Falcon Regulatory News (FAL)

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For Immediate Release

28.12 2017

Falcon Media House Limited

("Falcon" or the "Company")

Interim Results

Falcon, the international media group focused on the over-the-top ('OTT') video streaming market, announces its interim results for the 6-month period ending 30 September 2017. 

Chairman's Statement

Since coming back to market in March 2017, Falcon has demonstrated the potential of Quiptel's patented software technology in securing three global partner agreements to deliver OTT services in Africa and Asia. In May 2017, the first agreement was signed with Verimatrix, a specialist in revenue security solutions, to deliver the first secure OTT service in West Africa. In July 2017, agreements were signed with Media Nucleus, a well-established digital and broadcast technology products company, and LaserNet Group, experts in digital and broadcast technologies, to deliver OTT services to millions of users across Africa and Asia. In June 2017, a MoU with TATA Communications (UK) Limited was signed to collaborate on OTT services aimed at brands, content creators, content catalogues and rights holders. The MoU with Tata is in line with Falcon´s strategy to establish Q-flow as the leading enabling technology that powers the rapidly expanding OTT streaming market. In June, Falcon launched a beta version of a dedicated sports service together with The Eastern College Athletic Conference ("ECAC").

As a result of these partner agreements, Falcon signed a commercial licensing agreement with Africa Enterprise Media Group, the media arm of LaserNet Group, to supply software technology and brand assets for a direct-to-consumer OTT service in Africa. This service is expected to receive significant number of subscribers within the next years.

Following on the partnership agreement signed with MediaNucleus and a follow up visit, we see a positive outlook in the market with the Multiple System Operators (MSOs), who have a real need for an OTT platform in the region and to extend beyond India as well. The total MSO market in India is about 100 million subscribers, with a further significant potential of tapping into the Indian mobile OTT opportunity of 700 million subscribers.

This was validated through interviews with trade press which resulted in positive follow ups and we look forward to announcing wins in the next weeks.

The potential of the Company's technology to disrupt the existing industry was further endorsed with the appointment of the highly successful US tech and media guru, Diane McGrath, as the Falcon Media House Chief Strategy Officer in June 2017.

As the technology focus tightens, the Falcon Board has taken the opportunity to restructure the Company's interest in the Teevee Makers division. Teevee Makers has become a Newco, totally independent of the Falcon Media House group. As part of the new set-up, Teevee Makers has assumed responsibility for the ECAC service under a new commercial licensing agreement. The ECAC service was launched in November 2017, with Quiptel as a technology supplier. By moving to a licence and revenue sharing model, the Company has reduced its financial exposure whilst maintaining significant growth potential.

Going forward, Quiptel's technology and software patents will now drive the Company's primary business focus. This strategic refinement simplifies the Company's offering, where the Falcon Board see significant potential to provide a clear path to market for global brands, operators and rights-holders that are under-served by existing providers.

We believe that sharpening our strategic focus on our proprietary technology will benefit Falcon, its customers and shareholders both in the short and long term. We recognise, as do our customers, that the best returns for the Company, in the fast-paced and dynamic video streaming market, will come from accelerating the development of our core Quiptel technology, which has already generated significant interest. The first signed deals are a clear validation of our new technology strategy.

I would like to thank shareholders for their continued support and the team for their dedication and help in ensuring Falcon´s success. We look forward to the future with confidence.

Gert Rieder

Executive Chairman

28.12 2017

Interim Management Report

Condensed Consolidated Statement of Financial Position

The condensed consolidated statement of financial position as at 30 September 2017 is set out below.

Condensed Consolidated Statement of Financial Position (continued)

As approved and authorised for issue by the Board of Directors on 14 December 2017 and signed on its behalf by:

Gert Rieder

Executive Chairman

Condensed Consolidated Statement of Comprehensive Income

The condensed consolidated statement of comprehensive income for the period from 1 April 2017 to 30 September 2017 is set out below:

Condensed Consolidated Statement of Changes in Equity

The condensed consolidated statement of changes in equity is set out below:

Share capital comprises the Ordinary Shares and the Preferred Shares issued by the Group. Please see Note 5 for further details. At 11 August 2017 the Founder Share was redeemed for a for cash consideration of £ 8.00.

Share premium has been reduced by a total of £260,000 for expenses in relation to the issue of Ordinary Shares on admission of the Company to the London Stock Exchange's main market in 2016. In the context of the Quiptel acquisition, issue of new shares, as well as the respective re-admission, a further £351,000 of expenses were charged against share premium.

Condensed Consolidated Statement of Cash Flows

The condensed consolidated cash flow statement for the period from 1 April 2017 to 30 September 2017 is set out below:

Notes to the Consolidated Interim Report

1. General information

Falcon Acquisitions Limited (the "Company") was incorporated to acquire companies or businesses with a focus on opportunities in the media and technology sectors.

On re-admission to the London Stock Exchange on 27 March 2017 the name of the Company was changed from Falcon Acquisitions Limited to Falcon Media House Limited.

On that date the Group acquired control of the Quiptel Group and Teevee Networks. Consequently, the Group has taken the decision to first focus on its core technology and secondly to being an integrated Over-The-Top ("OTT") business provider that wants to act as a new distribution opportunity for content providers as well as a provider of a technical platform, together with partners, for third party operators to launch new OTT services. A result of the decision to focus on the core technology first, the former subsidiary Teevee Makers Inc. was sold to the management of the same as a management buyout (MBO) transaction. In addition, the efforts to launch an own B2C OTT platform under the brand of TeeVee were stopped.

OTT platforms deliver audio and video content to customers either over the open internet without a multiple-system operator or via an internet enabled device - smart televisions with a broadband connection, phones, tablets, and set top boxes.

As the accounting date of the acquired Quiptel Group is 31 March, the directors decided to change the accounting reference date of the Company to this date to align with the operations of Quiptel.

The Company was incorporated under the section II of the Companies Law 2008 in Guernsey on 29 January 2015, and is limited by shares and has registration number 59731.

The Company's registered office is located at 1 Le Marchant Street, St Peter Port, Guernsey, GY1 4HP, Channel Islands.

All amounts in the financial statements, for both the current and previous accounting periods, are presented in £'000.

2. BASIS OF PREPARATION

The interim condensed consolidated financial statements for the period ended 30 September 2017 have been prepared in accordance with IAS 34: 'Interim Financial Reporting'. They do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the group's financial position and performance since the last annual consolidated financial statements as at the year ended 31 March 2017.

The results for the period ended 30 September 2017 are unaudited and do not constitute statutory accounts within the meaning of Companies (Guernsey) Law 2008.

The unaudited consolidated financial statements for the period ended 30 September 2017 have adopted accounting policies consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 March 2017.

The comparative financial information presented as at 31 March has been derived from the audited financial statements for that period. The auditor's report on those financial statements included an emphasis of matter on going concern, without qualifying the auditor's report.

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of financial statements requires the Group to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, results and related disclosures. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions.

The estimates and judgments that have a significant impact on the carrying amounts of assets and liabilities are addressed below:

- Intangible Assets: the group holds several intangible assets as further described in Notes 10. Management has assessed the expected contribution to be generated from these intangible assets and deemed that two adjustments were required to the carrying values. The recoverable amounts of the assets have been determined based on value in use calculations which require the use of estimates and judgments. Management will reassess the valuations and estimated useful lives on a regular basis.

- Going Concern: The Group is loss making at 30 September 2017 but had net current assets of £721k. The Interim Report has been prepared on the basis that the Group will continue as a going concern. Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or regulations. The assessment has been made based on the Group's economic prospects which have been included in the financial budget for the forthcoming twelve months and for managing their working capital requirements. In assessing whether the going concern assumption is appropriate, management takes into account all available information for the foreseeable future, in particular for the twelve months from the date of approval of the financial statements. Should the company be unable to continue trading, adjustments would have to be made to reduce the value of the assets to their reasonable amounts, to provide for further liabilities which might arise, and to classify fixed assets as current.

The nature of the business in which the Group operates creates a degree of uncertainty as to the timing and value of new contracts. The Group is in the stage of closing a number of contracts mainly in Asia and Africa, which are expected to lead to revenue in the coming months. As a result of the new strategy and the consequent discontinuation of the Teevee Makers business and the Teevee Networks business, the monthly cash burn could be reduced. Still the Group will not be cash flow positive in the foreseeable future.

The Group finances its current working capital through revenue of existing and new clients as well as through the financing received through the convertible note announced on 17 October 2017, for which it had received an advance of £1,450k at the balance sheet date.

As a consequence, the directors are confident that they will be able to raise any additional funds required and/or manage the level of expenditure for the foreseeable future.

Based on the above, the directors have formed a judgment that the going concern basis should be adopted in preparing the financial statements.

4. Business Segments

For the purpose of IFRS 8, the Chief Operating Decision Maker "CODM" takes the form of the board of directors. The Directors are of the opinion that after restructuring and refocusing of the group there is just one business segment which is the development and distribution of OTT streaming software.

5. SHARE CAPITAL

*Note: including reduction of issue-related expenses

Ordinary Shares

Each Ordinary Share ranks pari passu for Voting Rights, dividends and distributions and return of capital on winding up.

Preferred Shares

Each Preferred Share ranks pari passu for dividends and distributions and returns of capital on winding up. Preferred shares entitle the holders to the same rights as Ordinary Shares, with the difference that Preferred Shares do not have voting rights. The Preferred Shares can be converted into Ordinary Shares at the discretion of the holder and will automatically convert in Ordinary Shares five years after the date of re-admission, which was on 27 March 2017.

Movements in share capital

On 29 January 2015, the Company was incorporated with an issued share capital of one hundred (100) Ordinary Shares of £0.01 each.

On 27 July 2015, an additional 4,375,000 Ordinary Shares were issued at £0.08 per share to the sole shareholder, GSC SICAV plc - GSC Global Fund, for a cash consideration of £350,000. As a result, share capital of £43,750 and share premium of £306,250 were recognized.

On 16 September 2015, one Founder Share was issued to GSC SICAV plc - GSC Global Fund, for cash consideration of £8.00. As a result, share capital of £0.01 and share premium of £7.99 were recognized. The Founder Share is a separate class of shares which is non-voting and which gives the holder certain rights, including the right to appoint up to three directors until immediately on the occurrence of a Founder Share Conversion Event.

On 18 January 2016, the Company was admitted to trading at the London Stock Exchange, at which point the Company issued 16 million Ordinary Shares at £0.10 per Ordinary Share, raising a total of £1.6 million, consisting of share capital of £160,000 and share premium of £1,440,000.

On 21 April 2016, the Company issued 10,000,000 Ordinary Shares at a price of £0.20 per Ordinary Share, raising £2 million, consisting of share capital of £100,000 and share premium of £1,900,000.

On 17 June 2016, the Company issued a further 815,000 Ordinary Shares at a price of £0.20 per Ordinary Share, raising £163,000, consisting of share capital of £ 8,150 and share premium of £154,850.

On 27 March 2017, the Company issued 12,000,000 Ordinary Shares at a price of £0.25 and 4,000,000 Preferred Shares at a price of £0.25, raising a total of £ 4 million, comprising share capital of £160,000 and share premium of £3,840,000.

On the same date, 800,000 Ordinary Shares were issued at a price of £0.25 pursuant to the Quiptel Management Incentive Plan, comprising share capital of £8,000 and share premium of £192,000 on acquisition of the Quiptel Group. These shares were issued instead of settling the full liabilities of the Plan.

In conjunction with the acquisition of both the Quiptel Group as well as Teevee Networks the Company issued a further 11,420,166 Ordinary Shares at a price of £0.35 and 19,722,685 Preferred Shares at a price of £0.35. The Fair Value of both the Ordinary as well as the Preferred Shares was determined at a value of £0.22 per share in accordance with IFRS 3. Therefore, a rise in share capital of £311,429 and share premium of £ 6,851,427 was recognized. These shares included shares issued to Nuovo Capital and Digital Realm, as explained in Note 15.

At 11 August 2017, the Founder Share was redeemed for a for cash consideration of £ 8.00.

All shares have been fully paid up. At 30 September 2017, the number of Ordinary Shares and Preferred Shares authorised for issue was unlimited.

6. CASH AND CASH EQUIVALENTS

7. PREPAYMENTS AND OTHER RECEIVABLES

Other receivables mainly consist of an unpaid service invoice with a major customer which was paid by the date of preparation of this report.

8. FIXED ASSETS

9. FINANCIAL ASSETS

10. INTANGIBLE ASSETS

Software

The additions to the Software are due to current software development by internal staff as well as external service provider.

Licenses

With the sale of Teevee Makers the contract with Eastern College Athletic Conference (ECAC) to televise and distribute ECAC games and events was derecognized. The additions include a license for £150k in Falcon to support the ECAC App which was neither sold with TVMP nor is further needed in Falcon and therefore was impaired at the date of the sale.

Brands

In accordance with the Board decision to focus on the OTT software and not further invest in the Teevee brand, the brand value was reduced to £30k.

Advertising rights

These advertisement rights were part of Teevee Makers and therefore eliminated from the Group balance sheet.

11. TRADE AND OTHER PAYABLES

The reduction on other Short-term payables are mainly related to the payments of the Quiptel Management Incentive Plan. Additionally, the short term as well as the long-term contractual obligations related to the ECAC-contract (please refer to note 10) were derecognized in relation with the sale of TVMP.

The long-term financial liability of £1,450k consists of advanced payments that the group already received with regard to the convertible note that was issued on 17 October 2017. For details of this note please see Note 21.

As at 30 September 2017, the trade and other payables were classified as financial liabilities measured at amortised cost. A maturity analysis of the Group's trade payables due in less than one year is as follows:

12. OPERATING LEASE COMMITMENTS

The group leases office spaces under non-cancellable operating lease agreements. The future aggregate minimum lease payments are as follows:

13. EMPLOYEE BENEFITS AND EXPENSES

14. RELATED PARTY TRANSACTIONS

The following transactions were carried out with related parties:

Key Management Compensation

The Key Management Personnel are introduced in the section "Board of Directors and Senior Management" on pages 11 to 15 of the Annual Report in March 2017.

Key Management Personnel are remunerated mainly as contractors. The total compensation paid or payable to directors and key management for employment services is shown below:

For payments to the contracting key management personnel please refer to the next section.

Purchase of Services

The amount also includes expenses of £69k that have been reimbursed by the Group. Included in these figures are the payments made to the Directors.

Year-end balances arising from services

The payables to related parties arise from expenses or services provided by key management personnel, are due immediately and bear no interest.

15. SHARE BASED PAYMENTS

Share options have been granted to directors, employees and key service providers. The exercise price of the granted options at £ 0.25 is equal to the conditions of the capital raise in March 2017 when the options were granted. Options are conditional on being a director, employee or consultant to the Group on the respective Vesting Date.

The options are exercisable on the following vesting dates:

- 16th of March 2018: 33 % of the option shares

- 16th of March 2019: 66 % of the option shares

- 16th of March 2020: 100% of the option shares

The options have a contractual term of 5 years. The Group has no legal or constructive obligation to repurchase or settle the options in cash. Movements in share options are given below:

Out of the 11,160,897 outstanding options (June 2016: 0), no options are exercisable.

Share options outstanding at the end of the year have the following expiry date and exercise prices:

The weighted average fair value of the options granted during the period determined using a Black-Scholes valuation model was 1.06p per option. The significant inputs to the model were the weighted average share price of £ 0.16 between date of readmission (March 27th 2017) and September 30th 2017, exercise as shown above, volatility of 20%, expected option life of 5 years and an annual risk-free interest rate of 1.5%. The volatility measured at the standard deviation of continuously compounded share returns is based on statistical analysis of the share price since incorporation. There was no material charge made in the current period.

16. FINANCE INCOME AND COST

17. TAXATION

The Group is subject to income tax at a rate of nil in Guernsey and around 15% in the US, as at 30 September 2017.

Deferred tax has not been provided as the applicable tax rate is 0%.

18. LOSS PER SHARE

The calculation for loss per Ordinary Share (basic and diluted) for the relevant period is based on the loss after income tax attributable to each equity Shareholder for the period from 1 April 2016 to 30 September 2017 as follows:

Differentiated between continued and discontinued operations the calculation is as follows:

Loss and diluted loss per Ordinary Share are calculated using the weighted average number of Ordinary Shares in issue during the period. There were no dilutive potential Ordinary Shares outstanding during the period.

19. FINANCIAL INSTRUMENTS - RISK MANAGEMENT

The Group is exposed through its operations to foreign currency risk, credit risk and liquidity risk and in common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout this Annual Report.

Financial instruments

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

The risk associated with the cash and cash equivalents is that the Group's bank will enter financial distress and be unable to repay the Group its cash on deposit. To mitigate this risk, cash and cash equivalents are only lodged with independent financial institutions designated with minimum rating "A".

The risk associated with loans and the financial assets is that the counterparty will not be able to repay the outstanding interest and debt.

The risk associated with the other payables and liabilities is that the Group will not have sufficient funds to settle the liability when it falls due. The Directors seek to maintain a cash balance sufficient to meet expected requirements for a period of at least 45 days.

Foreign currency risk is associated with all of the above balances and results of assets and liabilities denominated in foreign currency. The most relevant currency pair for the business is USD / GBP. The directors are aware of this risk and seek to enter into as little foreign currency risk as possible. The foreign currency positions are regularly monitored by the CFO.

General objectives, policies and processes

The Directors have overall responsibility for the determination of the Group's risk management objectives and policies. Further details regarding these policies are set out below:

Credit risk

The Group's credit risk arises from cash and cash equivalents with banks and financial institutions. For banks and financial institutions, only independently rated parties with minimum rating "A" are accepted.

Liquidity risk

The Directors' objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. At the date of this financial information, the Company had been financed from equity. In the future, the capital structure of the Company is expected to consist of convertible notes and equity attributable to equity holders of the Company. As a result of later than expected revenue inflows the Company does currently not have the liquidity needed to execute its business plan for the next 12 months and this has resulted in a requirement for additional working capital financing. The Directors are therefore in discussions with certain existing shareholders to provide short term working capital finance to bridge the group's working capital requirements.

20. CAPITAL RISK MANAGEMENT

The Directors' objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. At the date of these Annual Report, the Group has been financed by equity. In the future, the capital structure of the Group is expected to consist of borrowings and equity attributable to equity holders of the Group, comprising issued share capital and reserves.

21. SUBSEQUENT EVENTS

Subsequent to the period end the following events occurred:

On 17 October 2017, the Company announced the securing of an additional funding via a convertible loan note whose aggregate principal amount of is £10 million, of which £3.4 million has been issued as of that date. On 1 December 2017 the Group further announced that the convertible note will be closed at the £3.4 million.

On 19 October 2017 the Company announced the appointment of Mr. Edgar Wallner and Mr. Dirk Wiedmann as new non-executive directors to the board with immediate effect.

22. GROUP STRUCTURE AND ACQUISITIONS

The Company had the following active subsidiaries as of 30 September 2017:

23. ULTIMATE CONTROLLING PARTY

As at 30 September 2017, no single entity owned more than 50% of the issued share capital. Therefore the Company does not have an ultimate controlling party.

24. DECONSOLIDATION OF TEEVEE MAKERS

The pre-tax loss recognised on the disposal of Teevee Makers was £1,554k as per 19 September 2017.

The date of signing the sale and purchase agreement was the 19 September 2017, which was also the date of the loss of control. As the loss of control happened on 19 September 2017, the figures as of this date have been used for the deconsolidation.

The assets and liabilities related to Teevee Makers that have been disposed of have been presented at Fair Value.

Assets of Teevee Makers

Liabilities of Teevee Makers

* Thereof liability to holding company: £2,157k

Analysis of the result of Teevee Makers:

Analysis of the result of discontinued operations:

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

**ENDS** 

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