Gfinity Regulatory News (GFIN)

21 December 2023

For immediate release

Gfinity PLC

("Gfinity" or the "Company")

Audited Results for the year ended 30 June 2023

The Board of Gfinity announces the audited annual results for the year ended 30 June 2023. The Annual Report and Accounts will shortly be sent to shareholders and will be available on the Company's website,  http://www.gfinityplc.com together with a copy of this announcement.

For further information please contact:

Enquiries:

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 as it forms part of UK Domestic Law by virtue of the European Union (Withdrawal) Act 2018. The person who arranged for the release of this announcement on behalf of the Company was Neville Upton, Director.

Beaumont Cornish Limited ("Beaumont Cornish") is the Company's Nominated Adviser and is authorised and regulated by the FCA. Beaumont Cornish's responsibilities as the Company's Nominated Adviser, including a responsibility to advise and guide the Company on its responsibilities under the AIM Rules for Companies and AIM Rules for Nominated Advisers, are owed solely to the London Stock Exchange. Beaumont Cornish is not acting for and will not be responsible to any other persons for providing protections afforded to customers of Beaumont Cornish nor for advising them in relation to the proposed arrangements described in this announcement or any matter referred to in it.

Chairman's Report

I have pleasure in presenting our annual accounts for the financial year ended 30 June 2023.

It has been a difficult year for the Company as we transitioned from esports solutions and software development, to a pure play digital media company. The new focus is on cost reduction and a quality product, targeting profitability, with the objective to create longevity in the Company and support and stabilise the share price for our investors.

The restructuring has led to a reduction in revenue to £2.2m, a decrease of 60% YOY, with a loss of £10.3m. Within this loss, we were able to complete the full restructuring of the business so that we enter the new financial year in a much stronger position.

FY 2023, we exited our esports arena in London and also decided to no longer offer physical events in the future, as both the arena and esports events had shown no profitability, longevity or scalability for the business.

In June 2023, we exited the majority of Athlos Game Technologies Ltd ("Athlos"), as the capital required to build a SaaS company from scratch proved too much for our balance sheet to sustain. Athlos continued to lose significant capital on a monthly basis with no new contracts in the pipeline and we deemed it a prudent decision to exit the company and focus our capital on business areas with more consistent and known opportunity.

The economics of the business has become more predictable, with the departure of previous senior management and our old business model being stripped down. We now run a good business, with a sensible and much smaller cost base. We expect our salary bill for the following financial year to be reduced by over 65% and headcount by 50%.

Our operating cost base has been streamlined, with the combined operating costs of both continued and discontinued operations for FY2023 as shown in note 10, down 68% year-on-year when compared to our current annualised cost base of £2.5m.

These changes by no means limit the opportunity of the Company, as we are now operated by a leaner team, with known M&A experience in a market with many opportunities. Our customer base of hard-to-reach gamers, is one of the most coveted by brands and advertisers, and gaming is a sector continuing to grow year-on-year. By focusing on one industry vertical, we have already been able to improve our product offering including the launch of a new website in the summer.

In summary, I would like to say thank you to the Gfinity team, who have supported us through a challenging year of transition - They are dedicated writers and developers, and have a clear passion for gaming. And I would also like to thank all our clients and partners that choose to work with Gfinity together with our shareholders. Their continued support is never taken for granted and we can now look forward to growing together.

Neville Upton

Chairman

20 December 2023

Chief Executive Officer's Report

When appointed CEO in August 2023, I set out to quickly bring the economics of our business under control after a long period of loss-making business decisions trying to build long term value.

The decision to focus the Company as a pure play digital media company, was straightforward, as we not only had some excellent sites, although they were in need of fresh management and some fixing, but we also had a solid core team of writers, editors and developers who are the backbone of the new look Gfinity.

By having a singular focus and product vertical, the team can now really show their expertise in running digital assets to rebuild our Ebitda and create a long term, reliably profitable company. The digital asset space offers great opportunities, including potential acquisitions, and rewards companies who deliver great product and adapt to changes in the industry.

A significant subject in tech is obviously Artificial Intelligence ("AI") and the impact of Large Language Models on businesses. At Gfinity, we are embracing this opportunity by utilising tools to improve our product and increase efficiencies, while ensuring our own team can add their unique magical human intervention for us to be the go-to sites for gamers and esports enthusiasts looking for compelling and engaging content .

We are also very excited about the opportunities of AI in video, and I believe video will increasingly become part of the future product offering of the company, thus adapting to the needs of a new generation of gamers.

We are building our own engagement tools in our sites where our community will be entertained through playing games and watching unique content.

We have emerged from a difficult year for GDM. At the end of the June monthly sessions across all sites were 9 million and combined with our social media channels we reach more than 20 million gamers each month.

We have now built a stronger foundation for future growth and will work opportunistically through the next year to find additive transactions to grow the network and company.

Financial Highlights:

The company operated in FY 2023 with 3 loss-making business divisions.

While all 3 presented opportunities to create shareholder value, Athlos and Gfinity Esports Solutions were more risky ventures and required more capital.

Athlos is a ground breaking product but needed significant funding. Gfinity sold 72.5% of Athlos and removed liabilities for 6 months to relieve the balance sheet. This division was significantly loss-making each month as it invested in further feature development and started to invest heavily in the go-to-market plan. Up to the date of disposal of 5 June 2023, the Group recorded revenue from Athlos of £323,873 and a loss of £715,616.

Gfinity esports solutions division was unpredictable with short term, often one-off contracts with a large fixed cost base. The Formula 1 contract which had been the cornerstone of the division and which contributed 60% of revenue and 83% of gross profit of the eSports division, was not renewed. Most of the other revenue was one-off consultancy contracts and low margin content production. As announced in the year, The Board decided to close down the division:

· December 2022, closed down the Gfinity Arena to reduce exposure to Esports 

· June 2023, announced the closure of the division

· Since year end the division has been sold with Gfinity retaining a 15% stake

GDM witnessed significant headwinds with numerous changes to the google algorithms and a well-publicised decline in the ad rates seen across all digital media. This required a new approach to running the business. A lower cost base, leaner management team and bigger focus on quality content and improved User Experience was needed.

· Implemented a significant cost reduction programme in June 2023.

· Moved advertising agency in April 2023 which saw an increase in ad rates which negated the general decline in ad rates across the digital media sector

· We restructured the dense advertising structure in sites to make it more favourable for search engine optimisation

· We improved site mechanics so that numbers would increase in the fourth quarter of calendar year 2023.

Changes in Organisation

The former Chief Executive Officer John Clarke, resigned in February 2023.

With the closure of the esports division and divestment of Athlos we did not need such a heavy central cost base and in August 2023 our former CFO, Jon Hall, left the business and all central functions were reduced in size. I joined the company as Chief Executive in August 2023 and have implemented a leaner operating model with the prior Head of Operations now looking after day to day running of the business with myself and the board overseeing long term strategy. This new operating model has also seen a reduced number of editors across the sites a new content production process and more resource in direct revenue generation. Len Rinaldi left the Board in May 2023.

Growth

Having stabilised the business with a lower cost base and stronger operating foundations, we are now embarking on a growth plan. In July 2023 we launched a new website, starfieldportal, it is now receiving over 35k sessions a day. We aim to release more websites in 2024, as this incurs minimal capital and can leverage our scalable platform and extensive social media presence.

GDM's competitive advantage is technology; content and Search Engine Optimisation (SEO) expertise; and commercial leverage.

We have;

· a strong young team who understand the future of digital communications and media

· a technology platform that allows us to scale the content suite

· an ad tech capability to increase our revenues

· a sales team to exploit the need for brands to reach the difficult to reach Gen Z community

· a continuing relationship with Athlos and esports solutions team where we can provide some compelling gaming

solutions by amalgamating skill sets.

Our dedicated team

The progress we are making across the business is a direct consequence of the passion and spirit shown by the team. Every day team members are stepping up, innovating, selling ideas, building networks, impressing partners with the quality of their work, and making things happen in a challenging economic environment. Gfinity is benefiting from having leaders across the business driven by their desire to build something special.

Outlook

The strategic focus on GDM gives us greater control over our destiny. It allows us to become a leader in one discipline while also navigating the economic headwinds. We have seen a nervousness from publishers to commit investment and advertising rates have been impacted across the whole of digital media. It is crucial that we continue to manage our cost base zealously while being innovative and adopting to the new technological opportunities. The team will remain agile, flexible, and entrepreneurial, continually adopting to new opportunities and providing compelling engagement to the gaming community.

Conclusion

The transformation of Gfinity' s business model is now well underway; we are developing expertise to be leading force in digital media across the gaming community. I would like to thank the Gfinity team, our business partners and our clients for their continued hard work and support.

David Halley

Chief Executive Officer

20 December 2023

Group Statement of Profit or Loss

For the ended 30 June 2023

* Operating Loss from trading activities is the Operating Loss for the year before impairment, movements on deferred consideration, and loss on the loss of control of a subsidiary.

Group Statement of Comprehensive Income

Group Statement of Financial Position

As at June 2023

The notes form an integral part of these financial statements.

Registered number: 08232509

Signed on behalf of the board on 20 December 2023:

Company Statement of Financial Position

As at 30 June 2023

The notes form an integral part of these financial statements.

As permitted by Section 408 of the Companies Act 2006, the profit and loss account of the Company is not presented as part of these financial statements. The parent Company's loss for the year amounts to £11,569,814 (2022: loss of £4,248,407).

Registered number: 08232509

Signed on behalf of the board on 20 December 2023:

Group Statement of Changes in Equity

As at 30 June 2023

"Ordinary shares" represents the nominal value of issued share capital.

"Share premium" represents the proceeds on issue of shares in excess of nominal value, less directly attributable issue costs.

"Share option reserve" represents the fair value of share based payments that are in issue at the reporting date.

"Retained earnings" represents the cumulative profits and losses of the business.

"NCI" represents the cumulative profit and losses attributable to minority shareholders of subsidiaries

"Forex" represents the cumulative effect of retranslating the results of foreign operations into the presentation currency

Company Statement of Changes in Equity

As at 30 June 2023

Group Statement of Cash Flows

As at 30 June 2023

There were no investing or financing cash flows for discontinued operations.

The net cash outflow on operating activities for discontinued operations was £(2,166,061) (2022: £(2,679,157).

Company Statement of Cash Flows

As at 30 June 2023

Notes to the Financial Statements

1. GENERAL INFORMATION

Gfinity plc ("the Company") is a public company limited by shares incorporated in the United Kingdom under the Companies Act 2006, registered and domiciled in England and Wales and is AIM listed. The address of the registered office is given on page 2. The registered number of the company is 08232509.

The functional and presentational currency is £ sterling because that is the currency of the primary economic environment in which the group operates. Foreign operations are included in accordance with the policies set out in note 2. Principal activities are discussed in the Strategic report.

2. ACCOUNTING POLICIES

Basis of preparation

The Company has prepared the accounts on the basis of all applicable UK-adopted International Financial Reporting

Standards (IFRS), including all International Accounting Standards (IAS), Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC) interpretations issued by the International Accounting Standards Board (IASB) with effective dates for accounting periods beginning on or after 1 July 2022, together with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The accounts have been prepared on the historical cost basis, unless otherwise stated below. The principal accounting policies, which have been consistently applied throughout the period presented, are set out below.

The preparation of financial statements in conformity with IFRS requires the use of certain estimates. It also requires management to exercise its judgement in the process of applying the company's accounting policies. Estimates and judgements are continually reviewed and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances.

New and amended accounting standards effective during the year

The following amended standards and interpretations were effective during the year:

? Amendments to IAS 16: Property, Plant and Equipment: proceeds before intended use

? IAS 37: Onerous Contracts: costs of fulfilling a contract

? Annual Improvements to IFRS Standards 2018-2020

? Amendments to IFRS 3: Business Combinations: reference to conceptual framework

The adoption of the standards and interpretations has not led to any changes to the Group's accounting policies or had any other material impact on the financial position or performance of the Group.

New standards, interpretations and amendments issued but not yet effective

The following new accounting standards, amendments and interpretations to accounting standards have been issued but these are not mandatory for 30 June 2023 and they have not been adopted early by the Group:

? Amendments to IAS 1: Classification of liabilities as current and non-current

? Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of accounting policies

? Amendments to IAS 8: Definition of accounting estimates

? Amendments to IAS 12: Deferred Tax related to assets and liabilities arising from a single transaction

The Directors anticipate that the adoption of planned standards and interpretations in future periods will not have a material impact on the Group Financial Statements.

Going Concern

As explained in the Chairman's Report and the Chief Executive Officer's Report, it has been a difficult year for the Group and Company as it transitioned away from esports solutions and software development to a pure play Digital Media company.

At the time of issuing these Financial Statement, this restructuring is largely complete and the Group and Company has reduced its overhead base to support and develop its Digital Media assets and the Directors firmly believe that the steps taken will lead to profitability in the short term.

The Directors have prepared a base case cashflow forecast through to 31 December 2024, which assumes certain growth targets are met.

The Directors believe that the growth targets are reasonable and attainable, and in view of this, the Directors are confident that the Group and Company has adequate resources to continue to operate for at least twelve months from the date of approval of these Financial Statements and have, therefore, continued to adopt the going concern basis in preparing the Directors' Report and Financial Statements.

However, the Directors recognise that achievement of the growth targets are subject to external factors outside of their control and so they have also prepared a severe but plausible cashflow projection to assess cashflows in such a scenario. Should the forecast growth of the Group and Company be not forthcoming or be slower than anticipated, the Group and Company will need to secure additional funding in the period to 31 December 2024.

The Group and Company continues to enjoy the support of its major shareholders, and should further funding be necessary, the Directors believe that this support will continue. On this basis, the Directors consider that it is appropriate that the going concern basis is applied in the preparation of these Financial Statements.

However, whilst the Directors are confident of continuing to raise additional funds as needed to finance the business in accordance with its Digital Media strategy, they nevertheless recognise that a material uncertainty exists which might impact the Group and Company's ability to continue to realise its assets and discharge its liabilities as they fall due in the normal course of the business and therefore its ability to continue to operate as a going concern.

Basis of consolidation

The Group accounts consolidate the results of the Company and all of its subsidiary undertakings drawn up to 30 June each year. Subsidiary undertakings are those entities over which the Group has the control, which is where the Group has power over the investee, is exposed to variable returns from its involvement with the investee and where the Group has the ability to use its power over the investee to affect the amount of returns. The results of subsidiaries acquired or sold are consolidated for the periods from or to the date on which control passed. Acquisitions are accounted for under the acquisition method.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess  of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

Where the Group assesses that it has significant influence over an investee, but not control, the investment is accounted for as an associate. Associates are not consolidated but are equity accounted and the group records its share of the associate's loss to the extent the cost less impairment of the investment in greater than nil.

All intra group balances, transactions, income and expenses and profit and losses on transactions between the Company and its subsidiaries and between subsidiaries are eliminated. 

Goodwill

Goodwill is initially recognised and measured as set out above.

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

Investment in subsidiaries

Investments in subsidiaries are held in the Company balance sheet at cost and reviewed annually for impairment. Where the Company acquires subsidiaries with contingent or deferred consideration, the initial estimate of the present value of future payments is included in the cost of the investment and any subsequent changes recorded through profit or loss.

Revenue

Revenue comprises the fair value of the consideration received or receivable for the sale of services in the normal course of the Group's activities. Revenue is shown net of value added tax.

To determine whether to recognise revenue, the Group follows a 5-step process:

1. Identifying the contract with a customer.

2. Identifying the performance obligations

3. Determining the transaction price.

4. Allocating the transaction price to the performance obligations.

5. Recognising revenue when/as performance obligation(s) are satisfied.

Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised goods or services to its customers. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Revenue comprises:

· Partner programme delivery fees: Revenue recognised in line with the date at which work is performed.

· Sponsorship revenues: Revenue is recognised on the date the relevant sponsored event takes place. In the event of long-term sponsorship contracts, the revenue is released on a straight-line basis across the term of the contract, except in instances where a significant proportion of the revenue relates to specific activation activities, in which case the revenue is released in line with when that work is performed.

· Advertising revenues: Fees are earned based on the number of sessions where ads are displayed on the website. Revenue is recognised on a cost per mille (CPM) basis.

· Broadcaster revenues: Rights fees are received from linear broadcasters and online streaming platforms in return for rights to access broadcast content. Revenue is recognised once the relevant performance obligations are completed which is typically at the point the broadcast occurs.

· Licensing revenues: Fees charged for the licensing of Gfinity esports technology, outside of the scope of a broader managed esports service provision.

· Consultancy Fees: Revenue is recognised in line with the profile of resources dedicated to the programme across the assignment duration. Such revenue is recognised over time based on an estimate of total costs incurred.

Foreign currencies

Transactions in foreign currencies are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the year.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period. Exchange differences arising from the translation of the Group's foreign operations are recognised in other comprehensive income.

Taxation

The taxation expense represents the sum of the tax currently payable and deferred tax.

The charge for current tax is based on the results for the period as adjusted for items that are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computations of taxable profit and is accounted for using the balance sheet liability method.

Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or any discount on acquisition) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that the directors do not have a high degree of certainty that sufficient taxable profits will be available in the medium-term to allow all or part of the asset to be recovered.

Credits in respect of Research and Development activities are recognised upon receipt of payment from HMRC.

Share based payments

The Company provides equity-settled share-based payments in the form of share options. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant. The fair value determined at the date of grant is expensed on a straight line basis over the vesting period, based on the Company's estimate of shares which will eventually vest and adjusted for the effect of non-market based vesting conditions. The Company uses an appropriate valuation model utilising a Black-Scholes model in order to arrive at a fair value at the date share options are granted.

In instances when shares are used as consideration for goods or services the shares are valued at the fair value of the goods or services provided. The expense to the company is recognised at the point the goods or services are received.

Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the carrying amount of the asset or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and that the cost of the item can be measured reliably. The carrying amount of parts that are replaced is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

Depreciation is calculated using the straight-line method to allocate the cost or revalued amounts of tangible fixed assets to their residual values over their useful economic lives, as follows:

The residual values and useful economic lives of the assets are reviewed, and adjusted if appropriate, at each balance sheet date. The carrying amount of an asset is written down immediately to its recoverable amount if the carrying amount is greater than its estimated recoverable value. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within other gains or losses in the income statement.

Intangible fixed assets

Intangible assets other than goodwill are recognised where the purchase or internal development of such assets are expected to directly contribute towards the company's ability to generate revenues .

Intangible fixed assets are stated at historical cost less accumulated amortisation and impairment, if any. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Where the cost is not clearly identifiable discounted cash flows are utilised to estimate either the cost to develop the resource or, where there are already profits attributable the asset, to estimate future cash inflows. Historical cost includes expenditure that is directly attributable to the acquisition or development of the items. Subsequent costs are included in the carrying amount of the asset or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and that the cost of the item can be measured reliably.

Amortisation is charged on a straight-line basis over the estimated useful economic life of the asset as follows:

Amortisation expense is included within administrative expenses in the profit or loss account.

Research and development costs

Development expenditure is capitalised as an intangible asset, only if the development costs can be measured reliably and it is anticipated that the product being built will be completed and will generate future economic benefits in the form of cash flows to the Group or cost savings.

Research expenditure that does not meet this criteria is recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less. These are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Financial liabilities and equity

Financial liabilities are obligations to pay cash or other financial instruments and are recognised when the company becomes a party to the contractual provisions of the instrument. Financial liabilities are classified according to the substance of the contractual arrangements entered into. All interest-related charges are recognised as an expense in the income statement.

Trade and other payables are not interest bearing and are recorded initially at fair value net of transactions costs and thereafter at amortised cost using the effective interest rate method.

An equity instrument is any contract that evidence a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Contingent consideration arising in a business combination is held at fair value at each reporting date. After the initial accounting for the business combination, any changes in the estimated or actual consideration payable are taken to profit or loss. Future expected payments are held at their present value where the effect of discounting is material. The unwinding of contingent consideration is recognised as a finance cost in profit or loss.

Financial assets

Financial assets are recognised in the balance sheet when the Company becomes a party to the contractual provisions of the instrument and are recognised in the balance sheet at the lower of cost and net realisable value.

Provision is made for diminution in value where appropriate.

Income and expenditure arising on financial instruments is recognised on the accruals basis and credited or charged to the statement of comprehensive income in the financial period to which it relates.

Trade receivables do not carry any interest and are initially recognised at fair value, subsequently reduced by appropriate allowances for estimated irrecoverable amounts.

Warrants

Warrants are in respect of call options granted to investors by the group and are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset.

The fair value of warrants is determined at the date of grant and is recognised in equity. When the warrants are exercised, the group transfers the appropriate amount of shares to the investor, and the proceeds received net of any directly attributable transaction costs are credited directly to equity.

The group uses an appropriate valuation model utilising a Black-Scholes model in order to arrive at a fair value at the date warrants are granted.

3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of financial statements in conformity with IFRS requires the use of certain estimates. It also requires management to exercise its judgement in the process of applying the company's accounting policies. Estimates and judgements are continually reviewed and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances.

Judgement: Revenue recognition:

The Group's revenue recognition policy is based on separating contracts into discrete performance obligations with revenue then recognised based on the percentage completion of each performance obligation unless recognised at appoint in time. Where the value of each distinct performance obligation is not set out in a contract Management estimate the value of each performance obligation based on the level of resource required to complete the performance obligation in comparison to the overall level of resource required to fulfil the contract. For example, if a contract did not stipulate the value by region of a broadcast agreement management would use appropriate weighting (e.g. audience size) to estimate the value of each region, with each region viewed as a separate performance obligation. Revenue would then be recognised based on the percentage completion of each performance obligation. In instances where there is no other readily available proxy Management will estimate the value of each performance obligation based on the relative cost to deliver.

Stock Informer Revenue that is recognised on a monthly is based on the transactional sales value of all transactions in month for all associate affiliate partners. The transactional sales value represents the total commission value due to Gfinity of all pending and approved payments coming in for a given month across the affiliate 3rd party providers that are contracted and based on the specific affiliate commission % with Stock Informer. In month "Transactional Value" will specifically exclude approved payments from prior months, as this has already been recognised as revenue in the prior months. A credit note provision is raised monthly which is based on the value of all pending commission transactions across all affiliates with a credit note % assumption applied to this which is based on the average return % over the past 6 months. The credit note provision is assessed monthly in relation to the level of pending transactions that have either been paid resulting in earnings, which results in a release of the provision, or declined, which results in a credit and offset against the credit note provision, thus utilising the provision in place

There were no revenue contracts requiring judgement that impact on the reported revenue for the financial year, or contract assets or liabilities at the balance sheet date for either the current or the prior year.

Judgements and estimates: Impairment of goodwill and intangible assets, and estimation of the fair value of contingent consideration

The Group holds goodwill and intangible assets arising from business acquisitions or the internal generation of development assets. Judgement is applied in determining the recoverable amount of assets.

On an annual basis the Group reviews relevant classes of assets, including investments, intangible assets and goodwill for indications of impairment. Where such indications exist, a full impairment test is performed. In light of the loss reported in the year, the Board determined that a full impairment test should be performed on all intangible assets. Goodwill must be tested for impairment annually. Where goodwill arises in a business combination, management determined that each website brand is a separate cash generating unit and so any the goodwill arising from that acquisition is associated with the acquired brand. No goodwill is allocated across multiple Cash Generating Units.

For the purpose of impairment testing at 30 June 2023, management have determined that the appropriate method to apply is a fair value less costs to dispose approach. In previous years, management have used a value in use model and therefore this represents a change in methodology. The reason for the change in methodology is due to the uncertainty experienced in the year and therefore which had led to earlier forecasts not having been achieved. Management consider that a revenue based multiple is a more accurate estimation tool for the recoverable amount of its intangible assets.

Therefore all impairment tests have been performed using a fair value method on the basis of a multiple of revenue achieved for the respective brand in the year ended 30 June 2023.

Management undertook a careful assessment of the appropriate revenue multiple and determined that 1x revenue represents their best estimate of the recoverable amount of each brand. This fair value estimation technique is a Level 2 valuation technique in the Fair Value Hierarchy as there is no directly observable market valuation of each brand, but management have identified the valuation of similar assets through the relevant trading multiples of similar businesses in similar sectors, through the observed implied multiples in recent transactions involving similar assets and through industry and other benchmarks.

Further detail of the results of impairment tests of each material Cash Generating Unit are summarised below. All of Megit, Siege.gg, RealSport and EpicStream are within the Gfinity Digital Media operating segment. In each case, 'costs to sell' are considered to be immaterial as there are no physical assets in any case. Impairment expenses have been separately identified in the statement of profit or loss. No previous impairments were reversed during the year.

Megit

The group acquired the entire issued share capital of Megit Limited in September 2021. Megit operates the StockInformer website which enables gamers to locate and find the best pricing and availability of tech and other products.

At 30 June 2022 the group held goodwill of £2,439,834 and intangible assets of £3,505,996 in respect of Megit. These assets were tested for impairment collectively as they form a single Cash Generating Unit.

The result of the impairment test was as a recoverable amount of £289,561 and therefore an impairment charge of £4,198,217 was recorded. This was allocated first to goodwill and then to intangible assets as required by IAS 36. 

The factors giving rise to the impairment were the well-publicised challenges arising from changes to the algorithms applied by Google and other traffic sources in the period.

At 30 June 2023, management have also applied judgement in their assessment of any remaining contingent consideration based on revenue-based earnouts in the acquisition agreement. The range of potential payable amounts is between nil and £1.8m. Management's estimate of the undiscounted future payment is £223,645 based on projected cash flows of the business and this has been reflected in liabilities on a discounted basis. Management have discounted future cash flows using a discount rate of 20% which is based on a review of the discount rates used by listed business with a similar risk profile. Contingent consideration is therefore based on a Level 3 basis of the Fair Value Hierarchy as the inputs are not directly or indirectly observable.

Due to the challenging trading environment, amounts payable under the contingent consideration arrangements were significantly lower than initially forecast and therefore certain contingent consideration liabilities were released to profit or loss in the year, of a total of £855,482 in respect of Megit.

In respect of the Company's investment in Megit Limited as a subsidiary, an impairment was recorded to bring the investment to the directors' best estimate of the recoverable amount by reference to the recoverable net assets of Megit. An impairment of £5,930,565 was therefore recorded by the Company in profit or loss.

Siege.gg

Siege.gg is the leading digital property in the competitive Rainbow 6 Siege space. It has a strong audience and domain authority, together with proprietary statistical database.

At 30 June 2022 the group held goodwill of £370,775 and intangible assets of £100,215 in respect of Siege.gg. These were tested within a single Cash Generating Unit.

The result of the impairment test was a recoverable amount of £41,541 and so an impairment expense of £560,104 was recorded. This was allocated first to goodwill and then to intangible assets as required by IAS 36. 

The factors giving rise to the impairment were changes to Google algorithms and changes in the underlying user base of the website.

RealSport

Realsport101.com is a leading source of news and information about competitive sport gaming.

The carrying value of goodwill in respect of RealSport at 30 June 2022 was £1,643,006. 

The result of the impairment test was a recoverable amount of £234,505 and therefore an impairment of £1,408,501 was recorded.

The factors giving rise to the impairment were changes to Google algorithms and changes in the underlying user base of the website.

EpicStream

EpicStream.com is a leading online source of geek and pop culture news.

The carrying value of goodwill in respect of EpicStream was £260,783 at 30 June 2022 and intangibles were £273,382 at that date. These assts were tested jointly as a single Cash Generating Unit.

The result of the impairment test was that no impairment was required, because the brand generated revenue in excess of the value of assets tested. If management had applied a revenue multiple of 0.93x or below, an impairment would have been recorded.

Engage / Athlos

Engage is the company's proprietary gaming technology, developed in-house, and marketed under the Athlos brand.

During the year, the associated IP was assigned to Athlos Game Technologies Ltd and as the Group lost control of this entity in the period, the asset was derecognised from the group balance sheet. No amounts were capitalised in the period.

Therefore the asset was not tested for impairment. Further details are given in Note 5, including in respect of judgements applied by management in assessing the nature of the relationship between the Company and Athlos at year end.

Athlos is recorded as a separate operating segment.

4. REVENUE

The Group's policy on revenue recognition is as outlined in note 2. The Group's revenue disaggregated by primary geographical market is as follows:

 Profit and loss information for each operating segment is given in note 10.

The Group's revenue disaggregated by pattern of revenue recognition and business unit is as follows:

As at 30 June 2023 the Group had the amounts shown below held on the consolidated statement of financial position in relation to contracts either performed in full during the year or ongoing as at the year end. All amounts were either due within one year or, in the case of contract liabilities, the work was to be performed within one year of the balance sheet date

The Group agrees payment terms with each customer at the outset of the contract and typically agrees 30 day payment terms. All revenue streams which are recognised over time were completed and invoiced in the year resulting in no contract assets or liabilities at 30 June 2023. All brought forward contract assets and liabilities were realised in the year.

Contract assets are initially recognised for revenue earned while the services are delivered over time or when billing is subject to final agreement on completion of the milestone. Once the amounts are billed the contract asset is transferred to trade receivables.

5. DISCONTINUED OPERATIONS AND INTEREST IN ASSOCIATE

As disclosed in Note 10, management consider that the group's activities in the year comprise three operating segments being Gfinity Digital Media, Athlos and eSports.

The company announced on 6 June 2023 that it had decided to close the eSports operating segment and to dispose of 72.5% of its interest in Athlos Game Technologies Ltd ("Athlos").

Therefore the results of the eSports and Athlos segments are reflected as discontinued operations in the group statement of profit or loss. The results for the year to 30 June 2022 have been represented as required by IFRS 5.

In respect of the eSports division, it was announced on 5 December 2023 that the remaining trade and assets of the eSports segment had been sold to Ingenuity Loop Limited for consideration of £15,000.

In respect of Athlos, on 5 June 2023 the group concluded a share purchase agreement with Tourbillon Group UK Limited, under which Tourbillon subscribed for new shares in Athlos resulting in Tourbillon gaining a controlling interest. The SPA also provided for the Athlos IP, previously referred to by Gfinity as the Engage development asset, would be assigned to Athlos at the date of completion of the SPA. Tourbillon undertook certain funding commitments with effect from the effective date of the transaction, significantly reducing Gfinity's funding obligations whilst retaining a minority interest. The SPA also provided for Gfinity to retain access to the Engage platform IP.

In light of the SPA, the Board considered the nature of the resulting relationship with Athlos and considered that the facts and circumstances indicated that Athlos was, from the date of the transaction and as at 30 June 2023, an associate. This is because of the group's continuing 27.5% equity and voting interest and the entitlement to appoint a director to the board of Athlos. Therefore the Group was deemed to have lost control and no longer consolidated the results of Athlos from that date. Accordingly, the group recorded a loss on loss of control of subsidiary in the group profit and loss account of £548,761, representing the carrying value of the Engage IP at the date of loss of control. Management further considered the fair value of the resulting interest in Athlos and concluded that whilst the business has significant prospects, a value of nil was appropriate in light of the record of losses of the Athlos business, its status as an early stage project and the funding requirements to bring the product to profitability.

Therefore the deemed cost of the equity-accounted associate is nil and under equity accounting, no share of associate's losses are reflected in the group profit and loss statement.

After the balance sheet date, on 27 November 2023, the company announced the disposal of its remaining interest in Athlos for consideration of £260,000. See note 25 for more details.

The registered office address of Athlos is 16 Great Queen Street, London, WC2B 5AH.

At 30 June 2023, the Company's historic cost of investment in Athlos was £5.

6. OPERATING EXPENSES

7. PARTICULARS OF EMPLOYEES

Number of employees

The average number of people (including directors) employed by the Group and Company during the financial period

was:

The aggregate payroll costs of staff (including directors) were:

Total remuneration for Directors during the year was £595,780 (2022: £520,141).

The board of directors comprise the only persons having authority and responsibility for planning, directing and controlling the activities of the Group.

The Board consider there are no key management personnel other than the Board.

The number of directors to whom retirement benefits accrued during the period was 3 (2022: 3).

8. FINANCE INCOME/COSTS

The net finance cost relating to continuing operations was £25,976.

9. TAXATION

Factors affecting tax charge for the period

A reconciliation of taxation expense applicable to accounting profit before taxation at the statutory tax rate of 19% (2021: 19%), to taxation expense at the Groups effective tax rate for the period is as follows: