Gfinity Regulatory News (GFIN)

22 March 2016

Gfinity plc

("Gfinity" or the "Company")

Unaudited interim financial statements for the period ended 31 December 2015

Gfinity (AIM: GFIN), a leading eSports business, announces its interim financial results for the six month period ended 31 December 2015.

Delivering on strategy

· 58.5 million views - Proved ability to attract high viewership across calendar year 2015 from a hard to reach and valuable demographic

· Quality - Enhanced reputation for quality across game publishers, players and community

· Complete turnkey solution - Continued the investment in assets, providing Gfinity with unique capability to provide a leading, scalable end to end solution for partners

· Online platform - Tournament Platform for both console and PC delivering more than 25 tournaments a week

· Streaming - Created one of London's leading streaming studios in the Arena, using industry leading 4k ready technology

· Events - Hosted 27 events at the Gfinity Arena over the course of 2015 for the World's top players and publishers

· Sponsorship/Advertising- Increasing interest from sponsors and advertisers attracted to high viewership and targeted audience

Financial highlights

· Revenues increased by 329% to £624,292 (H1 2015: £145,401); up 50% sequentially from £415,427 in the six months to June 2015, resulting from a mix of sponsorship, fees from game publishers and platform providers, premium subscriptions and advertising

· Operating Loss increased to £1.8 million (H1 2015: Operating Loss of £1.3 million), reflecting the planned investment to position the Company for growth

· Raised a further £1.0 million (net of costs) through a placing in November 2015

· Net cash as at 31 December amounted to £1.55 million (30 June 2015: £2.73 million; 31 December 2014: £4.68 million). As at the date of announcement net cash amounted to £1.25 million

Operational highlights

· Gfinity Championships - The 2015 Gfinity Championships, a set of 23 tournaments featuring the best players/teams in the world, concluded in September 2015 with viewing figures approaching 60 million

· Sponsorship - First full period of a 2-year sponsorship agreement with News Corporation, supported by a number of other sponsorship deals with partners including: Microsoft Xbox, BenQ monitors, Virgin, TopMan, Green Man Gaming and Scuf Gaming

· Exclusive World Championship - Selected by Microsoft in October 2015 to exclusively host the UK Halo World Championship 2016

Post period

· Microsoft XLEI - Selected by Microsoft to provide a dedicated link to their TV Platform with equipment housed within the Gfinity Arena.

· Xbox European Championship - Appointed by Microsoft in January 2016 to host the Xbox European FIFA 16 Play Like a Legend Championship for a second successive year

· Mobile Gaming - Moved into mobile gaming in February 2016 when selected by Super Evil Megacorp to stage "The Vainglory Winter Championship" finals

· BT Sport - Staged exclusive Race Off event in conjunction with Formula E, with content shown on BT Sport and attracting strong viewership

· CEVO Partnership - Entered partnership with leading US online tournament organiser, CEVO to jointly stage the Gfinity CEVO Counter Strike Pro-League Series Finals at the Gfinity Arena in April and May 2016

Product Development

· Continued the development of technological assets all to be launched in the first half of 2016, including: Gfinity TV Player, Xbox app, PC app and Mobile App

· Since 1 July 2014, the Company has invested over £1 million in such product development initiatives, more than half of which forms part of the Company's Administrative Expenses over this 18 month period

Neville Upton, Co-founder and Chief Executive of Gfinity plc, commented: "It is pleasing to see another period of excellent operational progress and a third consecutive period of revenue growth. Our strategy to invest in the business for future growth is bearing fruit as Gfinity further enhanced its reputation as a market leader and destination of choice for eSports gamers and spectators alike.

"Looking ahead, the eSports sector is growing unabated and the potential opportunities for Gfinity remain vast. We have now created a very strong position from which to monetise; drawing on both the reputation for quality that we have established with gaming publishers and fans alike and the unique suite of technological and physical assets that we have created. We are seeing increased interest from advertisers and sponsors who are keen to access the thriving Gfinity audience. These discussions have given us further encouragement for the potential monetisation of the Gfinity brand and we look to the future with confidence."

Enquiries

About Gfinity

Founded in 2012, Gfinity has quickly established itself as one of the world's leading eSports companies. The London-based business enjoys strong relationships with game publishers, players and the wider eSports community and has already built a strong reputation for delivering high quality competitions, both on-line and off-line, and producing industry leading eSports broadcasts.

The Company has over half a million registered users, eligible to compete in its online competitions and stages world leading off-line events, which see the top players in the world, across a range of eSports titles travel to the Gfinity Arena in London to take part in competitions, which are broadcast on-line to millions of viewers around the world. The Company stages events featuring a number of top video gaming titles, across PCs, consoles and mobile devices.

The Company expects to be able to monetise the strong position that it has created through a combination of sponsorship, advertising, broadcast income relating to Gfinity's own events and through fees received for creating and delivering bespoke events for sponsors and game publishers seeking to engage with the eSports community.

Gfinity websites:

Investor: www.gfinityplc.com

Commercial: www.gfinity.net 

Overview

Gfinity is pleased to report a period of strong revenue growth and operational progress. The Company continued to invest in the business in order to deliver on its strategy to build its brand and deliver world-class online and offline eSports events to a global audience.

As a result of the investment Gfinity further cemented its position as one of the leading providers of eSports tournaments in the world and is now a widely-recognised "destination" for gamers in the UK and internationally. With a significant first mover advantage established, Gfinity is well positioned to exploit the rapid worldwide growth in eSports.

The Company generated revenues totalling £624,292 up 329% from £145,401 in the equivalent six month period to 30 December 2014, and up 50% sequentially from the prior six months to June 2015. Gfinity has enjoyed three consecutive periods of revenue growth since listing on AIM providing evidence of the potential for monetisation within the eSports sector.

Since listing on AIM, Gfinity has also continued to invest both in in building its reputation with game publishers, prospective sponsors and the wider eSports community and in developing a range of assets, which provide it with unique capability within the industry and a strong platform from which to monetise. These assets include the following:

· The Gfinity Arena - The only venue of its kind in the UK, designed specifically for staging eSports events and creating eSports broadcast content

· Gfinity.net online platform - An industry leading, fully flexible and automated tournament management platform enabling Gfinity to operate online competitions in any format across a range of titles every night of the week

· Gfinity broadcast control panel - An application developed in-house, simplifying the process of creating eSports broadcasts, allowing users to easily combine in game footage, graphics, audio and video feeds

· Gfinity TV - An online TV player, to be launched in April 2016, incorporating a range of features not currently included in the offerings of other major live streaming platforms

· Gfinity Xbox Application - A bespoke application created for Xbox One users, also to be launched in April 2016, which will for the first time enable them to view Gfinity content, participate in existing Gfinity events and to create their tournaments using the technology from the Gfinity.net online platform

· Gfinity PC Application - A PC based application allowing users single click entry a matching service and featuring industry leading anti-cheat technology

In total since 1 July 2014, the Company has invested over £1 million in the above initiatives, allowing it to provide a unique turnkey solution to partners looking to engage with the eSports community.

Gfinity is currently in discussion with a number of prospective major partners, including game publishers, sponsors, TV broadcasters and conventional sports rights holders, although it now expects to see the next major step change in revenue to take effect from the second half of 2016 onwards.

Operating review

The Company's focus in the period was to consolidate its reputation for delivering the highest quality eSports events, demonstrate its ability to attract a large audience in a demographic that's attractive to sponsors and to continue to develop the assets that will provide it with a unique position from which to monetise, within a very strong growth sector over the course of 2016 and beyond.

UK's first dedicated eSports Championship season

The period saw the conclusion of the 2015 Gfinity Championships. Gfinity organised over 20 successful tournaments between the months of March and September 2015 delivering major eSports events with a consistency and quality never before seen in the UK. These events were based around several of the industry's best selling games including Call of Duty, FIFA 2015/2016, CS:GO, StarCraft and Halo. The popularity of the events and the fast growing demand for eSports amongst players and spectators was demonstrated by viewing figures which approached 60 million, exceeding management expectations.

Partnerships / sponsorships

Gfinity continued to build strong relationships with games publishers and its partners. The 2015 calendar year was the first of the Company's partnership with News Corporation as a main partner, while during the period the Company also benefited from revenue from partners including: Xbox, BenQ monitors, Virgin, TopMan, Green Man Gaming and Scuf Gaming.

At the start of 2016, the Company began the second year of its sales and marketing agreement with Pitch International ("Pitch") for Pitch to package and sell sponsorship and broadcasting rights on the Company's behalf. This partnership has already led to a milestone agreement when Gfinity signed a major sponsorship deal for The Sun to become Gfinity's official newspaper and online news partner in the UK and Ireland.

As Gfinity further established its brand and reputation the Company received increased interest and is currently engaged in discussions with, a number of potential partners. Management believe there is an opportunity through its events and widening audiences to draw in sponsors, advertisers and broadcasters who want access to a highly engaged, defined and targeted demographic of 18-34 year olds, predominantly male, that play and watch eSports.

Events

Outside of the Gfinity Championship Series, in November 2015, Gfinity was selected by Microsoft to exclusively host the UK Halo World Championship 2016 qualifiers and finals, part of the Halo World Championship, the largest Halo eSports competition in the history of the iconic franchise. The UK Championship Finals were played in front of a live audience at the Gfinity Arena and streamed online on Twitch TV and Xbox's own newly launched TV player. Gfinity organised, promoted and delivered the championship event on behalf of Microsoft.

In addition to the Halo Championships, Microsoft selected Gfinity for the second successive year to host the European "Play Like a Legend" Championship on FIFA 16. The appointment, announced in January 2016, followed the success of last years' FIFA 15 Play Like a Legend Championship. FIFA continues to be one of the most popular titles within the eSports community and has helped drive growth in the brand awareness of Gfinity in key territories including UK, France and Germany.

Early in 2016, the Company also staged its first 'driving game' event, partnering with Formula E, to deliver their 'Race Off' event, which saw qualifying drivers compete against Formula E drivers, Bruno Senna and Nico Prost, with the footage from the event broadcast on BT Sport.

Move into mobile gaming

Gfinity made the significant move into mobile gaming for the first time after Super Evil Megacorp, a USA headquartered developer of multiplayer online battle arena games, selected Gfinity to host the finals of its Vainglory Winter Championship. The event was held at the Gfinity Arena from 18 - 20 March 2016 and was the first competition held there that was played on mobile devices. Eight finalist teams from across Europe competed for a prize money pool of $25,000. The agreement diversifies Gfinity's offering and is an affirmation of the ability of the Company to deliver events across all platforms and of the Gfinity Arena's status as a prime venue for delivery of such events.

Growth of eSports

eSports viewership has increased almost eight-fold since 2000. Newzoo, an international market research firm focused on the games industry, released a report titled "The Global Growth of Esports: Trends, Revenues and Audience Towards 2017". According to the report the number of eSports enthusiasts will jump from 205 million in 2014 to 335 million in 2017 and between 2012-2017 the industry's audience and revenue is projected to grow at a CAGR+20% and CAGR+29% respectively. The report goes on to state that eSports revenue could surpass $1 billion within just a couple of years. Revenue opportunities will typically involve game publisher investment, sponsorships, online advertising merchandise, licensing and ticket sales.

Significantly in another indication of the transition of eSports to a spectator sport, of the 205 million people globally that currently watch eSports, 40% do not play any of the top eSports franchises, showing that competitive gaming has evolved to a spectator sport with a fan base comparable to that of other mainstream sports.

Financial Review

In the six months to 31 December 2015, Gfinity continued to invest heavily in establishing its reputation as one of the leading eSports companies in the world, demonstrating the Company's capability to deliver top quality eSports broadcasts week in week out and building the community of people both watching and playing in Gfinity events.

Revenue for the six months to 31 December increased to £624,292 (H1 2015: £145,401), and was up 50% sequentially in the prior six months to June 2015, resulting from a mix of sponsorship, fees from game publishers, premium subscriptions and ticket sales.

The loss for the period of £1.8 million reflects the significant investment that the Company made in the staging of its events, the development of Gfinity.net and marketing activities to grow the brand and is in line with Directors expectations in the period.

As expected, administrative expenses, including staff costs, venue hire, marketing and web development totalled £1.55 million for the period. This figure also includes £0.2m of expenditure on product development, which has not been capitalised and £0.1m of non-cash items including depreciation and share options charge.

As at 31 December 2015, the Company had cash in the bank of £1,554,418 and as of 22 March 2016 a total of £1,249,583.

Outlook

The important steps taken in the first half to invest for future growth and build the Gfinity brand are already benefitting the Company. The Gfinity Arena has become a focal point for eSports in the UK, hosting over 25 events since it opened in March 2015, and viewership levels are increasing significantly which attracts advertisers and sponsors seeking access to a hard to reach, targeted demographic.

Gfinity's focus remains to continue to build its brand and enhance its reputation as a leader in delivering quality eSports events and to crystallise the exciting opportunities that lay ahead.

As stated at the full year results, Gfinity's ability to take advantage of these opportunities will depend on funding and the speed of revenue development through sponsorship and other forms of monetisation. Gfinity is currently in discussion with a number of prospective major partners regarding agreements that would represent a step-change in the Company's development and the monetisation of its brand. These discussions have been very encouraging and are progressing well. Given the number and significance of the discussions being held, it is difficult to quantify the exact timing and the amount of revenues that will be recognised in the full year 2016. The Board wants to take a prudent approach and anticipates that the revenue from any resulting agreements will be predominantly recognised in FY17 and therefore revenues for FY16 are likely to be below market expectations, although still significantly ahead of last year.

The Board is confident that the right strategy is in place to deliver long term growth and looks to the future with confidence.

Gfinity plc

Unaudited Statement of Comprehensive Income

Six months ended 31 December 2015

Gfinity plc

Unaudited Interim statement of Financial Position

As at 31 December 2015

Gfinity plc

Unaudited Interim Statement of Cash Flows

Six months ended 31 December 2015

Gfinity plc

Unaudited Statement of Changes in Equity

Six months ended 31 December 2015

Gfinity plc

Notes to the Unaudited Interim Financial Statements

Six months ended 31 December 2015

1. ACCOUNTING POLICIES

Basis of preparation

The interim financial statements for the six months ended 31 December 2015 have been prepared using accounting policies that are consistent with those of the audited financial statements for the period ended 30 June 2015 and in accordance with IAS 34, "Interim Financial Reporting" as adopted by the European Union. The interim financial information should be read in conjunction with the Group's Annual Report and Accounts for the year ended 30 June 2015, which has been prepared in accordance with IFRSs as adopted by the European Union.

The interim financial information contained in this report has been reviewed but not audited and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.

The Annual Report and Accounts for the year ended 30 June 2015 has been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain statements under s498(2) or s498(3) of the Companies Act 2006.

The interim financial statements are unaudited and were approved by the Board of Directors on 21 March 2016.

Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight line basis over the period of the lease.

Revenue

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

The Company recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity, the stage of completion of the transaction at the balance sheet date can be measured reliably and the costs incurred and the costs required to complete the services in respect of the revenue can be measured reliably. If the amounts have been invoiced in advanced for services, these amounts are deferred until the service is delivered to the client at which point the income is recognised. The Company 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 of:

· 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.

· Advertising revenues: Fees are earned each time a user clicks on one of the ads that are displayed on the website. Revenue is recognised on a pay-per-click basis.

· Ticket sales: Revenue is recognised on the date the relevant event is delivered.

· Event hosting and facility hire: Revenue is recognised on the date the relevant event is delivered.

· Website subscriptions: Revenue is invoiced in advance and deferred over the subscription period.

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.

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 a 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.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

Deferred tax assets and liabilities are not discounted.

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. Cost also comprises the initial estimate of dismantling and removing the asset and restoring the site on which it is located for which the Company are obligated to incur when the asset is acquired, if applicable.

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:

Office equipment - 1 year straight line

Computer equipment - 3 years straight line

Production equipment - 3 years straight line

Leasehold improvements - Over the period of the lease

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.

Share-based payments

The Company issues share options to its employees. The Company has applied the requirements of IFRS 2 Share-based Payments.

The Company issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant.

The fair value determined at the grant date of the equity-settled, share-based payments is expensed on a straight-line basis over the vesting period, based on the Company's estimate of shares that will eventually vest.

Fair value of the equity-settled share-based payments is measured by use of a Black-Scholes model.

Financial liabilities

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.

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.

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.

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of value-added tax, from the proceeds.

Critical accounting judgments and estimates

Revenue Recognition:

Revenue is recognised when the work to which it relates is delivered. On long term sponsorship contracts, covering a range of activities, revenue is recognised evenly over the contract period.

Software development:

Expenditure of development of the Company's website and device applications is expensed as incurred.

Deferred tax:

The Company has not recognised a deferred tax asset in respect of their losses given that there is no track record of taxable profits at this time. Deferred tax assets will be recognised when the Company has established a track record of expected future taxable profit.

Provisions:

Provisions are recognised when the Group has a present or constructive obligation as a result of a past event from which it is probable that it will result in an outflow of economic benefit that can be reasonably estimated. Directors consider that no such provisions have been required in the calculation of the figures in these financial statements.

2. LOSS PER SHARE

Basic earnings per share is calculated by dividing the loss attributable to shareholders by the weighted average number of ordinary shares in issue during the period.

IAS 33 requires presentation of diluted EPS when a company could be called upon to issue shares that would decrease earnings per share, or increase the loss per share. For a loss making company with outstanding share options, net loss per share would be decreased by the exercise of options and therefore the effect of options has been disregarded in the calculation of diluted EPS.

3. SHARE BASED PAYMENTS

Equity-settled share option plans

Options and warrants

The Board has authority to grant options over Ordinary shares in the Company of up to 10% of the number of shares in issue.

2,311,590 new such options were granted in the period, while 529,816 options lapsed on employees leaving the Company. No options were exercised during the period.

The total number of outstanding options in issue at 31 December 2015 was 6,320,774 (30 June 2015: 4,539,000).

Of the options granted during the period, a total of 399,081 options were granted to directors, as summarised in the table below.

The principal assumptions used to calculate the value of options issued for compliance with IFRS 2 "Share Based Payments" are included below.

All options issued during the period were issued at an exercise price equivalent to the market price at the date of the grant. The weighted average share price of options outstanding as at 31 December 2015 was £0.1507. The weighted average fair value of options issued during the period was £0.1962. Expected volatility has been calculated with reference to actual volatility in the Company's share price over the period. Options may only vest at the discretion of the board of directors.

4. NET CASH USED IN OPERATING ACTIVITIES

5. SHARE CAPITAL AND SHARE PREMIUM