2017: gain of £257,000). Due to the equity issue during the year, the conversion price of the CLN going forward rebased to 26.25p.

The Convertible Loan Notes are secured by a first ranking fixed and floating charge on the assets of the Company and each of the Company's subsidiaries, with all other loans to the Company ranking behind the Convertible Loan Notes' security. 

17.  Shareholder loan

In July 2017, the Company announced that it had secured commitments to raise £2,500,000 through two separate facility agreements with two of its Directors, Gary Shaw for £1,300,000 and Sandeep Reddy for £1,200,000, with a redemption date of two years following draw down and a coupon of 10%.  The details are as follows:

 

Gary Shaw

Sandeep Reddy

Total

 

£

£

£

 

 

 

 

Amount of original facility

1,300,000

1,200,000

2,500,000

 

 

 

 

Amount drawn down in year

1,185,000

800,000

1,985,000

Interest accrued

86,542

73,027

159,569

Total outstanding as at 30 June 2018

1,271,542

873,027

2,144,569

 

No further amounts may be drawn down under the facility.  As part of the commitment secured, the Company agreed to issue 5.36 warrants at a price of 27.5p per warrant for each £1 drawn down.  As at 30 June 2018, £1,985,000 had been drawn down resulting in 10,639,600 27.5p warrants being issued.

In addition, anti-dilution warrants were agreed to be issued in the event of any equity issue at a price of lower than 27.5p in the 12 months from the date the facility was agreed to 28 July 2018.  Following the issue of equity at 21p in December 2017, 2,064,270 anti-dilution warrants of 1p were issued to Gary Shaw and 1,393,600 to Sandeep Reddy taking the average warrant price to 21p.

The total warrants issued therefore following the draw down of £1,985,000 is 14,097,470 (see note 28).

The terms of the anti-dilution warrants mean that a variable number of shares could be issued so the warrants are accounted for as an embedded derivative in the host debt contract.  Initially, both elements are therefore fair valued giving rise to:

 

At draw down

During the period

At 30 June 2018

 

£'000

£'000

£'000

 

 

 

 

Derivative liability of loan drawn down

1,509

(92)

1,417

Loan liability at amortised cost

476

-

476

Liability excluding interest

1,985

(92)

1,893

 

 

 

 

Actual interest expense

-

160

160

Difference between actual interest and effective interest

-

262

262

Total effective interest

-

422

422

 

 

 

 

Total

1,985

330

2,315

 

 

 

 

Total loan liability at amortised cost and effective interest rate

476

422

898

 

18.  Subsidiaries

 

Details of the Group's subsidiaries as at 30 June 2018 are set out below:

 

Name

Country of incorporation

Proportion of voting rights and Ordinary share capital held

Nature of business

 

 

 

 

Nektan UK Limited

UK

100%

Mobile software development

Nektan Gibraltar Limited

Gibraltar

100%

Internet gaming services

Nektan America Limited

USA

100%

Commercial development

Nektan USA Inc

USA

100%

Internet gaming services

Nektan Gaming Technologies Private Limited

India

100%

Mobile software development

Broadcast Gaming Limited

Gibraltar

100%

Dormant

Respin Games LLC

USA

100%

Gaming software development

Nektan Marketing Services Limited

UK

100%

Dormant

 

19.  Share capital

 

 

Ordinary shares

number

Ordinary shares

£

Allotted, issued and fully paid

 

 

At 1 July 2016

24,102,588

241,026

Issued during the year

11,932,704

119,327

At 30 June 2017

36,035,292

360,353

Issued during the year

11,377,310

113,773

At 30 June 2018

47,412,602

474,126

The issued and fully paid share capital of the Company amounts to £474,126 and is split into 47,412,602 1p ordinary shares.

In January 2018, a total of 2,971,428 shares were issued following notices of conversion from various Convertible Loan Note holders.  The conversion price was 26.25p being a 25% premium to the latest equity raise price at the time of 21p. 

In December 2017, 8,405,882 new Ordinary shares were admitted to AIM following the raising of gross proceeds of £1.76 million and net proceeds of £1.69 million by way of a placing and a subscription of new shares.

In April and May 2017, a total of 3,184,000 shares were issued following notices of conversion from various Convertible Loan Noteholders.  The conversion price was 34.375p being a 25% premium to the latest equity raise price at the time of 27.5p.  The total value of loan notes converted was £1,094,500, leading to 3,184,000 ordinary shares being issued of which £32k was recorded in share capital and the balance of £1,063k in share premium.  On 1 February 2017, 8,748,704 new ordinary shares were issued following an offer for subscription.  The issue price was 27.5p raising gross proceeds of £2,406k of which £50k was a loan converted into equity giving proceeds after costs of £2,191k.

Authorised share capital

The authorised share capital of the Company is £1,000,000 divided into 100,000,000 Ordinary Shares (2017: 100,000,000) of which 47,412,602 Ordinary shares have been issued, credited as fully paid (2017: 36,035,292).

 

20.  Deferred tax liability

 

 

Total

 

£'000

 

 

At 30 June 2016

17

 

 

Deferred tax arising on business combination

1,642

Credited to the income statement on acquired intangibles

(164)

Credited to the income statement in respect of accelerated capital allowances

(13)

At 30 June 2017

1,482

 

 

Credited to the income statement on acquired intangibles

(328)

Charged to the income statement in respect of accelerated capital allowances

3

At 30 June 2018

1,157

 

There is no deferred tax arising in respect of other comprehensive income.

 

21.  Financial instruments and risk management

 

The Group is exposed to the risks that arise from its use of financial instruments. This note describes the objectives, policies and processes of the Group for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout this financial information.

 

The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.

 

Risk management is carried out by management under policies approved by the Board of Directors. Management identifies and evaluates financial risks in close co-operation with the management of the Group's operating segments. The Board provides principles for overall risk management, as well as policies covering specific areas, such as interest rate risk and currency risk.

 

Principal financial instruments

The principal financial instruments used by the Group, from which financial instrument risk arises are as follows:

·      Trade and other receivables

·      Trade and other payables

·      Convertible loan notes and derivatives

·      Cash and cash equivalents

·      Shareholder loans

·      Finance leases

 

 

Financial assets

The Group held the following financial assets:

 

 

At

 30 June 2018

At

 30 June 2017

 

£'000

£'000

Loans and receivables:

 

 

Cash and cash equivalents

1,402

638

Trade and other receivables

2,602

1,805

 

4,004

2,443

 

Financial liabilities

The Group held the following financial liabilities:

 

 

At

 30 June 2018

At

 30 June 2017

 

£'000

£'000

 

 

 

 

 

 

Amortised cost:

 

 

Trade payables

613

1,481

Other payables

1,450

1,264

Total accruals

6,623

3,730

Finance lease obligations

1

32

Shareholder loans

2,315

-

Convertible loan notes

9,411

13,562

 

20,413

20,069

 

 

At

 30 June 2018

At

 30 June 2017

 

£'000

£'000

 

 

 

 

 

 

Fair value through profit and loss:

 

 

Derivative financial liability

2,348

800

 

2,348

800

Financial instruments not measured at fair value within the financial statements

Financial instruments not measured at fair value include cash and cash equivalents, trade and other receivables, trade and other payables and the non-derivative element of the convertible loan notes.

The carrying values of cash and cash equivalents, trade and other receivables, trade and other payables and the non-derivative element of the convertible loan notes approximate their fair value.

Financial Instruments Measured at Fair Value

Included in level 3 of the fair value hierarchy is derivative financial liabilities, which is carried at fair value through profit and loss and therefore movements in fair value are recognised in the income statement through finance expenses. No other financial instruments are measured at fair value through profit and loss. There have been no transfers between levels in any of the above periods.

The valuation technique used in determining the fair value measurement of derivative financial liabilities was the Black Scholes model. The significant unobservable input in this valuation model is the expected date of conversion, volatility and dividend yield. At year-end, these inputs were as follows:

·      Expected date of conversion- 1.5 years (2017: 2.2 years) from year-end for convertible loan notes and 3 years (2017: n/a) for the shareholder loans

·      Volatility- 50% (2017: 50%)

·      Dividend Yield- 0% (2017: 0%)

 

Financial instruments not measured at fair value within the financial statements

The reconciliation of the opening and closing fair value balance of level 3 financial liabilities is as follows:

 

 

 

 

Derivative Financial Liability

 

£'000

 

 

 

 

As at 1 July 2016

1,057

Issues

-

Total gain in profit or loss

(257)

As at 30 June 2017

800

Issues

1,418

Total loss in profit or loss

130

As at 30 June 2018

2,348

 

Management controls and procedures

The Group's Directors monitor and manage the financial risks relating to the operation of the Group.  These risks include market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk.

Market risk

The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.

Market risk is the risk of loss that may arise from changes in market factors such as interest rates and foreign exchange rates.

Foreign currency risk management

The Group has minimal exposure to foreign currency risk, and consequently no sensitivity analysis has been prepared.

The Board carefully monitors exchange rate fluctuations and reviews their impact on the net assets and position of the Group and seeks to economically hedge the impact of foreign exchange by holding sufficient cash in the relevant currencies.  The Group does not enter into any derivative financial instruments to manage its exposure to foreign currency risk.

All trade and other receivable are denominated in Sterling.

                Interest rate risk management

The Group has minimal exposure to interest rate risk.  During the year to 30 June 2018 the Group was exposed to interest rate risk on some of its financial assets, being cash held on bank deposit.  The interest rate receivable on these balances was at a rate less than 0.1 percent (2017: less than 0.1 percent). The Directors currently believe that interest rate risk is at an acceptable level.

Due to its minimal exposure to interest rate risk, the Group has not prepared any sensitivity analysis.

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises principally from the Group's cash balances and trade and other receivables. The concentration of the Group's credit risk is considered by counterparty, geography and currency.

See note 11 for further details on credit risk. In the year impairment charges of £nil (2017: £nil) relating to trade receivables (see note 11) and £nil (2017: £nil) relating to loans from joint ventures (see note 10), have been recognised in the income statement.

The Group gives careful consideration to which organisations it uses for its banking services in order to minimise credit risk.

An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows, although there have been no such impairments over the review period.  Management considers the above measures to be sufficient to control the credit risk exposure.

Liquidity risk management

Liquidity risk is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. This risk relates to the Group's prudent liquidity risk management and implies maintaining sufficient cash. Ultimate responsibility for liquidity risk management rests with the Board of Directors. The Board manages liquidity risk by regularly reviewing the Group's cash requirements by reference to short-term cash flow forecasts and medium term working capital projections prepared by management.

Maturity of financial liabilities

The following table sets out the non-discounted contractual maturities of financial liabilities:

Year ended 30 June 2018

One year or less

Two to five years

Five years and over

 

Total

 

£'000

£'000

£'000

£'000

 

 

 

 

 

Trade payables

613

-

-

613

Other payables

1,450

-

-

1,450

Total accruals

6,623

-

-

6,623

Finance lease obligations

1

-

-

1

Derivative financial liability

2,348

-

-

2,348

Shareholder loans

1,417

898

 

2,315

Convertible loan notes

110

9,301

-

9,411

 

10,199

22,761

 

 

Year ended 30 June 2017

One year or less

Two to five years

Five years and over

 

Total

 

£'000

£'000

£'000

£'000

 

 

 

 

 

Trade payables

1,481

-

-

1,481

Other payables

1,264

-

-

1,264

Accruals

3,730

-

-

3,730

Finance lease obligations

8

24

-

32

Derivative financial liability

800

-

-

800

Convertible loan notes

110

13,452

-

13,562

 

13,476

20,869

 

 

Capital management

The Group is currently funded principally through shareholders' funds and convertible loan notes. During the year ended 30 June 2018, £1,692k (net of costs) was raised through an equity issue (2017: £2,191k) and in the prior year, £1,950k (net of costs) was raised through the sale of three casino brands to Buckingham HMB LLP.  Going forward the Board will consider whether debt or equity financing is more appropriate and proceed accordingly.  The Group is not subject to any externally imposed capital requirements.

 

Fair value estimation

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values because of the short-term nature of such assets and the effect of discounting liabilities is negligible. The risk in respect of fair value estimation is in respect of acquisition accounting.

 

22.  Acquisitions

On 29 December 2016, the Company increased its ownership of Respin from a 50% joint venture to a 85% subsidiary as additional funding of US$1.7m was not matched by the joint venture partner.  The Directors determined that control passed to Nektan at this time and therefore the investment was consolidated as a subsidiary from that time.  On 25 January 2017, the remaining 15% was acquired for US$75k.  As the Group already had control of the entity, the additional payment was recognised directly in equity. 

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

 

Fair value

 

£'000

 

 

Property, plant and equipment

355

Patents

35

Cash

35

Trade and other receivables

7

Trade and other payables

(310)

Fair value of licenses

4,828

Deferred tax liability

(1,642)

Minority interest

(496)

Total net assets

2,812

 

 

Fair value of consideration paid:

 

Release of receivable due from joint venture

134

Fair value of 50% shareholding

2,678

Total consideration

2,812

Goodwill

-

 

The revenue and costs associated with Respin since acquisition are included in Note 2 and during the period from 1 July 2016 to 31 December 2016, the entity recorded a total loss of £1,014k, with Nektan's share being £507k.  The loss in the 6 month period post-acquisition to 30 June 2017 was £752k with revenue of £13k. The total loss for the year to 30 June 2017 for the Group would have increased by a further £507k if the acquisition had occurred at the start of the year with no impact on revenue.

The Directors were required to fair value the 50% shareholding at acquisition date.  The fair value was in line with the carrying value of the investment and, therefore no fair value adjustment was required through the income statement.  The key assumptions in arriving at the fair value of £2,678,000 were:

Discount rate of 27 per cent.

Cashflows in FY18, FY19 and FY 20 based on the Board approved budgets including revenue growth in 2019 of 1,102%, 2020 of 125%, 10% in FY21 & FY22 and 5% in FY23

The use of a 6 year model beyond is based on the overall expectations of this being a growth market

Terminal Growth rate of 2 per cent.

The Directors based on their best estimates and knowledge of the business determined that the goodwill arising on the transaction was negligible due to the business having a small workforce and no significant contracts in place and therefore no goodwill has been recorded. 

 

23.  Related party transactions

 

Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

 

The remuneration of the Directors and other executive management, who are the key management personnel of the Group, is set out below:

 

 

Year ended

 30 June 2018

Year ended

 30 June 2017

 

£'000

£'000

The aggregate remuneration comprised:

 

 

Salaries/fees

317

433

Bonus

56

141

Benefits in kind

21

28

Share options

-

32

 

394

634

 

 

The following related party transactions took place during the period:

 

During the year, the following directors had transactions or interests in the Company's Convertible Loan Notes:

 

 

At

 30 June 2018

At

 30 June 2017

 

 

 

 

Gary Shaw

CLN Balance

£300,000

£300,000

 

Interest received

-

£7,500

 

Deferred interest

£30,000

£22,500

 

Deferred interest warrants

58,417

81,596

 

 

 

 

Jim Wilkinson

CLN Balance

£250,000

£250,000

 

Interest received

-

£6,250

 

Deferred interest

£25,000

£18,750

 

Deferred interest warrants

48,682

67,997

 

 

 

 

Venture Tech Assets*

CLN Balance

£1,000,000

£1,000,000

 

Interest received

-

£25,000

 

Deferred interest

£100,000

£75,000

 

Deferred interest warrants

194,723

271,982

* A company controlled by Sandeep Reddy

As part of the equity raise in December 2017, Jim Wilkinson subscribed for 257,143 ordinary shares.

In July 2017, the Company announced that it had secured commitments to raise £2,500,000 through two separate facility agreements with two its Directors, Gary Shaw for £1,300,000 and Sandeep Reddy for £1,200,000 with the balance having expired.  The details are as follows:

 

Gary Shaw

Sandeep Reddy

Total

 

£

£

£

 

 

 

 

Amount of facility

1,300,000

1,200,000

2,500,000

 

 

 

 

Amount drawn down

1,185,000

800,000

1,985,000

Interest accrued

86,542

73,027

159,569

Total outstanding

1,271,542

873,027

2,144,569

During the prior year, as part of the equity raise in January 2017, Gary Shaw subscribed for 636,363 ordinary shares, Jim Wilkinson subscribed for 181,818 ordinary shares, Leigh Nissim subscribed for 90,909 ordinary shares and Sandeep Reddy subscribed for 3,181,818 ordinary shares, either directly or through their associated companies.

During the prior year the Group sold three casino brands for total proceeds of £1.95m in cash to Buckingham HMB LLP.  A Director's wife has a 8.45% interest in Buckingham HMB LLP and is also a designated member of the LLP. The assets had nil cost and this resulted in a profit net of legal costs of £1,897,000.

During the prior year, the Group contributed a further £1,014,000 to its joint venture partner, Respin Games LLC.  On 21 December 2016, the Company increased its ownership of Respin to 85% as additional funding was converted to an increased membership interest, transitioning the business to an operating subsidiary from a joint venture.  In January 2017, the outstanding 15% was acquired for US$75,000.

 

24.  Post-balance sheet events

On 27 December 2018, the Company announced that it had received in principle support to raise £3.5m in cash through the sale of 57.5% of its US subsidiary Respin for £2.0m and to raise £1.5m through an equity placing and subscriptions for new ordinary shares at the Placing Price.

In addition, the Company has reached agreement with holders of approximately £4.3m of the outstanding balance of the £8.1m Series A convertible loan notes and loan noteholders who own £1.2m of the outstanding convertible loan note interest to convert into new ordinary shares at the Placing Price resulting in the issue of, in aggregate, approximately 36.6m new ordinary shares.  Following the conversions, the coupon on the Series A convertible loan note will be reduced from 10% to 2.5%.

Shareholder loans as detailed in note 17 have been amended to extend the repayment date from July 2019 to 31 March 2020.  Furthermore, Gary Shaw, Executive Director of the Company, has agreed to convert £650k of his shareholder loan and the accrued interest on the full loan of £148k at the Placing Price resulting in the issue of 5,321,680 new ordinary shares.

 

25.  Ultimate parent undertaking

 

The Directors consider that there is no ultimate controlling party.

 

26.  Operating leases

 

The total future value of minimum lease payments due is as follows:

 

Land and buildings

At

 30 June 2018

At

 30 June 2017

 

£'000

£'000

Operating leases

 

 

Expiring less than one year

118

153

Expiring between one and two years

98

107

Expiring between two and five years

5

98

 

221

358

 

27.  Contingent liabilities

 

As part of the Board's ongoing regulatory compliance process, the Board continues to monitor legal and regulatory developments and their potential impact on the Group.

Management is not aware of any contingencies that may have a significant impact on the financial position of the Group.

 

28.  Share based payments and warrants

During the year ended 30 June 2018, 986,7223 options and warrants were granted or contracted to service providers and members of staff (year ended 30 June 2017 and prior years, 1,222,233), a further 1,734,074 interest deferral warrants to CLN noteholders (year ended 30 June 2017: 2,657,415) and 60,000 options lapsed during the year (year ended 30 June 2017: nil).

 

Current and former employees

Suppliers

Interest deferral warrants

2017 loan warrants

Total

 

Number

Average price

Number

Average price

Number

Average price

Number

Average price

Number

Average price

As at 1 July 2016

-

-

803,310

115.9p

-

-

-

-

803,310

115.9p

Granted during the year

1,113,142

30.6p

109,091

27.5p

2,657,415

27.5p

-

-

3,879,648

28.4p

As at 30 June 2017

1,113,142

30.6p

912,401

105.3p

2,657,415

27.5p

-

-

4,682,958

43.4p

Granted during the year

986,723

27.5p

-

-

1,734,074

24.1p

14,097,470

21.0p

16,818,267

26.3p

Lapsed during the year

(60,000)

27.5p

-

-

-

-

-

-

(60,000)

27.5p

As at 30 June 2018

2,039,865

28.9p

912,401

105.3p

4,391,489

26.1p

14,097,470

21.0p

21,441,225

26.4p

 

The exercise price of options/warrants outstanding at 30 June 2018 ranged between £0.01 and £2.36 (2017: ranged between £0.01 and £2.36) and their weighted average contractual life was 4 years (2017: three years three months).

The breakdown of options and warrants is as follows:

Expiry Date

Number

Price

August 2018

352,722

121.2p

January 2019

155,136

39.8p

May 2019

30,986

145.4p

December 2019

58,617

236.0p

May 2020

109,851

167.5p

October 2020

24,749

155.0p

December 2020

37,517

145.0p

March 2021

51,358

81.0p

April 2021*

3,473,624

27.5p

April 2021*

917,865

21.0p

February 2022

109,091

27.5p

April 2022

53,097

56.5p

July 2022**

2,010,000

27.5p

July 2022***

653,250

1.0p

August 2022**

4,556,000

27.5p

August 2022***

1,480,700

1.0p

December 2022**

4,073,600

27.5p

December 2022***

1,323,920

1.0p

November 2024

137,510

1.0p

April 2027

250,000

27.5p

June 2027

504,000

27.5p

June 2027

90,909

27.5p

December 2027

909,091

27.5p

June 2028

77,632

19.0p

 

21,441,225

26.4p

* The interest deferral warrants are capable of being exercised up to 12 months following the CLN final redemption date which is currently April 2020.

** Warrants issued as part of the July 2017 debt fund raise.

*** Anti-dilution warrants issued as part of the July 2017 debt fund raise.  These are only capable of being exercised in conjunction with the warrants to which they relate bringing the average warrant price down from 27.5p to 21.0p.  All other anti-dilution warrants from the July 2017 debt raise and previous equity raises have now lapsed.

The weighted average fair value of each option/warrant granted during the period was 22.4p (2017: 28.4p).

The following information is relevant in the determination of the fair value of options/warrants granted during the period:

 

Year ended

 30 June 2018

Year ended

 30 June 2017

 

 

 

Option pricing model used

Black-Scholes

Black-Scholes

Share price at date of grant

24.5p to 26.5p

27.5p to 56.5p

Exercise price

1.0p to 27.5p

27.5p to 56.5p

Option life

3 years to 10 years

3 years to 10 years

Risk free rate

0.4%

0.4%

Expected volatility

50%

50%

Expected dividend yield

Nil

Nil

 

The volatility assumption, measured at the standard deviation of expected share price returns, is based on a statistical analysis of monthly share prices.

 

The total share based payment charge for the year was £210,000 (2017: £566,000).

 


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