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Castleton Technology plc

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

Audited Results for the Year Ended 31 March 2015

Castleton Technology plc (AIM: CTP), the software and managed services provider to the public and not-for-profit sectors, announces its audited results for the year ended 31 March 2015.

Highlights

§ Four acquisitions of quality software and IT services assets:

· Montal Holdings Limited ("Montal"), a well-respected provider of IT managed services to the public and not-for-profit sectors, in June 2014

· Documotive Limited ("Documotive"), a document management software and scanning business focused on the social housing sector, in November 2014

· Opus Information Technology Limited ("Opus"), software provider to the social housing market, in February 2015

· Keylogic Limited ("Keylogic"), a social housing managed services provider, in February 2015

§ Oversubscribed placing of £5.65m in November 2014, primarily to fund acquisition of Documotive

§ Disposal of two non-core assets:

· ABS, a proprietary software and consultancy business, for £0.75m in August 2014

· Montal consultancy business to management for £0.6m in February 2015

§ Revenues from continuing operations of £6.1m (2014: £nil) with adjusted EBITDA* loss of £0.1m (2014: loss of £1.0m), including only part-year contributions from companies acquired during the year

· Year to 31 March 2016 results will include a full year contribution from Montal, Documotive, Opus and Keylogic and 10 months' contribution from Brixx and Impact, acquired post year-end

Post Period End Highlights

§ Acquisition of Brixx Solutions Limited ("Brixx"), a provider of software enabling users to produce financial models and long-term forecasts for £5.0m cash with £0.5m deferred for 1 year

§ Acquisition of Impact Applications Limited ("Impact"), provider of business critical repairs management and scheduling tools to the social housing sector for £5.0m consisting of £3.3m in cash and £1.7m in shares

§ New equity funding of £2.2m raised in oversubscribed placing to help fund acquisitions of Brixx and Impact and strengthen balance sheet

§ Conversion of £2.5m loan notes held by MXC Capital and vendors of Documotive

David Payne, Chairman of Castleton, commented:

"With the quality software and IT services assets that we have acquired, we see enormous potential to become the go to supplier for software and IT services in the social housing market. The management are now fully focused on integrating the companies that have been acquired into a seamless provider, adding value to our customer base; the new financial year is progressing well with the Group trading in line with market expectations. The Board is optimistic for the Group's prospects."

*Before net finance costs, tax, depreciation, amortisation, integration & strategy costs and share based payments

The Annual Report and Accounts for the year ended 31 March 2015 will be posted to shareholders at least 21 days prior to the AGM and a copy is available on the Company's website at www.castletonplc.com.

Enquiries:

About Castleton Technology plc

Castleton Technology plc is a leading supplier of complementary software and managed services to the public and not-for-profit sectors. The acquisitions of Montal, Documotive, Opus, Keylogic, Brixx and Impact Applications bring together an exceptional suite of solutions, providing the foundation for this platform. Castleton works in partnership with its customers and resellers to help drive efficiencies whilst improving controls and customer service. www.castletonplc.com 

Chairman's Statement

I am pleased to report the results of the Group for the year ended 31 March 2015. It has been a year of significant change, which has seen the Group finish its restructure and embark on a new strategy to build a focused software and IT managed services business serving the public and not-for-profit sectors. The journey started in June 2014 with the acquisition of Montal Holdings Limited ("Montal"), a well-respected niche IT managed services business followed by Documotive Limited ("Documotive"), a specialist software provider to the social housing market, in October 2014,and then the acquisition of Keylogic Limited ("Keylogic") and Opus Information Technology Limited ("Opus") in February 2015. Keylogic is an infrastructure managed services provider with a focus on the social housing sector and Opus is a specialist software provider to the social housing sector. The Group is now on a clear path to achieving its goal to become a successful niche player in software and IT managed services within the public sector and not-for-profit market place.

The Group also made two disposals during the year. The ABS business unit consisting of the trade and certain assets of the Maxima Information Group Limited ("MIG") was sold to PDMS UK Limited for a total cash consideration of £0.8 million in September 2014. This was classified as an asset held for sale at the previous year end. The Group also disposed of the consultancy division of Montal Computer Services Limited which was sold to its management in February 2015 for a total consideration of £0.6 million. The division was not considered to be core to the business and the disposal will enable Montal to concentrate on its portfolio of managed services and avoids any potential conflicts of interest that might have occurred in consulting on potential services to be recommended to clients.

The year has seen significant reorganisation, which has involved a huge effort from many people; I would like to thank all those who have contributed, some of whom are no longer part of the Group.

Reported Results

The Group income statement for the year shows turnover from continuing operations of £6.1 million, a loss before tax on continuing operations of £3.1 million and an adjusted EBITDA* of a loss of £0.1 million. With four acquisitions completed at various stages during the year, these represent 9 months of trading from Montal, 5 months of trading from Documotive and 1 month of trading from both Keylogic and Opus and are not indicative of a full year's result. In addition to this, two further acquisitions were completed post year-end, details of which can be found below. Exceptional items of £2.1 million include acquisition related costs and restructuring costs for the acquired entities.

Whilst this year's results do not contain much in the way of guidance to the future, I expect that with the scale that the six acquisitions that have been made will bring, the Group will look very different when it reports its results for the next financial year.

*Earnings for the year from continuing operations before net finance costs, depreciation, amortisation, integration and strategic costs, goodwill impairment and share based payment charges.

Equity Raised in the Year

On 18 November 2014, the Group raised £5.65 million by way of an equity placing of 513,636,000 new ordinary shares at a price of 1.1 pence per share. These proceeds were used for the acquisition of Documotive and towards the acquisitions which followed.

Subsequent Events

On 1 June 2015, Castleton announced the acquisition of the entire issued share capital of Brixx Solutions Limited ("Brixx") and Impact Applications Limited ("Impact").

Brixx is a provider of software enabling users to produce financial models and long-term forecasts and was acquired for a total consideration of £5 million, in cash, of which £0.5 million is deferred for 12 months. Brixx has developed a specific solution, HousingBrixx, in order to meet the needs of the social housing sector and this solution is currently used by over 300 UK social housing organisations.

Impact is a provider of business critical repairs management software and scheduling tools to the social housing sector and was acquired for consideration of £5.0 million, of which £1.67 million was satisfied via the issue of new ordinary shares in Castleton at a price of 2.25 pence per share. The remaining £3.3 million was paid in cash on completion.

These acquisitions further contribute towards Castleton's desire to be the go-to supplier of leading edge software and IT solutions in the social housing sector.

On 30 June 2015, Castleton raised £2.2 million (before expenses) by way of an oversubscribed equity placing of 97,777,776 new ordinary shares, at 2.25 pence per share, to help fund the acquisitions of Brixx and Impact and to strengthen the Company's balance sheet. At the same time the outstanding £1.5 million loan facility with MXC Capital Limited ("MXC Capital") was converted into new ordinary shares at 2 pence per share and £1 million of loan notes issued to the vendors of Documotive at the time of the Documotive acquisition were also converted into new ordinary shares at 1.1 pence per share.

The Board

The changes at Board level during the year included the appointment of Phil Kelly as Senior Non-Executive Director, replacing Richard Ramsay, and the appointment of Haywood Chapman as Chief Financial Officer replacing Spencer Dredge. Tony Weaver also stepped down from the Board as Non-Executive Director on 31 December 2014. I would like to thank Tony, Richard and Spencer for their contribution to the Group.

Phil brings a thirty year track record of leading successful companies within the technology sector, having worked with both quoted and private equity backed businesses. Phil sits on both the Audit and Remuneration committees. Haywood is a Chartered Accountant and has significant technology expertise having held senior financial positions in FTSE 250 and Fortune 300 companies.

On 9 April 2015, Davinder Sanghera was appointed as Chief Operating Officer. Davinder was previously Sales Director of Documotive, and has significant experience in the social housing sector.

Opportunity / Outlook

With the quality software and IT services assets that have been acquired, we see enormous potential to become the go-to supplier for software and IT services in the social housing market. The Board is now fully focused on integrating the companies that have been acquired to become a seamless provider aiming to add value to our customer base. Our aspiration is to become the leading niche software and IT managed services provider in the public and not-for-profit sectors. MXC Capital is a cornerstone investor in the Group, with a proven track record of executing very similar strategies with other listed businesses, with great results. I believe we have the team, assets and experience in place to deliver value to our shareholders. The new financial year is progressing well with the Group trading in line with market expectations. The Board is optimistic for the Group's prospects.

Chief Executive's Review

Overview

I am pleased to report the progress the Group has made during the financial year to 31 March 2015. With four acquisitions made during the year and two further acquisitions post year-end, Castleton is on its way to being the pre-eminent supplier of software and IT services to the social housing sector as well as a leading niche player in the wider public and not-for-profit sectors; nearly a third of all the social housing associations in the UK are now Castleton customers. The scope to provide multiple service lines to our customers, combined with the opportunity for cost saving synergies between our businesses, gives me great confidence that Castleton will continue to deliver for its shareholders. The acquisitions of Brixx and Impact post year-end complete the initial steps in building our platform; our focus will now be on integrating our products and services.

Trading Results

The results for the year to 31 March 2015 reflect a turning point for the Group. The year was one characterised by corporate activity; the Group made four acquisitions, two disposals, appointed a Chief Financial Officer and received the final payment for the disposal of the Redstone ICT business, Comunica Holdings Limited.

In September 2014, the Group disposed of the trade and certain assets of its subsidiary Maxima Information Group Limited. This disposal completed the Company's restructuring and paved the way to building a 'pure play' software and IT managed services group of scale, without the distractions of a diverse strategy. During the year the Group also disposed of the consultancy division of Montal to its management team, thereby enabling Montal to concentrate on its portfolio of specialist software solutions.

Castleton can now focus on its strategy of building a leading provider of software and IT managed services to the public and not-for-profit sectors. The acquisitions of Montal, Documotive, Keylogic and Opus during the year and Impact and Brixx post year-end reinforce this strategy.

The reported revenue for the year from continuing operations of £6.1m and adjusted EBITDA* of a loss of £0.1m only reflect a partial year's trading of the companies acquired and the results for the following year will look markedly different. 

*Earnings for the year from continuing operations before net finance costs, depreciation, amortisation, integration and strategic costs, goodwill impairment and share based payment charges.

Outlook

Throughout the year we have kept our shareholders informed with the excellent progress of the initial acquisitions of Montal and Documotive and, although the acquisitions of Keylogic and Opus were very close to the year-end, we have also updated the market with their progress. We entered the current financial year confidently and indeed completed our initial acquisition phase with the acquisitions of Brixx and Impact on 1 June 2015. Almost immediately our existing customer base reacted very well to the addition of these companies and a number of potential deals were quickly identified.

The UK IT services market is a very interesting space at this time. It is very fragmented in nature, which presents the type of opportunities we, as the Board of Castleton, are looking for. In particular, we see the public and not-for-profit sectors as attractive markets due to their niche requirements and we believe a significant opportunity exists to capitalise on the ability to address historic under-investment in IT infrastructure in those sectors. Castleton is well positioned to provide an eco-system of integrated modular solutions supported by scalable infrastructure platforms, helping organisations operate more effectively and achieve their goals, whilst bringing visible recurring annuity revenues to the Group. The Group brings together trusted brands with a pedigree of delivering solutions that meet customer needs whilst offering a refreshing change of culture and approach, focusing on customer collaboration using modern technology.

The next phase of the strategy will be to fully integrate the companies that we have acquired and this process is already well underway. We will also continue to look for strategic acquisitions that will add value and complement our existing services and products. My role in leading the Group is to ensure the successful integration of the current companies and identify and realise further opportunities. I hope to be in a position to share with you progress in this area over the coming months. The Board is fully aware that it needs to support the divisional management, providing the necessary tools and resource to deliver the value from this strategy.

Financial Review

I am pleased to present this report as Chief Financial Officer, having been appointed to the Castleton Technology plc Board on 1 December 2014. This statement covers the results for the year ended 31 March 2015 and looks at the new opportunities that we see for the future of the Group.

Principal events and overview

The period since the last report has been one of transformation with four acquisitions and two disposals during the year and a further two acquisitions shortly after the year-end. 

Acquisitions

On 23 June 2014 the Group acquired the entire issued share capital of Montal Holdings Limited ("Montal") for a total consideration of £3.83 million payable £3.04 million in cash and £0.79 million in 8% coupon loan notes. The £3.04 million cash consideration was funded out of existing Group cash resources and the Company's existing bankers, Barclays Bank Plc ("Barclays"), extended a £0.5 million facility to support working capital should the need have arisen. Montal specialises in providing outsourced IT services to the public and not-for-profit sectors, particularly within social housing and care providers and provides a full suite of outsourced services including support, hosting, business solutions and consultancy. Montal offers a broad range of expertise and competencies across Microsoft, Citrix, Cisco and VMware. 

On 18 November 2014, the entire share capital of Documotive Limited ("Documotive") was acquired for £4.0 million, consisting of £3.0 million in cash and £1.0 million of zero coupon convertible loan notes, convertible at the holders' option. Documotive is a leading software supplier to the social housing sector. In October 2014, 500,000,000 new ordinary shares were placed at a price of 1.1p per share, raising gross proceeds of £5.5 million. The proceeds of the fundraising were used to fund the cash element of the consideration for Documotive, to repay a proportion of outstanding loan notes and to provide working capital and funds for further acquisitions.

The Group acquired the entire share capital of Opus Information Technology Limited ("Opus") and Keylogic Limited ("Keylogic") on 28 February 2015 for £0.5 million and £4.8 million respectively.

Keylogic was acquired for £3.4 million in cash and £0.6 million in convertible loan notes. As part of the completion mechanism, in March 2015, further cash of £0.6 million was paid and a further £0.2 million of convertible loan notes issued. The loan notes are repayable in 12 months, carry nil coupon and are convertible into new ordinary shares in Castleton at a price of 2 pence per share at the holders' option. Keylogic provides professional IT services to SMEs and the social housing sector, ranging from complete IT management to infrastructure upgrades and general consultancy. It has accreditations and approvals from leading technology vendors including Citrix, VMware, Cisco and Microsoft.

The consideration for Opus was payable as to £0.4 million in cash and £0.1 million in convertible loan notes. The loan notes are repayable in 12 months, carry nil coupon and are convertible into new ordinary shares at a price of 2 pence per share at the holders' option. In addition, there is a potential earn out payment of up to £1.0 million in loan notes and cash, should normalised EBITDA for the business for the 12 months to 30 September 2015 exceed £0.2 million. Opus provides software solutions to the social housing sector, from initial scoping to licence sales, implementation and software support. The principal proprietary software breaks down service charges to give a detailed account of actual costs against budgets, saving time and money in the budget-setting process. In addition, Opus provides consultancy and support services alongside bespoke solutions.

The acquisitions of Keylogic and Opus were financed from the Company's existing cash resources and an overdraft facility of up to £1.5 million from Barclays.

At the same time, the Company entered into a loan agreement with MXC Capital for up to £1.5 million (the "Loan Agreement"). Interest is payable on amounts drawn down under the Loan Agreement at a rate of 10 per cent. per annum, with a commitment fee of 4 per cent. payable on amounts undrawn. The Loan Agreement has a term of 18 months and includes an arrangement fee of £25,000, payable to MXC Capital. Amounts drawn down under the Loan Agreement are capable of being converted into new ordinary shares at a price of 2 pence per share at any time at MXC Capital's option. This facility remained undrawn at the year-end but has been subsequently drawn post year-end to help finance the acquisitions of Brixx Solutions Limited ("Brixx") and Impact Applications Limited ("Impact") on 31 May 2015. MXC Capital has since converted the £1.5 million outstanding under the Loan Agreement into new ordinary shares in Castleton.

Brixx is a provider of software enabling users to produce financial models and long-term forecasts and was acquired for a total consideration of £5 million in cash, of which £0.5 million is deferred for 12 months. Brixx has developed a specific solution, HousingBrixx, in order to meet the needs of the social housing sector and this solution is currently used by over 300 UK social housing organisations. Organisations using Brixx's software are able to model the impact of improved service delivery thus enabling further investment. Brixx's broad customer base offers significant opportunities to cross-sell Castleton's suite of products and services.

Impact is a provider of business critical repairs management software and scheduling tools to the social housing sector and was acquired for consideration of £5.0 million, of which £1.67 million was satisfied via the issue of new ordinary shares of at a price of 2.25 pence per share. The remaining £3.3 million was paid in cash on completion.

Disposals

On 31 August 2014 the trade and certain assets of the Group's subsidiary Maxima Information Group Limited ("MIG") were sold for a total cash consideration of £0.75 million. £0.3 million was payable immediately, £0.3 million by 30 September 2014 and the balance of £0.15 million by 31 March 2015. Castleton retained certain assets and liabilities associated with MIG and with Castleton having had the benefit of collecting circa £200,000 of annual maintenance revenues in the year ended March 2015, we achieved an exit enterprise valuation for the business approaching £1 million.

On 28 February 2015, the Group entered into an agreement to sell the consultancy division of Montal to the division's management team for a total consideration of £0.6 million. The initial cash consideration receivable was £0.28 million with the remaining £0.32 million to be paid in 60 monthly instalments with interest accruing on outstanding amounts at a rate of 9 per cent. per annum. The division was not considered to be core to the business and the disposal will enable Montal to concentrate on its portfolio of managed services and avoids any potential conflicts of interest that might have occurred in consulting on potential services to be recommended to clients.

Trading results

The trading results for the year comprise 5 months of discontinued operations from MIG, just over 9 months of trading results from Montal, 5 months of trading results from Documotive and 1 month of results from both Keylogic and Opus. It is therefore reasonable to say that the results for the year are not representative of future years.

Revenue and gross profit

Revenue and gross profit derive from the entities acquired during the year and amounted to £6.1 million and £3.4 million respectively, representing a gross margin of 56%. The revenues and gross profit of MIG, which was disposed of during the year, are shown in note 7.

Administrative expenses including exceptional items

The administrative expenses from continuing activities were incurred in the running of the acquired entities, and include the cost of the Group Board and its advisors, including the cost of occupancy, back office support services, and the fees associated with maintaining the AIM listing as well as amortisation and exceptional items. Exceptional items of £2.1m (2014: £nil) include costs relating to the acquisitions, the fundraising and provisions relating to restructuring activities either undertaken in the year or announced prior to the end of the financial year.

Adjusted EBITDA*

The adjusted EBITDA for the year, a loss of £0.1m (2014: loss of £1.0 million) comprises only the continuing operations.

The current run rate full year cost for the plc Board and its advisors is £1.0million, and we continue to maintain tight controls on expenditure.

* Adjusted EBITDA represents earnings for the year from continuing operations before net finance costs, depreciation, amortisation, integration and strategic costs, goodwill impairment and share based payment charges.

Finance income and costs

Finance income comprises the fair value gain on the interest rate swap held by the Group, and finance costs comprise interest payable on bank borrowings and the unwind of discount on convertible loan notes. Finance income and costs amounted to £0.6 million and £0.7 million respectively.

Loss for the year attributable to the owners of the parent company

The Group loss for the year to 31 March 2015 was £2.1million (2014: profit of £26.4 million). This comprises the loss after tax from continuing operations of £3.0 million (2014: loss of £1.3 million), which includes the gain on the interest rate swap and the profit from discontinued operations of £0.9 million (2014: £27.6 million). The profit from discontinued operations is explained in note 7.

Cash flow

Cash generated from operations during the year was £0.5 million (2014: outflow of £2.3 million). £0.8 million (2014: £7.0 million) was received on the disposal of operations and £8.9 million (2014: £nil) was used in the acquisitions undertaken during the year. These acquisitions were partly financed through the issuance of shares which generated cash inflows of £5.9 million (2014: £6.0 million)

This resulted in an overall decrease in funds of £2.3 million, giving a net cash position at the balance sheet date of £0.5 million. Since the year-end cash of £7.8 million has been utilized in the acquisition of Brixx and Impact, financed through a combination of bank debt, a draw down under the Loan Agreement with MXC Capital and proceeds from a further issuance of shares, as explained below.

Reporting metrics

The reporting metrics and Key Performance Indicators normally reviewed by the Board include the income statement categories as outlined in this report along with measures specific to individual business units and divisions and the available resources and strength of the balance sheet. In summary, the Group results for this year are not reflective of where the Group is expected to be at the next reporting date and further performance indicators will be developed relevant to the results and activities of the Group in the next half-year and annual reports.

Funding

At the balance sheet date the Group held £1.8 million of convertible loan notes that were issued as part of the acquisitions of Documotive, Keylogic and Opus. In addition, the Group had a £1.5 million overdraft facility available and a £1.5 million convertible loan facility available from MXC Capital as noted above.

As at the balance sheet date the Group continues to service the interest rate swap until it matures in September 2015. The liability for the interest rate swap as recorded in these financial statements is £0.3 million and is cash settled on a quarterly basis. The final payment in relation to the interest rate swap will be made on 30 September 2015.

Post year-end, in May 2015, the Group took out a £5.0 million term loan with Barclays to help fund the acquisitions of Brixx and Impact and increased the overdraft facility to £2.0 million. The term loan is secured with a fixed and floating charge over the entities in the Group and is repayable over 5 years at £0.25 million per quarter. At the same time, the Company also drew down £1.5 million under its loan agreement with MXC Capital. Subsequently, in June 2015, amounts due under the loan agreement were converted by MXC Capital into new ordinary shares at 2 pence per share simultaneously with an oversubscribed equity placing raising £2.2 million (before expenses) for the Company by the issuance of 97,777,776 new ordinary shares, at 2.25 pence per share, to help fund the acquisitions of Brixx and Impact and to strengthen the Company's balance sheet. In addition, the £1.0 million of loan notes issued to the vendors of Documotive at the time of the Documotive acquisition were also converted into new ordinary shares at 1.1 pence per share.

The Company also entered into a further loan facility with MXC Capital to provide up to £1.0 million. Interest is payable on amounts drawn down under the facility at a rate of 10 per cent. per annum, with a commitment fee of 4 per cent. payable on amounts undrawn. The facility has a term of six months.

Going Concern

The Directors have prepared detailed cash flow projections including sensitivity analysis on key assumptions. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance and the timing of key strategic events, show the Group will be able to operate within the level and conditions of available funding. Based on the level of support demonstrated by the oversubscribed equity placing on 30 June and the funding available, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.

Accordingly, the Group continues to adopt the going concern basis in preparing its consolidated financial statements.

Consolidated Statement of Comprehensive Income

For the year ended 31 March 2015

* Total result for the year from Continuing Operations before net finance costs, tax, depreciation, amortisation, exceptional costs, goodwill impairment and share-based payment charges

Consolidated Balance Sheet

As at 31 March 2015

Consolidated Statement of Changes in Equity

For the year ended 31 March 2015

(a) Equity reserve

Firstly, three convertible loan notes were issued during the year as part of the consideration for the acquisitions of Documotive Limited, Keylogic Limited and Opus Information Technology Limited. The fair value of the equity components of the convertible loan notes are based on a Black Scholes option pricing model under standard option pricing assumptions.

Secondly, in addition, on 29 October 2014, in acknowledgement of being the Cornerstone Placee in the Group's share issue, 57.8 million share warrants were issued to MXC Capital Plc. The fair value of the warrants is calculated using a Monte Carlo simulation option pricing model and the requirements of IFRS 13.

(b) Merger reserve

The merger reserve arose from the acquisition of Redstone Communications Limited (£216,000) and Maxima Holdings Limited (formerly Maxima Holdings plc) (£7,750,000) and represents the difference between the value of the shares acquired (nominal value plus related share premium) and the nominal value of the shares issued.

(c) Translation reserve

The translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. At 31 March 2014 the Group had no foreign subsidiaries and the balance of the reserve was transferred to Retained Earnings/ (Accumulated Loss).

(d) Dividend in specie

In the year ended 31 March 2014, a Demerger of the Managed Services Business was effected by the declaration of a special dividend in Castleton, equal to the fair value of Castleton's interests in the Managed Services Business. The dividend was satisfied, in specie, by the transfer of the shares in Redcentric Holdings Limited ("RCH") to Redcentric plc. RCH was a new wholly owned subsidiary of Castleton, formed as a vehicle to hold the interests of the consolidated Managed Services Business (prior to the Demerger).

The Directors attributed a fair value of £53.3 million to the dividend equivalent to the market value of the shares issued by Redcentric, as permitted under IFRIC 17 "Distribution of non-cash assets to owners". Market value was determined as the mid - market price on the first day of admission of the Redcentric plc shares to AIM on 8 April 2013.

The cost to the Company of satisfying the dividend liability was the transfer of the net assets held for Demerger in RCH at the Demerger date. The net assets held for Demerger amounted to £23.3 million. The resulting gain of £30.0 million was recorded in the consolidated statement of comprehensive income as a change in equity as required by IFRIC 17.

Consolidated Cash Flow Statement

For the year ended 31 March 2015

Notes to the Consolidated Financial Statements

Year ended 31 March 2015

The results for the year to 31 March 2015 have been extracted from the audited consolidated financial statements, which are expected to be published on the Group's website (www.castletonplc.com) shortly.

The financial information set out above does not constitute the Company's statutory accounts for the year to 31 March 2015 but is derived from those accounts. 

The auditors, Baker Tilly LLP, have reported on the accounts for the years ended 31 March 2015 and 31 March 2014; their reports in both years were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006 in respect of those accounts.

The annual financial statements have been prepared in accordance with EU adopted International Financial Reporting Standards (IFRS), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. They have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

Accounting policies

Castleton Technology plc ("Castleton") is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly traded on AIM, the market of that name operated by the London Stock Exchange. The Company's registered office is 100 Fetter Lane, London, EC4A 1BN and its principal place of business is the United Kingdom. The principal accounting policies, which have been applied consistently in the preparation of the consolidated financial statements throughout the year and by all subsidiary companies, are set out below:

Going Concern

The Directors have prepared detailed cash flow projections including sensitivity analysis on key assumptions. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance and the timing of key strategic events, show the Group will be able to operate within the level and conditions of available funding. In addition, on 30 June 2015 the Group raised £2.2m gross proceeds from a placing of 97,777,776 new Ordinary Shares at a price of 2.25 pence per share. The proceeds were used to strengthen the Company's balance sheet following the acquisitions of Brixx and Impact as announced on 1 June 2015. Based on this level of support and the funding available, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.

Intangible assets

Goodwill

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of any non-controlling interest over the fair value of the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.

The carrying amount of goodwill allocated to a cash generating unit is taken into account when determining the gain or loss on disposal of the unit, or of an operation within it. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash generating unit retained.

Other intangible assets

Intangible assets that meet the criteria to be separately recognised as part of a business combination are carried at cost (which is equal to their fair value at the date of acquisition) less accumulated amortisation and impairment losses. An intangible asset acquired as part of a business combination is recognised outside goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably. Intangible assets acquired in this manner include software and customers contracts. They are amortised over their estimated useful life as follows:

- Software - 7-8 years

- Customer contracts and related relationships - 7-8 years

Impairment and amortisation charges are included within the administrative expenses line in the income statement.

Impairment of assets

Goodwill is not subject to amortisation and is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. As at the acquisition date any goodwill acquired is allocated to each of the cash generating units expected to benefit from the business combination's synergies. Impairment is determined by assessing the recoverable amount of the cash generating unit to which the goodwill relates. When the recoverable amount of the cash generating unit is less than the carrying amount, including goodwill, an impairment loss is recognised.

Other intangible assets and property, plant and equipment are subject to amortisation and depreciation and are reviewed for impairment whenever events or changes in circumstances indicate the carrying values may not be recoverable. In addition, the carrying value of capitalised development expenditure is reviewed for impairment annually. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash generating units are written down to their recoverable amount.

The recoverable amount of intangible assets and property, plant and equipment is the greater 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 an asset that does not generate largely independent cash inflows, the recoverable amount is determined by the cash generating unit to which the asset belongs. Fair value less costs to sell is, where known, based on actual sales price net of costs incurred in completing the disposal.

Non-financial assets that were impaired in previous periods are reviewed annually to assess whether the impairment is still relevant.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Derivative financial instruments and hedging activities

Derivatives are initially recognised at fair value on the dates a derivative contract is entered into and are subsequently re measured at their fair value. Any gains or losses arising from changes in the fair values of derivatives are taken to the income statement through finance costs.

Compound financial instruments

Compound financial instruments issued by the group comprise convertible notes that can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value.

The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.

Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition except on conversion or expiry.

Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

Revenue

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the group's activities. Revenue is shown net of Value Added Tax, returns, rebates and discounts and after eliminating sales within the group.

The group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the group's activities as described below. The amount is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The group bases its estimates on historical results taking into account the type of customer, the type of transaction and the specifics of each arrangement.

(i) Sale of software licences

The group sells licences to use its software products either on a perpetual royalty free basis or on a rental basis for a fixed period of time. Revenue arising from the sale of perpetual licences is recognised at the time of sale provided that all the group's obligations associated with the sale of the licence have been fulfilled. Revenue from licences sold on a rental or subscription basis is recognised over the period for which the Group has obligations under the contract.

(ii) Sales of services

The group sells consultancy, training, implementation and project management services to customers either separately from or in conjunction with the sale of licences. Revenue from the sale of services is recognised when those services have been provided.

(iii) Sales of goods

Sales of goods are recognised on delivery.

(iv) Annual contracts

The group enters into contracts to provide support services on an annual basis. Revenue from support agreements is recognised in equal instalments over the period of the agreements.

Exceptional items

Items which are material either because of their size or their nature, and which are non-recurring, are highlighted separately on the face of the income statement. The separate reporting of exceptional items helps provide a better picture of the Company's underlying performance. Items which may be included within the exceptional category include:

spend on the integration of significant acquisitions and other major restructuring programmes;

significant goodwill or other asset impairments; and

other particularly significant or unusual items.

Spend on integration are incurred by the Group, when integrating one trading business into another. The types of costs include employment related costs of staff made redundant as a consequence of integration, due diligence costs, property costs such as lease termination penalties and vacant property provisions, third party advisor fees and rebranding costs.

Exceptional items are excluded from the headline profit measures used by the Group and are highlighted separately in the income statement as management believe that they need to be considered separately to gain an understanding of the underlying profitability of the trading businesses.

Segmental reporting

The Chief Operating Decision Maker has been identified as the Executive Board. The Executive Board reviews the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.

The Executive Board assess the performance of the operating segments based on adjusted EBITDA. Information provided to the Executive Board is measured in a manner consistent with that in the Financial Statements.

Discontinued operations

Cash flows and operations that relate to a major component of the business or geographical region that has been disposed of or is classified as held for sale or distribution are shown separately from continuing operations. Comparative amounts have been restated.

Assets and businesses classified as held for sale or distribution are measured at the lower of carrying amount and fair value less costs to sell.

Assets and businesses are classified as held for sale or distribution if their carrying amount will be recovered or settled principally through a sale transaction rather than through continuing use. This condition is regarded as being met only when the sale is highly probable and the assets or businesses are available for immediate sale in their present condition or is a subsidiary acquired exclusively with a view to resale. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Critical accounting estimates and assumptions

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.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are:

• Estimated valuation of intangibles

On acquisition of a new business, the Group identifies intangible assets. This calculation involves estimates about future revenues, costs, cash flows and the cost of capital for the Group. It also involves estimating royalty rates used in the valuation model for software acquired in business combinations, and the estimated life of customer relationships.

• Estimated impairment of goodwill and intangible assets

The Group tests annually whether goodwill and intangible assets have suffered any impairment. The recoverable amounts of cash generating units have been determined based on value-in-use calculations. These calculations require the use of estimates.

• Estimated valuation of financial instruments

Convertible loan notes and share warrants are valued based on the following definition of Fair Value per IFRS 13 'Fair Value Measurement': 'the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date'. These calculations require the use of estimates. External experts have been engaged for valuation purposes where appropriate.

• Classification of Exceptional costs

The Directors have exercised judgement when classifying certain costs as integration and strategic costs.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting to the Chief Operating Decision Makers ('CODM'). The CODM has been identified as the Executive Board.

The Executive Board is responsible for resource allocation and assessing the performance of the operating segments. The operating segments are defined by distinctly separate product offerings or markets. The Executive Board assesses the performance of the operating segments based on a measure of adjusted EBITDA. This measurement basis excludes discontinued operations.  

The Group is comprised of the following main operating segments:

Managed Services

In this segment are the results of Montal Computer Services Limited for the period from acquisition on 20 June 2014 and Keylogic Limited for the period from acquisition on 1 March 2015.

Software Solutions

This segment comprises the results of Documotive Limited for the period from acquisition on 18 November 2014 and Opus Information Technology Limited for the period from acquisition on 1 March 2015.

Segment Assets 12,815 9,856 759 23,430

Segment Liabilities (6,885) (6,774) (2,250) (15,909)

There were no continuing operations in the prior year, therefore there is no comparative segment information to report.

All revenue originates in the United Kingdom.

The Group had no customers who accounted for more than 10% of the Group's revenue during the year (2014: nil)

Exceptional costs

In accordance with the Group's policy in respect of exceptional costs the following charges were incurred for the year:

Business Combinations

Montal

On 23 June 2014 Castleton acquired 100% of the share capital of Montal Holdings Limited ("Montal"), a specialist outsourced IT managed services business focused on the provision of tailored solutions to the public sector, for a total consideration of £3.83 million. 

Total consideration of £3.83 million was satisfied as to £3.04 million in cash and loan notes of £0.79 million. The loan notes were fully settled in November 2014.

The acquisition of Montal was considered a related party transaction under AIM rules for companies on the basis that MXC Capital, a substantial shareholder in the Company representing the interests of Ian Smith, CEO of the Company, and Tony Weaver, Non-Executive Director, held 18 % of the ordinary share capital of Montal, being a portfolio investment made 12 months earlier. The independent directors considered, having consulted with finnCap Limited, that the terms of transaction were fair and reasonable insofar as shareholders of the Company are concerned. MXC Capital Advisory LLP was not paid a fee by the Company in relation to the acquisition of Montal. Montal engaged MXC Capital Advisory LLP to advise on its strategic options and paid it a success fee of £120,000 in relation to the acquisition. The Company incurred acquisition costs of £0.1m payable to third parties.

From the date of acquisition to 31 March 2015, the portion of Montal held within continuing activities achieved revenue of £4.5 million and a loss before taxation of £0.7 million, after creation of a restructuring provision of £1.0 million. Assuming the combination had taken place at the beginning of the year, the reported revenue from Montal would have been £5.7 million and the loss for the year before taxation would have been £0.6 million, after creation of a restructuring provision of £1.0 million.

Documotive

On 18 November 2014, Castleton acquired the entire share capital of Documotive Limited ("Documotive"), a leading software supplier to the social housing sector, for £4.0 million, to be satisfied by £3.0 million in cash and £1.0 million of zero coupon convertible loan notes, with a fair value of £1.6 million. Subsequent purchase price adjustments of £0.3 million were paid in cash.

On 30 June 2015, the vendors of Documotive converted the loan notes into new ordinary shares at a price of 1.1 pence per share resulting in the issue of 90,909,090 new ordinary shares.

From the date of acquisition to 31 March 2015, the portion of Documotive held within continuing activities achieved revenue of £1.3 million and a profit before taxation of £0.2 million. Assuming the combination had taken place at the beginning of the year, the reported revenue from Documotive would have been £3.0 million and the profit for the year before taxation would have been £0.3 million.

Acquisition costs were £0.4 million.

Keylogic

On 28 February 2015, Castleton acquired 100% of the share capital of Keylogic Limited ("Keylogic"), an infrastructure managed services provider with a focus on the social housing sector, for consideration of £4.0 million.

The initial consideration for the acquisition of Keylogic was £4.0 million, £3.4 million paid in cash and £0.6 million satisfied by convertible loan notes. As part of the completion mechanism, in March 2015, further cash of £0.6 million was paid and a further £0.2 million of convertible loan notes were issued. The loan notes are repayable in 12 months, carry nil coupon and are convertible into new ordinary shares in Castleton at a price of 2 pence per share. The fair value of loan notes at the date of issue was £1.1 million.

From the date of acquisition to 31 March 2015, the portion of Keylogic held within continuing activities achieved revenue of £0.6 million and a loss before taxation of £0.03 million. Assuming the combination had taken place at the beginning of the year, the reported revenue from Keylogic would have been £4.5 million and the profit for the year before taxation would have been £1.5 million.

Acquisition costs were £0.2 million.

Opus

On 28 February 2015, Castleton also acquired 100% of the share capital of Opus Information Technology Limited ("Opus"), a specialist software provider to the social housing sector, for an initial £0.5 million, up to a maximum of £1.5 million, dependent on performance.

The initial consideration for the acquisition of Opus was £0.5 million, £0.4 million paid in cash and £0.1 million in loan notes. The loan notes are repayable in 12 months, carry nil coupon and are convertible into new ordinary shares at a price of 2 pence per share. In addition, there is a potential earn out payment of up to £1.0 million in loan notes and cash, should normalised EBITDA for the business for the 12 months to 30 September 2015 exceed £0.2 million.

The fair value of the contingent consideration has been estimated at nil because the Directors do not expect the threshold EBITDA to be achieved.

From the date of acquisition to 31 March 2015, the portion of Opus held within continuing activities achieved revenue of £0.05 million and a loss before taxation of £0.01 million. Assuming the combination had taken place at the beginning of the year, the reported revenue from Opus would have been £0.5 million and the profit for the year before taxation would have been £0.1 million.

Acquisition costs were £0.1m.

Had all the acquired business been owned all year the Group revenue from continuing operations would have been £13.7million with a profit before tax of £1.3 million after exceptional items of £1.0 million.

The fair value of the convertible loan notes issued in the final three acquisitions have been valued using the following approach and steps:

1. Estimation of the fair value of the debt component of the loan notes based on a discounted cash flow valuation approach;

2. Estimation of the fair value of the equity component of the loan notes based on a Black Scholes option pricing model;

3. Estimation of the fair value of the loan notes, being the total value of the debt and equity components.

The total provisional goodwill and intangible assets arising from the acquisitions is the difference between the fair value of consideration less the provisional fair value of assets acquired:

The consideration was satisfied as follows:

On acquisition of each business the Directors assessed the business acquired to identify any intangible assets. Customer contracts and related relationships met the criteria for recognition as intangible assets as they are separable from each other and have a measurable fair value, being the amount for which an asset would be exchanged between knowledgeable and willing parties in an arm's length transaction.

For the customer contracts the fair value of the intangible assets was calculated by using the discounted cash flows arising from the existing customer contracts base for both the managed services business and the software businesses. Customer retention was assumed to be between 85%-93% based on past experience.

For software, a royalty relief calculation was used to calculate the fair value of the intangible assets, with an assumed royalty rate of 8%.

A long term growth rate of 2.4% was applied with a discount rate of 11.5%. The reasonable economic life of the customer relationships and software was assumed to be between 7 and 8 years. The identifiable intangible assets and related deferred tax liability are as follows:

Impairment tests for Goodwill

The recoverable amount of all cash generating units has been determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management until 31 March 2018. Cash flows beyond this period are extrapolated using the estimated growth rates stated below.

For each of the CGUs with significant amount of goodwill the key assumptions, long term growth rate and discount rate used in the value-in-use calculations are as follows:

Managed Services

Growth rate to 2018 - 3%

Gross margin - 33%

Operating margin - 17%

Software Solutions

Growth rate to 2017 - 7%

Gross margin - 77%

Operating margin - 33%

For all cash generating units the long term growth rate assumed is 2.4%. The pre-tax discount rate used is 11.5%, which reflects management's risk-adjusted estimate of the weighted average cost of capital.

A reasonably possible adverse movement in any of the above key assumptions made would not give rise to impairment.

Earnings/loss per share

Basic loss per share and diluted loss per share are calculated using a weighted average number of shares of 818,969,196 and 895,071,598 respectively (2014: weighted average number of shares of 622,689,960). Adjusted EBITDA* has been shown on the grounds that it is a common metric used by the market in monitoring similar businesses.

The weighted number of shares and the loss for the year for the purposes of calculating the fully diluted earnings per share are the same as the basic loss per share calculation. This is because the outstanding share options and warrants would have the effect of reducing the loss per ordinary share and would, therefore, not be dilutive under the terms of IAS 33.

* Total result for the year from Continuing Operations before net finance costs, tax, depreciation, amortisation, goodwill impairment, integration and strategic costs and share-based payment charges.

Intangible assets

The amortisation of £644,000 (2014: £737,000) comprises £nil (2014: £737,000) in respect of discontinued operations and £644,000 (2014: £nil) in respect of continuing operations, and is included in the loss for the year from Continued Operations in the Income Statement.

Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate thatthe carrying value may be impaired Goodwill is supported by calculating the discounted cash flows arising from the existing businesses. A long term growth rate of 2.4% was applied with a discount rate of 11.5%.

Discontinued operations

Montal Consultancy Business

On 28 February 2015, Castleton entered into an agreement to sell the consultancy division of Montal Computer Services Limited to its management team for a total consideration of £0.8 million. The initial cash consideration received by Castleton was £0.28 million with the remaining £0.32 million to be paid to Castleton in 60 monthly instalments with interest accruing on outstanding amounts at a rate of 9 per cent. per annum. The division was not considered to be core to the business and the disposal will enable Montal to concentrate on its portfolio of software solutions and avoids any potential conflicts of interest that might have occurred in consulting on potential software solutions to be recommended to clients.

Maxima Information Group

On the 31 August 2014 Castleton announced the sale of ABS, comprising the trade and certain assets of its subsidiary Maxima Information Group Limited ("MIG") for a total cash consideration of £0.75 million. The consideration was as follows: £0.3 million upon sale, £0.3 million paid 30 September, with the balance of £0.15 million paid 31 March 2015.

Castleton have retained certain assets and liabilities associated with MIG, principally £130,000 of recoverable debtors, some legacy assets (fully written down and of limited value) and leasehold property.

MIG's sole trading division (following the sale of QAD in March 2014) was ABS, a software business focused on supporting a range of its own developed and proprietary ERP, reservation and ticketing and payroll software products (www.ferrysoftware.co.uk). ABS' services include the provision of software, hardware, development and continued support. While the business contained a good software product and a skilled management team, it was clear to the Board that the business requires investment and new commercial partners in order to sustain its market position and attract new customers.

In the year ended 31 March 2014 MIG (excluding QAD) generated £1.5 million of revenue and returned a profit before tax of £305,000 (adjusted to reflect certain attributable group and back office costs that relate to MIG that will not recur post disposal).

Current year trading of the discontinued businesses is as follows:

The net assets of the businesses disposed of in the year, at the date of disposal, were as follows:

Provisions

Property

The Group currently has a number of vacant properties. Provisions have been recognised to cover the rents, business rates and service charges for the period that each property is expected to be vacant, being up to the lease expiry or break clause if earlier. Provisions are calculated using the contracted rates of rents and service charges on each individual lease arrangement. Dilapidation provisions are built up over the life of the associated lease based on estimates of costs of work required to fulfil the Group's contractual obligation under the lease agreements to return the property to the same condition as at the commencement of the lease.

Restructuring

Provisions have been recognised to cover redundancies and associated costs.

Called up share capital

Ordinary shareholders have the right to attend, vote and speak at meetings, receive dividends, and receive a return on assets in the case of a winding up.

The redeemable preference shares may be redeemed at the company's option at any time without payment of a premium. On a winding up they rank ahead only of the ordinary shares and will be repaid at par. Redeemable preference shareholders do not have the right to vote and speak at meetings nor to receive dividends.

Share issue

During the year the following shares were issued:

In order to raise cash to purchase Documotive, repay a portion of the loan notes used to fund the acquisition of Montal and to provide sufficient working capital to fund further acquisitions, on 18 November 2014, the Company raised £5.65 million by way of an equity placing of 513,636,000 new ordinary shares at a price of 1.1 pence per share. A further 18,182,000 new ordinary shares were issued on this date as a result of the conversion of the remainder of the loan notes issued to fund the Montal acquisition.

Subsequent events

On 31 May 2015 Castleton acquired the entire issued share capital of Impact Applications Limited ('Impact') and Brixx Solutions Limited ('Brixx') for a total consideration of £10.0 million payable as to £8.33 million in cash (of which £0.5m is deferred) and £1.67 million in shares. The book value of net assets acquired was £1.1 million and £0.1 million respectively. The Directors are currently assessing the fair value of the assets net acquired.

The acquisitions were financed by a new bank facility with the Group's existing bankers, Barclays Bank Plc, comprising a term loan of £5 million together with an overdraft of up to £2 million and drawdown of £1.5m under the Loan Agreement with MXC Capital Limited ("MXC Capital"). The Company entered into a further loan facility with MXC Capital to provide up to £1 million ("the Facility"). Interest is payable on amounts drawn down under the Facility at a rate of 10 per cent. per annum, with a commitment fee of 4 per cent. payable on amounts undrawn. The Facility has a term of six months and remains undrawn.

On 30 June 2015 the Group raised £2.2m gross proceeds from a placing of 97,777,776 new ordinary shares at a price of 2.25 pence per share. In addition, on 30 June 2015, the Company allotted 75,000,000 new ordinary shares pursuant to the conversion of the £1.5 million drawn under the loan facility with MXC Capital and a further 90,909,090 new ordinary shares pursuant to the conversion of the loan notes issued as part of the consideration for the acquisition of Documotive Limited.

On 18 July 2015 options were awarded as follows:

Options over 2% of the fully diluted share capital to Haywood Chapman under a combination of EMI Share Options, Unapproved Share Options and Employee Share Scheme Options;

Options over 1% of the fully diluted share capital to Davinder Sanghera under a combination of EMI Share Options, Unapproved Share Options and Employee Share Scheme Options;

Options over 0.4% of the fully diluted share capital to David Payne under a combination of Unapproved Share Options and Hurdle Shares;

Options over 0.2% of the fully diluted share capital to Phil Kelly under a combination of Unapproved Share Options and Hurdle Shares; and

All of the options are evergreen, meaning that the percentage of the fully diluted issued share capital held under option will remain constant, notwithstanding any further issues of ordinary shares. The options are being awarded under a variety of schemes, both approved and unapproved. All of the options are subject to vesting criteria whereby the average price per ordinary share must exceed 3 pence, and in some cases 4 pence, for a 10 day period between the second and third anniversaries of 1 April 2015. If these targets are not met, extended targets compounding at 12% per annum are in place between the third and sixth anniversaries.

Also on 18 July 2015, evergreen options over 5% of the fully diluted share capital were awarded to MXC Capital under the MXC Share Option Scheme. The MXC Capital options are subject to criteria whereby the average price per ordinary share must exceed 2.5 pence for 50% of the options to vest and 3.0p for the other 50% of the options to vest, both criteria for a 10 day period between the second and fifth anniversaries of 1 April 2015. The options granted to MXC Capital replace the share warrant granted on 29 October 2014.

If the average price of an ordinary share does not reach or exceed the targets above then the option shall lapse.