BNN Resources Regulatory News (BNN)

25 September 2014

DJI Holdings plc

Half year results for the six months ended 30 June 2014

DJI Holdings plc (AIM: DJI, "the Group", "DJI" ), a licensed promoter and distributor of Chinese sports and welfare lottery products to third party retailers and direct to consumers, announces its unaudited half year results for the six months ended 30 June 2014.

Highlights

· IPO successfully completed in July 2014 raising gross proceeds of £15 million

· Gross sales £134 million - £113 million in Q2 2014, 423% increase on Q1 2014 

· June gross sales £80 million, a 347% increase on May due to increased volume from World Cup Football sales and corresponding improvements in other online lottery sales

· Net revenue £3.4 million (2013: £0.5 million) - £2.7 million in Q2 2014 

· June - first month of profitability - continued to be profitable since

· Registered player base on main consumer website reached 4.5 million, up more than 100% since the business acquired in March 2014

· Sales maintained momentum after World Cup as new players continuing to participate in weekly, daily and high frequency draw games in July and August.

o Sales of draw games were up 86% in August compared to June

· Strong progress towards the strategic objectives

o Joint venture funded and operational

o Drive to capture market share in the expanding mobile lottery sales market

o Offline to online pilot set to launch in the fourth quarter

Darren Mercer, CEO of DJI, said:

"2014 has been a very exciting for DJI. Our business has successfully achieved profitability for the first time as a result of the significant growth in our digital business. It has been pleasing to see this momentum in growth and profitability continue into the third quarter.

"Our strong license position and robust technology provide us with an ideal base to grow across both our B2C and B2B platforms. Additionally we continue to work on a number of new developments which we are confident will make a significant contribution in 2015.

"While the China lottery industry has grown considerably online this year, we are seeing indications that mobile is set to make significant gains as a platform of choice for lottery consumers. We are well-positioned to benefit from this trend in the second half of 2014, into 2015 and beyond."

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About the Group

The Group is a licensed and authorised distributor and promoter of regulated lottery products in the rapidly expanding Chinese lottery market.

The Group is principally engaged in:

· supply and fulfilment of lottery products to third party e-commerce websites

· offering lottery products directly to consumers via its own websites and mobile applications and through a number of official provincial lottery websites

· partnerships or affiliate agreements with key government and corporate partners to deliver lottery solutions to consumers.

The Group is committed to bringing its management and technology expertise, as well as its international relationships to the lottery industry to improve the offering to the millions of lottery consumers in China.

The Group's subsidiary companies have been serving the Chinese lottery industry since 2001 and have demonstrated a strong track record of delivery and reliability in working with provincial lottery partners, government agencies and corporations to improve standards throughout the lottery industry in China.

DJI's growth is a testament to the quality and depth of the Group's relationships with key participants within the industry and with its employees as well as the quality of management, technology and partners.

The Group employs more than 275 employees and professionals throughout China.

Strategy and objectives

The Group's strategy is to capitalise on the opportunity to deliver lottery ticket fulfilment sales to its substantial client base of large Chinese corporations (B2B) and individual consumers via the Group's owned and operated websites and mobile applications (B2C) within the online and mobile environment.

DJI's objective is to become a leading distributor of Sports and Welfare lottery products in China.

Over the past five years, we have invested considerable time and resources into building and developing our reputation for service, marketing and technical excellence in the Chinese lottery industry.

Business review

At the end of 2013, the Group formally commenced trading in our digital business, focused on lottery consumers and key lottery sellers. The Group started the year with one of the leading portfolios of teledraw licenses in the Welfare Lottery space and significant contractual relationships with four leading Sports Lottery centres. It was key for DJI to create a strong and robust B2B platform to support its growing customer base of leading Chinese lottery sites. Towards the end of the first half, we were able to process considerably larger volumes of lottery ticket sales and the Group is now well placed to become the natural partner of choice for new entrants seeking to benefit from the sale of lottery products to their large base of registered users.

During the first six months of 2014, we have witnessed significant growth in the business as a consequence of the structure of our operating cost model, we consistently reduced our operating losses and in June, for the first time the Group moved into profitability on a monthly basis. The Group has continued to be profitable in the successive months following the period end.

While we operate a number of websites and mobile applications, our direct to consumers strategy is built around our B2C site, Woying.com, which has now been fully integrated into the Group. Our registered user base on the site more than doubled during the six month period and we completed the half year with more than 4.5 million registered users.

Our websites and mobile applications benefitted considerably from the World Cup in June and our high expectations are supported by the continued activity from new players following the completion of World Cup as evidenced by the 85% increase in sales of draw games in July and August compared to June.

As we continue to develop the customer experience on our sites and mobile apps, together with the introduction of our gaming engine and other sports centric promotion resources, we have high expectations of our opportunities to build our direct to consumer online and mobile sales.

At the end of 2013, the Group signed an MOU with a leading Sports Lottery Centre for the provision of a new high-frequency game, to be distributed both online and through retail stores. Although bounded by confidentiality agreements, we and our partner are encouraged by testing results achieved thus far and we have commenced the application process for approval of our first games by central government.

We are now seeing the benefits of our broad approach to the Chinese lottery industry and our long-standing reputation which has served us well in building strong relationships with a number of key Lottery centres, leading e-commerce sites and leading industrial partners.

The Group believes that the drive to sustain growth is likely to be supported by increased regulation in terms of the roll out of new game product and the continued development of the electronic and mobile channels. This should benefit the Group, given our focus on the online segment; specifically sports, access to high frequency games through our provincial license portfolio, and our investment in new game development.

Outlook

In the first half of 2014, China has seen a continuation of the rapid increase in the use of smart phones as a vehicle for commerce in China. Currently, over 83% of internet users (527 million - according to CNNIC Report) access the internet via their mobile phone, a trend that has been fuelled by the rapidly decreasing cost of smart phones in China, together with the planned full roll-out of 4G in 2015.

This trend is also occurring in the lottery industry where we are already witnessing a large migration of lottery customers to online and mobile as a preferred channel and the trend is expected to continue for the foreseeable future. We are not alone in our view that mobile is likely to eventually become the dominant channel for lottery ticket sales.

As the mobile market continues to play an increasingly important role in our industry, we believe it to be inevitable that the offering has to become more sophisticated for the end user. To ensure that we have a market-leading position within this area we have invested in leading-edge technology through the acquisition of the Woying mobile technology platform. The platform gives us considerable advantages over our competitors in that it provides more flexibility and an enhanced customer experience. Combining those technological advantages with our strong licensing position we are currently at various stages of discussions with a number of parties to roll-out our mobile app in the near future.

We have also been investing in new digital game content specifically aimed at mobile phone users and have plans to seek the necessary government approvals to make some of these new games available to the market.

In August we completed the funding of our joint venture partnership and the partnership is now fully operational. Initial efforts are focused on securing new provincial operating and fulfillment licences, introduction of new game content and the roll out of our consumer solutions to capitalize on our shared customer base. We are very encouraged by this opportunity and we believe that it offers a significant opportunity to achieve our objectives and to execute our longer term strategy.

Good progress has been made in an important transitional area of the lottery business - the promotion of offline to online sales. With some 400,000 lottery stores throughout mainland China and a significant move towards mobile and online lottery ticket sales, it is our belief that there is a significant opportunity to link the two with the creation of an Offline to Online platform targeting existing store customers.

We have been working with key provincial lottery centre partners and our platform is due for trial in a Sports Lottery province after the Chinese October holiday. We are very confident that once this platform has been rolled-out, it will make a significant contribution to Group revenues.

Our progress in the first half of 2014 affirms the Board's expectations for the full year. We look forward with considerable confidence to continued success in the second half of this year.

Industry overview

During the first six months of 2014, the Chinese lottery market recorded sales of RMB178.4 billion, an increase of 19.2% compared to the same period in 2013. According to industry estimates, online lottery sales of RMB35.8 billion accounted for 20% (2013: 13.5%) of total sales in 2014 This translates into estimated online sales growth of 77%.

Sports lottery sales of RMB79.9 billion (45% of total sales) increased 24% largely due to a 62% increase in sports betting, driven by the success of FIFA world cup in attracting new players to the sports lottery, while draw games increased by 15%.

Welfare lottery sales of RMB98.5 billion (55% of total sales) increased 15% driven by 28.5% growth in VLT hall sales. Industry figurers estimate that there are now 33,000 terminals placed in 1300 VLT halls throughout the nation.

Product review:

Source: PRC Ministry of Finance

Draw game sales, including weekly and daily draw games, continue to account for the largest portion of lottery sales (66%) and have benefitted from the rapid growth of high frequency games. Draw games grew 14.5%, which represented 52% of the total sales growth in the industry.

During the same period, Sports-betting increased from 12% to 14% of total lottery sales, largely as a result of the popularity of FIFA World Cup in June. The exposure of lottery to a large new online player base during this event is believed to have benefitted the sale of draw games online also and is believed to result in higher sales during the upcoming sports season and continue to benefit lottery sales for the balance of the year.

Financial review

Gross revenues in the half reflect the impact of the substantial launch of the digital business at the beginning of the year and the inclusion of results from the 2014 World Cup in the month of June where adjusted gross sales totaled approximately £80 million.

Gross sales and net revenue amounted to approximately £134.2 million and £3.4 million respectively (2013: £5.7 million and £0.5 million respectively). £2.7 million of the net revenues came in Q2 2014.

The majority of the Group's lottery ticket sales for the period (97%) were derived from the online sale of lottery products (2013: 15%). The migration to online sales commenced in Q4 2013 following the launch of the Group's digital lottery ticket fulfillment platform and the Group's March acquisition of an 80% interest in I Will Win, a leading online and mobile retailer of lottery products.

Welfare Lottery accounted for 38% of gross online sales and Sports Lottery accounted for 62%, though in June, due to World Cup, Sports Lottery accounted for 81% of the Group's online lottery sales.

Online sales in August recorded year on year growth of 222% on a pro forma basis due to an 86% increase in draw game sales since June, as new players who discovered lottery online during World Cup, have continued to play other lottery games.

Sports-betting sales have increased 259% on a pro forma basis compared to August 2013.

The Group's B2B business accounted 83% of online revenue, while the Group's websites and mobile applications accounted 17%.

Gross profit of £2.1 million (£1.5 million Q2 2014) yielded 1.5% largely due to the strength of the Group's lottery ticket fulfillment platform which accounted for 87% of gross sales and the fact that the land business margins have been reduced due to the substantial shift of that business to wholesale selling. This result is in contrast to 2013, where gross sales were mostly derived from the Group's retail outlets resulting in much higher gross margin percentages (9%) and a correspondingly higher operating cost base. In the first six months of 2014, land based sales accounted for less than 3% of gross sales compared to 85% in 2013.

Online and mobile revenues accounted for 90% of the Group's gross margin (2013: 11%).

Overheads of £4.3m increased, as expected by 7% in 2014 largely due to the inclusion of operating costs associated with newly acquired businesses. On a same store basis, they decreased by 14% due to the elimination of more costly land based operations, offset by non-recurring travel and professional fees associated with acquisitions and the recent IPO as well as severance costs related to the restructuring of the land business. Overall wage related costs increased only 7.5% year on year despite the addition more than £365,000 in wage related costs directly attributable to newly acquired businesses and more robust management on the ground in China. On a same-store basis, wage costs were actually 10% lower than last year. Lower wage costs are mainly due to reductions in wage overheads associated with the land business.

Net loss for the period reduced 38% to £2.3m (2013: loss £3.7m) compared to last year as increasing revenues and stable costs have led to continuous reduction of the monthly losses through the first half of 2014 up June.

In June the Group achieved profitability (EBITDA and Net Income of £400,000 and £311,000 respectively) despite including severance costs and a number of other non-recurring costs related to the IPO. Costs included severance payments associated with the reduction in the number of retail outlets and wholesale operations and associated management; and travel and professional fees related to the Group's IPO.

The Board is not paying an interim dividend.

The Group had cash of £2.9m at 30 June 2014 (H1 2013: £7.4 million). There was net cash outflow of -£2.4m attributable to £2.2 million increase in cash from operations offset by payments attributable to acquisitions and fixed assets of £7.7 million and £3.2m cash received relating to new share issues (net of conversion of £500,000 borrowings) during the period.

At the half year the Group had deposits with various lottery centers totaling £5.5 million and held deposits on clients' behalf of £3.6 million.

Total assets and net current assets of the Group as at 30 June 2014 were approximately £24.7 million and negative £2.7 million respectively (31 December 2013: approximately £12.8 million and £3.3 million respectively).

As at 30 June 2014, the majority of the Group's bank deposits are denominated in RMB and pounds sterling (£). Since the majority of its revenue-generating operations, monetary assets and liabilities are conducted or transacted in RMB and £, the Group manages exchange risk as an ordinary part of its financial decision-making process. The Group faced minimal exchange rate risk during the period.

The Group raised £15m in July as a result of new share issue (£9m) and the issuance of a convertible loan (£6m) resulting in net proceeds of £12.8m. The Group considers continued investment in the development of its differentiated digital offering such as content, brand partnerships and improved promotion offerings as key to future growth.

Total staff costs for the six month period amounted to approximately £2.3 million (2013: £2.1 million).

As at 30 June 2014, the interests and outstanding stock options of the Directors of the Company in the shares of the Company were as follows:

1 On 17 July 2014, Darren Mercer entered into a call option agreement under which the holders of the Convertible Loan Notes issued by the Company have been granted the option to acquire 5,838,253 Ordinary Shares from Darren Mercer at £1.00 for a period of three years from the date of the agreement. However, in the event the Convertible Loan Notes are redeemed in full or converted into Ordinary Shares, then the option will expire within one year of such an event.

So far as was known to the directors of the Company, with the exception of directors, as at 30 June 2014, the following had or were deemed to have interests in the Shares or underlying shares which are in excess of 3% of the Company's total outstanding share capital:

During the six month period, the Company appointed Gateley Secretaries Limited as the company secretary and authorized representative of the Company with effect from 12 June 2014.

Summary of financial results

Notes:

1. Basis of preparation

The condensed interim financial statements do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006, and should be read in conjunction with the Annual Report of DJI Holdings PLC for the year ended 31 December 2013 (the '2013 Annual Report'). The 2013 Annual Report was audited by the Group's auditor, Deloitte LLP, their report was unqualified and did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report. The financial information for the 6 months ended 30 June 2014 and 30 June 2013 has not been subject to audit by the Group's auditor.

The financial information for the full preceding year is based on the audited statutory accounts for the financial year ended 31 December 2013 prepared in accordance with IFRS as adopted by the European Union.

The Group's condensed interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union and the accounting policies included in the Annual Report for the year ended 31 December 2013, which have been applied consistently throughout the current and preceding periods.

DJI Holdings PLC is a company incorporated in the United Kingdom under the Companies Act. These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates.

2. Significant accounting policies

Basis of consolidation

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Non-controlling interests in subsidiaries are identified separately from the Group's equity therein. Those interests of non-controlling shareholders that are present ownership interests entitling their holders to a proportionate share of net assets upon liquidation may initially be measured at fair value or at the non-controlling interests' proportionate share of the fair value of the acquiree's identifiable net assets.

The choice of measurement is made on an acquisition-by-acquisition basis. Other non-controlling interests are initially measured at fair value. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests' share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in the Group's interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amount of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Company.

When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities are disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the costs on initial recognition of an investment in an associate or jointly controlled entity.

Goodwill

Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer's previously held equity interest (if any) in the entity over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.

If, after reassessment, the Group's interest in the fair value of the acquiree's identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer's previously held equity interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

The Group's policy for goodwill arising on the acquisition of an associate is described above.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.

The Group's revenues principally arise from the sale of lottery tickets and related products through multiple channels. Revenue is recognised at the point of sale as the net commission receivable by the Group.

Impairment of tangible and intangible assets excluding goodwill

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine

the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment at least annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Going concern

The Directors have reviewed trading and cash flow forecasts which take into consideration the uncertainties in the current operating environment.

At 30 June 2014, the Group was funded by cash balances of £2.9 million and did not have access to any borrowing facilities. As a continuation of the Company's business strategy and in response to the need for continuing investment support, subsequent to the end of the reporting period, the Company raised net proceeds of £12.8 million through the issuance of a £6 million convertible loan note and the issuance of 9 million Ordinary Shares for net proceeds of £6.8 million. The Company's shares commenced trading on 24 July 2014 on the London AIM Stock Exchange.

In light of the cash raised above and in consideration of the Group's detailed business plan, the Directors have concluded that they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.

3. Critical accounting judgments and key sources of estimation uncertainty

In the application of the Group's accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in financial statements.

Control

Chinese law and regulations restrict foreign investment in lottery businesses. Accordingly, the Company's Chinese business operations are conducted through a series of arrangements with companies wholly owned by Chinese resident nominee shareholders.

These arrangements enable the Group to control the operations of the entities and provide a variable interest in the results of operations. As the Group has concluded it has the power to govern the financial and operating policies of these entities to obtain benefits from their activities, the entities are included in the consolidated financial statements.

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.

Recoverability of software and other tangible assets

During the period, management considered the recoverability of its software and other tangible assets which is included in its balance sheet at £741,248. The roll-out of lottery operations continues to progress in a satisfactory manner, and customer reaction and the expansion into new areas has reconfirmed management's previous estimates of anticipated revenues.

Sensitivity analysis has been carried out and management is confident that the carrying amount of the asset will be recovered in full, even if returns are reduced. This situation will be closely monitored, and adjustments made in future periods if future market activity indicates that such adjustments are appropriate.

4. Gross sales and revenue

Gross sales

Gross sales are shown below as a memorandum disclosure and represent the total transaction value of all lottery sales and services, net of VAT and other sales taxes for the six month periods as indicated. The Group reports the total transaction value since the directors believe that it reflects more accurately the transactional volume within the Group.

Revenue

An analysis of the Group's revenue, all of which arose from the Group's operations in China, is as follows:

5. Goodwill

Acquisitions

On 28 March 2014 the Group acquired 80% of the issued share capital and control of, I Will Win Limited for total consideration of RMB84.8 million (approximately £8.3 million). The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out below:

The goodwill arising from the acquisitions represents expected synergies and growth potential arising from the acquisitions. Goodwill is not expected to be deductible for tax purposes. The acquisition occurred at the end of the period and therefore did not have any impact on the Group's revenue or loss for the period.

The initial cash consideration is payable upon satisfactory completion of a certain conditions precedent and the contingent consideration arrangements require payment of up to RMB60 million (approximately £5.9 million) dependent upon the pre-tax earnings of the acquired business over the period to 31 December 2015, all contingent consideration is payable 40% in cash and 60% in the equity of the Group. The potential undiscounted amount of all future payments that the Group could be required to make is between £1.4 million and £7.3 million. The fair value of the contingent consideration arrangement was estimated based on future trading expectations and has been estimated at £4.7 million.

At 30 June 2014, the purchase accounting for this acquisition remains preliminary as the Group continues to finalise the fair values of the assets and liabilities acquired and resulting consideration payable.

6. Trade and other payables

7. Share Capital

During the period, the Company issued 3,324 ordinary shares of 10p each for cash consideration of £1,023,792 giving rise to a share premium of £1,023,460. Additionally, 6,950 shares were issued in consideration for the acquisition of I Will Win Limited (see note 5).

The Company has one class of ordinary shares which carry no right to fixed income.

On 17 April 2014, the company performed a capital reduction and transferred £10,000,000 from the share premium account to retained earnings. Subsequently, also on 17 April 2014, the group performed a 333 for 1 bonus issue for shares, resulting in the issuance of an additional 118,186,362 shares with a nominal value of £11,818,636 and a corresponding reduction in share premium.

Subsequent to the bonus issue described above, the Group has issued the following ordinary share capital:

· 664,134 ordinary shares were issued to the Group's Employee Benefit Trust

· 542,082 ordinary shares were issued on conversion of a £500,000 loan during May 2014

· 1,775,678 ordinary shares were issued to employees of the Group for no cash consideration

8. Note to the cash flow statement

9. Borrowings

On 3 May 2014, the conversion option was exercised relating to the outstanding loan note held by a related party. On issue, the loan note was converted into 1,623 Ordinary Shares in the Company based on 1 share per £308 of loan note as per the loan agreement

.

10. Subsequent events

On 17 July 2014 the Company issued £6.0 million of Convertible Loan Notes. Pursuant to the terms of the Instrument that created the Convertible Loan Notes, interest accrues at 16% during the first 12 months after the date of issue, then at 20% during the next 12 months and at 24% during the third 12 months and each 12 months thereafter. The Convertible Loan Notes created by the Instrument are capable of conversion to Ordinary Shares in the Company at any time prior to the third anniversary and redeemable by the Company at any time after 90 days from issuance.

As disclosed in the announcements of the Company dated 21 July 2014, the Company completed the placing of 9,000,000 Ordinary Shares at the placing price of £1.00 each in advance of Admission to trading on AIM. On 24 July 2014 the Company's stock commenced trading on the AIM market.