NPT.L Regulatory News (NPT)

NetPlay TV plc

Preliminary Results

NetPlay TV plc (AIM: NPT), the interactive gaming company, announces its preliminary results for the year ended 31 December 2010.

Financial Highlights

Operational Highlights

Current Trading

Strong start to 2011 with the first quarter of 2011 delivering an increase in total active casino players of 22% on Q4 2010, and new casino customer signups increasing 15% on Q4 2010.

The Supercasino iPhone application continues to perform strongly accounting for 22% of customer sign ups and 12% of active customers in Q1 and with the restructuring complete, the Group has returned to positive EBITDA.

__________________1 EBITDA is a non-GAAP, company specific measure and is calculated after interest, tax, depreciation, amortisation, share based payment charges and exceptional charges. A full reconciliation of EBITDA to Operating loss can be seen in the Consolidated statement of comprehensive income and in note 2 of the Financial Statements. Where not explicitly mentioned, EBITDA refers to EBITDA from continuing operations.

Commenting on the results, Charles Butler, NetPlayTV's Chief Executive said:

"2010 was a challenging year, and the disappointing launch of the Bingo Stars show with all its associated costs had a significant negative impact on the Group's performance. We have addressed the various aspects of the business which have led to the Group's poor historic results, and having restructured the business now have a clear understanding of what the key value drivers are. With our newly focused business model of converged live casino we continue to acquire customers and extract player value whilst effectively utilising our strong broadcaster relationships and extensive knowledge of the TV market place. With 2010 behind us and a much reduced and stabilised cost base in place, we have already delivered a positive EBITDA to date in 2011 and remain confident that our revitalised strategy of providing converged live casino in regulated markets will prove successful and drive shareholder value in 2011 and beyond."

Enquiries:

Notes to Editors:

About NetPlayTV plc

NetPlayTV TV plc is listed on the AIM market of the London Stock Exchange (NPT). NetPlayTV TV operates a number of interactive gaming services under an Alderney gaming license, including SuperCasino.com, ChallengeJackpot.com and Bingos.co.uk. These services can also be viewed 24 hours a day live on Sky Channel 866, every evening on FIVE, and 6 nights a week on ITV1.

The Company is focused on the delivery of a converged interactive gaming experience allowing its customers to interact with its games on a variety of platforms, TV, Internet and mobile from a common integrated wallet.

Chairman's Statement

2010 was a year of restructuring and the laying of firm foundations to underpin the delivery of a number of strategic initiatives designed to secure the Group's future growth and a return to profitability.

The year began with the relocation of the Group's Supercasino.com gaming operations offshore to Alderney. The Group now benefits from Alderney's robust regulatory environment and is in a position to be able to take advantage of new regulation in key European markets.

Importantly the Group took the decision to focus on its investment in the core live casino business because as the backbone of the Group, it has delivered consistently strong KPIs and with further development, the directors believe it can generate long term shareholder value. We have spent much time and effort on ensuring that we have the right blend of skills to develop this important part of the business, and are confident that we now have the right management team in place to enable the Group to remain at the forefront of delivering a truly converged TV, online and mobile experience to our customers.

The mobile gaming market is evolving at a fast pace and we are continuing to develop a number of innovative strategies which we believe will enable us to establish a meaningful presence in this important sector. We are in a good position to take advantage of this market growth opportunity with our Supercasino.com iPhone application which accounted for over 22% of new customer sign ups in Q1 of 2011. We are anticipating further sales momentum being achieved with our iPad application, which is due to launch by the end of Q2 2011.

Early in the year we undertook a full studio refurbishment programme in preparation for the launch in May of the new Bingo Stars game on ITV1 whilst simultaneously broadcasting it on Virgin 1, Bravo, Virgin cable channel 141 and STV. However during the early trial stage the revenues generated from the Bingo Stars product were significantly lower than had been anticipated, prompting swift action to address these issues. Changes to the format of the show and the scheduling were made, and successfully resulted in increased revenues and reduced costs.

Our newly focused and sustainable business model of converged live casino continues to acquire customers and extract player value whilst effectively utilising our strong broadcaster relationships and extensive knowledge of the TV market place. The gaming industry is in the midst of a rapidly changing regulatory environment both in Europe and the rest of the world and we remain confident that our model of only providing converged live gaming in regulated markets will prove successful, whilst significantly reducing business risk for the future.

I am particularly pleased to report that the Group has made an encouraging start to 2011 and has returned to positive EBITDA2 . We are confident that having appointed Charles Butler as Group CEO with over 10 years' experience in the online gaming market, combined with a much reduced and stabilised cost base, we are now well positioned to drive shareholder value from our core UK business, whilst considering opportunities for rolling out our newly focused and proven gaming business model in emerging regulated markets.

Clive Jones

Non-Executive Chairman

27 May 2011

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Chief Executive Officer's Statement

2010 was a year of significant change for NetPlayTV and after a thorough overhaul and review of all our business activities the Group ended the year with a much stronger and leaner flexible business model.

The Group went through a restructuring process during the second half of 2010, significantly reducing its cost base with the full benefits expected to materialise in 2011. At the same time the Group refocused on its core live casino offering, which was already a proven concept and one upon which the Group's roots are firmly founded. This refocusing on the core live casino product included putting the right teams in place and spending a significant amount of time understanding customer behaviour and betting patterns. The combination of this detailed data segmentation and analysis combined with a more effective acquisition, conversion and retention strategy culminated in a material uplift in casino net gaming revenue in Q4 compared to Q3 2010.This positive trend has continued through into Q1 2011.

In February 2010, the Group moved its Supercasino.com gaming operations offshore to a subsidiary company, operating under an Alderney remote gambling license. This involved relocating to a newly built state-of-the-art production facility in Guernsey and moving all of the gaming operations and control from the UK. This move coincided with transferring Supercasino.com from an in-house proprietary software platform to Playtech Software Ltd. All of these changes are expected to deliver significant cost savings going forward.

In March 2010, the Group purchased total control of the Challengejackpot.com database from Virgin Media Television (VMTV) and terminated the VMTV share options over 14.9 million shares for a combined consideration of £1.82m. At the same time, there were considerable changes made to the broadcasting agreement with VMTV, allowing the Group to retain 100% of profits generated from the customers and pay a monthly fee in relation to the VMTV airtime on Virgin 1, Bravo and Virgin Cable channel 141. This allowed the freedom to enter into a six month "teleshopping" airtime trial agreement with ITV1 in April 2010, launching the Bingo Stars game show and product under the Challengejackpot brand. Bingo Stars was a new transactional interactive Keno style bingo TV show where customers could participate via SMS or online at Challengejackpot.com. The show was also aired simultaneously on Virgin 1, Bravo, Virgin cable channel 141 and STV.

It became apparent early on in the "teleshopping" trial that the Bingo Stars product was not performing to expectations and that the reduced revenues combined with the increased cost base would have a significant impact on the Group's cash reserves. Action was taken quickly, working closely with our broadcasting partners at ITV to improve the performance of the teleshopping airtime and introduce more of the core live casino element, which is a tried and tested product. This strategy has since proved successful.

In the third quarter, the Group conducted a full business review and commenced a cost restructuring exercise. Due to the nature of the costs involved, the benefits of this restructuring were not expected to fully materialise until 2011. In November 2010 the Company successfully completed a share placing at 3 pence per share and raised £2.41m (net of expenses) to strengthen its financial position and enable the completion of the Group restructure to create a more streamlined business.

As part of the restructuring, the Group ended various airtime agreements, including that with VMTV at the end of 2010. This change did not have any material effect on Challengejackpot.com net gaming revenue. The Group also made the decision in November 2010 to divest of its non-core 'Lucky Numbers' and Grab a Grand' SMS-based subscription services. The transactions during the year have been classified as discontinued operations in the financial statements and details of this can be found in note 3.

In August 2010, NetPlayTV launched its Supercasino.com application in the Apple App Store. This application enables existing customers to play the live casino products whether in front of the TV or on the move, enhancing the Group's opportunity for revenue. It also enables access to a whole new market segment through promotion of the app, which has proved very successful and has exceeded the Group's expectations. By the year end, this exciting initiative accounted for more than 10% of all cash players on the core Supercasino live roulette product. The Group is now in the process of launching an iPad application by the end of Q2 2011.

The Group ended the year on a stable financial footing, which enables NetPlayTV to both grow and develop business activities in its core UK market, whilst looking to exploit opportunities in newly regulated territories. At the same time by utilising the existing cost base, broadcast and live casino product, this will help the Group drive increased margin and future profitability.

Financial Overview

Full year revenue from recurring activities of £19.8m is an increase of 7.1% on 2009. Total new customer sign ups of 81,431 is an increase of 10.2% on 2009. Gross margin has fallen from 20% to 16% primarily due to increased airtime and freelancer costs in connection with the new Bingo Stars show which had stopped running by the year end and all associated costs eliminated as part of the Group restructuring. As a result of this restructuring margins have already started to recover strongly in the first quarter of 2011.

Casino

Casino revenue was very encouraging, making up £17.35m, which was an increase of 21.8% on 2009. Although 2010 was a challenging year for the Group the core casino revenue remained strong and finished the year on a positive note with an increase in Q4 of 42% over Q3. The driver behind this growth remains new customer acquisitions of 66,000 up 16.8% on 2009 and average monthly active player numbers of 9,300 up 16.2% on 2009. This positive trend continued into Q1 2011 and the Group continues to optimise its core live casino product and invest in new marketing both through TV and online.

Bingo

Revenue from bingo has fallen 45% to £2.45m for the year due to a reduction in new customer acquisitions of 52.7% to 22,300 and average monthly active player numbers down 58.5% to 2,000. As part of the restructuring carried out during the year the offices supporting bingo in Spain and Malta were closed down and the business transferred to Alderney to utilise the existing fixed cost structure, reducing the running costs significantly. The running of the bingo product has been segregated from the casino, and although bingo is not the core focus, the Group continues to support it and expects it to generate positive EBITDA in 2011.

Administrative Expenses

The 2009 comparatives have been restated due to a review of the accounting treatment around the Challengejackpot acquisition and sale of the "Lucky Numbers" and "Grab a Grand" SMS based subscription services. Full details can be found in notes 14 and 3 respectively. Administrative expenses increased by £5.3m of which £4.4m was due to amortisation, depreciation, impairment, exceptional charges and share based payments. Of the remaining £0.9m this included increased staff and associated costs with regard to the Bingo Stars show and also legal and professional fees.

Impairment and Exceptional Items

As part of the Group restructuring process all major agreements were reviewed with the bulk of the cost sitting in airtime agreements. The decision was made to terminate several airtime and broadcast line agreements as the directors did not consider the remaining term of these agreements would generate revenues sufficient to make them profitable. There were costs involved with discontinuing these agreements and these have been classified as onerous in the accounts. The directors are now confident that any airtime agreement left in place will generate positive net revenues for the Group. There were also material one off redundancy costs in relation to senior management and closing down the office in Spain.

With regard to impairment the directors considered that some of the assets were being carried at a value higher than their estimated useful economic value and were therefore subject to a write down at the end of 2010. This consisted primarily of impairment to domain names.

By the end of 2010 the cost restructuring exercise was complete and the cost base had been reduced significantly with all the costs allocated to the appropriate operational activity. The directors are confident the Group is on a solid footing, with a more efficient and flexible cost structure, enabling the business to grow revenues with only a very small incremental cost increase allowing increased margins and a higher percentage of revenue to feed through to EBITDA.

Outlook

The Group has had a positive start to 2011 with new casino players in Q1 up 15% on Q4 2010, active casino customers up 22%, and 22% of all Supercasino.com sign ups coming via the iPhone app. These encouraging KPIs, combined with a restructured management team and a successful cost restructuring, have seen the Group return to positive EBITDA, and underpin the board's confidence in the outlook for the current year.

The TV platform continues to perform well as a source of new customer acquisitions and, with the newly optimised show, we have seen cost per acquisition (CPA) levels fall. We will continue with our TV led customer acquisition strategy as this not only delivers a steady stream of new customers, it continues to generate increased customer loyalty, brand recognition and high customer values.

The home computing market is being transformed with the mass introduction of smartphones and tablets such as the iPad, which over time is anticipated to replace the need for conventional PCs. Our business model is based on offering the customer a converged live casino gaming experience whether at home or on the move. For this reason we believe the Group is uniquely positioned to capitalise on this trend by both offering iPhone and tablet based live casino gaming to its existing customer base plus targeting a whole new customer segment with direct customer acquisition. We will be launching our own iPad application by the end of the second quarter and expect this initiative to continue to drive new customers to the business and increase the length of customer retention.

The Group's live casino revenue is 100% regulated and we intend to maintain this strategy. Based on the strong relationships we have built with key broadcasters and our converged live casino offering, we are well placed to roll out the same model in newly regulated markets. We are currently carrying out in-depth cost and market analysis on key newly regulated markets, and at the same time are in discussions with overseas broadcasters. The model will be based on utilising as much of the existing fixed cost base as possible whilst leveraging our existing broadcasting assets to maximise operational efficiencies. It is key however that we stay focused on our core UK regulated business, and, depending on the outcome of the analysis, we are ready to move into new markets with confidence, and firmly believe that this will drive shareholder value.

I would like to take this opportunity to thank all NetPlayTV staff for their continued enthusiasm and support, and with our strong management team focused on delivering continued growth for the business, we look forward to 2011 and beyond with confidence.

Charles Butler

Chief Executive Officer

27 May 2011

Directors' report

The directors present their annual report together with the audited financial statements for the year ended 31 December 2010.

Principal activities

During the year, the Group provided interactive casino, bingo and SMS quiz services to consumers in the UK and Europe.

Business review

A review of activities during the year, year end position and commentary on future developments is given in the chairman's and chief executive officer's statements.

Details of risks facing the Group and policies to manage these risks can be found on page 9 of this report and further information is provided in note 24 to the financial statements.

Details of the performance of individual business segments can be found in note 2 to the financial statements.

The Group's KPIs of net gaming revenue, new customer acquisitions and average monthly active players can be found in the Financial Overview on page 6.

Results and dividends

The results for the year, showing a loss after taxation of £13,708,000 (2009 restated: loss after taxation of £10,020,000), are set out on page 18.

The directors do not recommend the payment of a dividend in respect of the year ended 31 December 2010 (2009: no dividend paid).

Political and charitable donations

During the year the Group made donations of £6,873 to UK charities (2009: £7,927).

Financial instruments

Details of the Group's financial risk management objectives and policies are included in note 24 to the financial statements.

Subsequent events

On 25 February 2011 the Company announced the resignation from the board of Guy Templer with effect from 31 March 2011.

Details of further subsequent events are given in note 32 to the financial statements.

Going concern

The directors, having made appropriate enquiries, believe that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group continues to adopt the going concern basis in preparing the financial statements.

Directors

The directors who served during the year and to the date of this report were:

C Jones CBE

C A N Butler (appointed 29 January 2010)

G Templer (appointed 23 April 2010, resigned 31 March 2011)

M J Higginson (resigned 29 November 2010)

G R Whyte (resigned 16 March 2010)

N L Halverson (resigned 29 January 2010)

G P Stevens

A C Lapping

T S Mickley (appointed 25 August 2010)

M Edree (appointed 29 January 2010, resigned 25 August 2010)

Directors' interests in the shares of the Company are disclosed in note 7 to the financial statements.

Employee share schemes

Employee equity interest is seen as an integral part of the total remuneration package for employees. A more detailed review of the Group's share schemes is contained in note 27 to the financial statements.

Supplier payment policy

Whilst no formal code is followed, the Group agrees payment terms and conditions with individual suppliers. It is the Group's policy that payments to suppliers are made in accordance with the terms and conditions agreed between the Group and its suppliers, providing that all trading terms and conditions have been complied with.

The Group's and Company's average trade payable days for the year ended 31 December 2010 were 26 days and 38 days respectively (2009: Group: 33 days and Company: 30 days), calculated in accordance with the requirements set down in the Companies Act 2006. This represents the ratio, expressed in days, between the amounts invoiced to the Group by its suppliers in the year and the amounts due, at the year end, to trade payables within one year.

Principal risks relating to the business of the Group

Casino risk

The Group is exposed to gaming risk in relation to its casino operations. Whilst the Group's casinos and other games incorporate a 'house edge' designed to provide a return to the Group over a large number of bets, in the short term the Group's casinos and other games may experience losses.

Wagering limits are in place to mitigate the Group's exposure to individual transactions.

Regulatory risk

During the year, the Group's gambling activities were operated under the licences within the jurisdictions of the Alderney Gambling Control Commission, the Lotteries and Gambling Authority in Malta and the UK Gambling Commission. A number of brands were relocated to Alderney in 2010, where all of the Group's gaming operations are now based. The regime under which Alderney permits remote gaming operations to be operated within its jurisdiction may be altered or restricted through legislation in Alderney which renders the Group's operating base unusable or uneconomic. In addition, territories where the Group wishes to market its Alderney based gambling services may impose restrictions upon remote gambling services which would restrict the Group's ability to market to potential customers in that territory or to service existing customers by, for example, restricting financial transactions.

Where such restrictions exist, or come into existence in the future and/or in each case are actively enforced, the Group may not be able to offer its gambling or gaming services, or may be required to seek on-shore gambling and gaming licences local to these territories. Restrictions on promotion or the operation of remote gambling and gaming services in any particular location might also diminish or inhibit the Group's ability to secure distribution in such territories.

It is not considered likely that any such changes in legislation will be made at the present time.

Reputational risk

Under-age and problem gaming are inherent risks associated with the online gaming industry and the Group is no exception. The Group devotes considerable resources to putting in place prevention measures coupled with strict internal procedures designed to prevent under-aged players from accessing its real money sites. In addition, the Group promotes a safe and responsible gaming environment to its customers supplemented by its corporate culture.

In April 2010 the Group received full GamCare Certification for SuperCasino.com and ChallengeJackpot.com. The GamCare Certification was awarded due to high levels of social responsibility and player protection. As the leading provider of advice, practical help, support and treatment for anyone affected by problem gambling, GamCare is ideally placed to offer practical advice on player protection. GamCare supports the development and implementation of responsible policies and practice across the gambling industry and GamCare Certification is the mark of best practice.

GamCare puts gaming companies through a rigorous social responsibility and player protection assessment process. This includes review of customer-facing areas of business, such as age verification practices and staff training in social responsibility.

Taxation risk

The Group aims to ensure that each legal entity within the Group is a tax resident of the jurisdiction in which it is incorporated and has no taxable presence in any other jurisdiction. While the Group's customers are located predominantly in the UK, certain jurisdictions may seek to tax such activity which could have an adverse effect on the amount of tax payable by the Group or on customers' behaviour.

The Group benefits from favourable fiscal arrangements in some of the jurisdictions in which it has taxable presence without which its results would be adversely affected.

All gaming activities are now based in Alderney, where the Group currently benefits from a zero corporate tax rate and is outside the scope of UK VAT. If there was a change in the rate of corporate tax or VAT in Alderney or in UK legislation such that the Alderney subsidiary had a place of establishment in the UK for VAT purposes this would have an adverse effect on the overall tax rate of the Group.

Information Technology risks

As a leading online business, the Group's IT systems are critical to its operation. The Group is reliant on the performance of these systems. Cutting-edge technologies and procedures are implemented throughout the Group's technology operations and designed to protect its networks from malicious attacks and other such risks. These measures include traffic filtering, anti-DDoS (Distributed Denial of Service) devices, anti-virus protection from leading vendors and other such means. Physical and logical network segmentation is used to isolate and protect the Group's networks and restrict malicious activities. In order to ensure systems are protected properly and effectively, external security scans and assessments are carried out in a timely manner. The Group has a high-end storage solution to ensure storage availability and performance. All critical data is replicated to another storage device for disaster recovery purposes and all data is stored off-site on a daily basis. In order to minimise dependencies on telecommunication service providers, the Group invests in network infrastructure redundancies whilst regularly reviewing its service providers.

The Group takes information technology risks seriously and keeps its policies under review in order to mitigate these risks.

Dependence on third parties

Due to the nature of live broadcasts, the Group's business is highly dependent on broadcasters, networks, software providers and mobile operators, as well as other service providers who, for example, provide payment processing and customer age and ID verification. If there is any interruption to the products or services provided by other third parties or if there are problems in supplying the products or services, the Group's business could be adversely affected.

By its nature this risk is not within the Group's control. To mitigate this risk the Group takes care to select third parties that are reputable and reliable, and ensures that contractual agreements with key third parties offer adequate protection to the Group.

Directors' responsibilities in relation to the Company's auditor

The directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware; and each director has taken steps that ought to have been taken as a director to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

BDO LLP, who were appointed during the year as auditors of the Company by the directors, have expressed their willingness to continue in office and a resolution to reappoint them will be proposed for the annual general meeting in accordance with Section 487 of the Companies Act 2006.

By order of the Board

C A N Butler

Director

27 May 2011

Corporate governance

The Board has given consideration to the Combined Code of Corporate Governance (the Code) issued by the Financial Reporting Council (FRC) in June 2008 and applicable for listed companies for financial periods after 29 June 2008.

Although companies traded on AIM are not required to provide corporate governance disclosure, or follow guidelines in its Code, the directors have chosen to provide certain information on how the Company has adopted various principles of the Code.

Board

At the date of this report, the Group board was made up of one executive and four non-executive directors. Under the Company's Articles of Association a director shall retire from office at the first annual general meeting after his or her appointment and one third, but not exceeding one third, of the directors are required to retire by rotation each year.

The board meets regularly throughout the year and all directors have full and timely access to the information necessary to enable them to discharge their duties. There is a scheduled board meeting at least every second month and a meeting of the management board every month. Additional board meetings are held as required.

During the year, the Board met 14 times and the following attendance occurred:

The board is assisted in the discharge of its duties by the following board committees:

Audit Committee

The Audit Committee, which comprises three non-executive directors: G P Stevens who chairs the Audit Committee; C Jones; and A C Lapping. The Audit Committee is responsible for ensuring that the financial performance of the Group is properly reported on and monitored, and for overseeing the operation of internal financial controls appropriate to the size and operations of the Group. The Audit Committee meets twice a year to review the results, the findings of the auditors, the independence and objectivity of the auditors, and the internal controls. It also reviews the application and appropriateness of the Group's accounting policies, including any changes to financial reporting requirements brought about by both external and internal requirements and it gives consideration to all major financial announcements made by the Group including its interim and preliminary announcements and annual report and accounts.

The external auditors and other executive directors may be invited to attend the meetings.

During the year the Audit Committee met twice. G P Stevens and A C Lapping attended both meetings and C Jones attended one of the meetings.

Remuneration Committee

The Remuneration Committee ("the Committee"), which comprises three non-executive directors: G P Stevens who chairs the Committee; C Jones; and A C Lapping. The Committee has the principal function of agreeing with the board the framework and policy for the remuneration of the Group's executive management and determining, on behalf of the board, the remuneration packages of the executive directors. The Committee also determines the policy on executive appointments.

No member of the Committee has any personal financial interest (other than as a shareholder), conflict of interest arising from cross-directorships or day-to-day involvement in running the business. No director plays a part in any discussion about his own remuneration.

The chief executive officer may be invited to attend certain discussions of the Committee.

During the year the Remuneration Committee met twice. G P Stevens and A C Lapping attended both meetings.

Remuneration policy and arrangements

The objective of the remuneration policy is to ensure that the executive directors and managers of the Group are provided with appropriate incentives to encourage enhanced performance and are, in a fair and reasonable manner, rewarded for their individual contributions to the success of the Group. Each director is assessed individually so that their remuneration is directly related to their performance over time and so that a proportion of their remuneration is performance related.

There are five main elements of the remuneration package for executive directors:

(i) Basic salary:

An executive director's basic salary is determined by the Committee before the start of each year and when an individual changes position or responsibility. In deciding appropriate levels, the Committee seeks to be competitive, but fair, using information obtained from both internal and external sources.

(ii) Performance related annual bonus:

Performance related annual bonuses are designed to reward contribution and to encourage the achievement of targeted levels of performance over the short term. The maximum annual cash bonuses are set by the Committee and are subject to stretching targets linked to the Group's operating performance in the year. 

(iii) Long-term incentive arrangements:

The Company's long term incentive arrangements are intended to encourage directors and other key employees to focus on long term, strategic corporate objectives and to further align the interests of management and shareholders. These arrangements consist of an Enterprise Management Incentive Scheme ("EMI"), an Inland Revenue approved share option scheme and an Inland Revenue unapproved share option scheme. Details of these schemes are outlined in note 7 and 27 to the financial statements.

(iv) Pension arrangements:

The Group does not operate a pension scheme for employees; however it does make contributions to personal pension plans.

(v) Other benefits:

Other benefits for executive directors include a private health care scheme.

Service contracts

C A N Butler has a service agreement, dated 29 January 2010, which is terminable on six month's notice by either party.

In the event of early termination, the directors' contracts provide for compensation up to a maximum of basic salary plus the fair value of benefits to which the directors are contractually entitled for the unexpired portion of the notice period. The Company seeks to apply the principle of mitigation in the payment of compensation on the termination of the service contract of any executive director.

Non-executive directors

All non-executive directors have specific terms of engagement, the dates of which are set out below. There are no provisions for compensation payable in the event of early termination. The non-executive directors are appointed for an initial period of one year, following which the notice period is three months.

The determination of the non-executive directors' remuneration has been delegated by the board to the executive directors, within the limits set by the Articles of Association. The fees paid to the non-executive directors in the year, shown in note 7 to the financial statements, are inclusive of the additional work performed for the Company in respect of membership of the board committees. At the 2004 Annual General Meeting, shareholder approval was granted to allow non-executive directors to participate in the Company's unapproved share option scheme.

Relations with shareholders

The Company is committed to ongoing communication with its shareholders. At the Annual General Meeting, individual shareholders are afforded the opportunity to question the board.

Internal control

The board has overall responsibility for the system of internal control established by the Group and places considerable importance on maintaining a strong control environment. However, such a system is designed to identify, manage and mitigate than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

Key elements of the Group's system of internal control are as follows:

·; Financial management

Annual budgets are prepared for each business division and for the Group. These budgets are reviewed and agreed by the board and actual performance is measured against these budgets on a regular basis. Monthly management accounts are prepared, reviewed, analysed and presented to the board. The Group has in place documented authority levels for approving purchase orders, invoices and all bank transactions.

·; Company management

The executive directors meet regularly to monitor and evolve the Group's strategic direction, including product offerings and routes to market. In addition, the chief executive conducts regular management meetings to ensure that the strategy is cascaded throughout the Group's operations and is being acted upon accordingly.

·; Risk analysis

The Group maintains a thorough risk register. The board approves annual updates and appropriate risk mitigating action plans.

Directors' responsibilities

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the group and company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. The directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.

In preparing these financial statements, the directors are required to:

·; select suitable accounting policies and then apply them consistently;

·; make judgements and accounting estimates that are reasonable and prudent;

·; state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements;

·; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Website publication

The directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the directors. The directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

Independent Auditor's Report to the members of NetPlay TV Plc

We have audited the financial statements of NetPlay TV Plc for the year ended 31 December 2010 which comprise the consolidated statement of comprehensive income, the consolidated and company statements of financial position, the consolidated and company statement of cash flows, the consolidated and company statement of changes in equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.

Opinion on financial statements

In our opinion:

·; the financial statements give a true and fair view of the state of the Group's and the Parent Company's affairs as at 31 December 2010 and of the group's loss for the year then ended;

·; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

·; the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and

·; the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion the information given in the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

·; adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or

·; the Parent Company financial statements are not in agreement with the accounting records and returns; or

·; certain disclosures of directors' remuneration specified by law are not made; or

·; we have not received all the information and explanations we require for our audit.

John Le Poidevin (senior statutory auditor)

For and on behalf of BDO LLP, statutory auditor

London

United Kingdom

27 May 2011

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

NetPlay TV plc

Consolidated statement of comprehensive income

for the year ended 31 December 2010

The notes on pages 26 to 68 form part of these financial statements. The prior year comparatives have been restated as explained in note 1 to the financial statements.

The Company has taken advantage of section 408 of the Companies Act 2006 not to publish its own income statement.

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NetPlay TV plc

Consolidated statement of financial position

as at 31 December 2010

The notes on pages 26 to 68 form part of these financial statements.

The prior year comparatives have been restated as explained in note 1 to the financial statements.

These financial statements were approved by the board of directors and authorised for issue on 27 May 2011 and signed on their behalf by:

C A N Butler

Director

NetPlay TV plc

Consolidated statement of cash flows

for the year ended 31 December 2010

Significant non-cash transactions are as follows:

The notes on pages 26 to 68 form part of these financial statements.

Consolidated statement of changes in equity

for the year ended 31 December 2010

Other reserves are comprised of the share based payments reserve, foreign exchange reserve and holdings in the Company's own shares as shown in note 28.

The notes on pages 26 to 68 form part of these financial statements.

NetPlay TV plc

Company statement of financial position

as at 31 December 2010

The notes on pages 26 to 68 form part of these financial statements.

These financial statements were approved by the board of directors and authorised for issue on 27 May 2011 and signed on their behalf by:

C A N Butler

Director

NetPlay TV plc

Company statement of cash flows

for the year ended 31 December 2010

The notes on pages 26 to 68 form part of these financial statements.

Company statement of changes in equity

for the year ended 31 December 2010

Other reserves are comprised of the share based payments reserve and holdings in the Company's own shares.

Notes to the financial statements

1. Accounting policies

Reporting entity

NetPlay TV plc is a public limited company which is listed on AIM and is incorporated and domiciled in the UK.

The consolidated financial statements of the Company for the year ended 31 December 2010 comprise the Company and its subsidiaries (together referred to as the 'Group' and individually as 'Group entities'). The Company financial statements deal with the parent as a standalone entity.

The Group is primarily involved in the provision of TV and internet gambling services.

The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial information of NetPlay TV plc and its subsidiaries.

Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB), as adopted for use in the EU.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiary undertakings made up to 31 December each year. Control is achieved where the company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

On acquisition, the assets and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired is credited to profit or loss in the period of acquisition.

The profits or losses of subsidiaries are included in the consolidated statement of comprehensive income. The results of those subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All intra-group transactions are eliminated on consolidation.

Revenue Recognition

Revenue for the casino & bingo divisions represents gross bets and wagers less player winnings, in the financial year.

Revenue for the discontinued mobile division is the aggregate amount of revenue derived from the provision of end user mobile telephony services supplied to customers. Revenue from mobile telephony services is recognised upon delivery of media content.

Dividend income from investments is recognised when the company's rights to receive payment have been established.

Borrowings

Borrowing costs are expensed to profit or loss in the period in which they occur.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted at the date of the statement of financial position.

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on:

·; the initial recognition of goodwill;

·; the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

·; investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:

·; the same taxable group company; or

·; different group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

Pension costs

The Group does not operate a pension scheme for its employees; however it does make contributions to personal pension plans. The amount charged to administrative expenses represents the contributions payable to the individuals in respect of the accounting period.

Foreign currency

Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their "functional currency") are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss.

On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and accumulated in the foreign exchange reserve.

Exchange differences recognised profit or loss in Group entities' separate financial statements on the translation of long-term monetary items forming part of the Group's net investment in the overseas operation concerned are reclassified to other comprehensive income and accumulated in the foreign exchange reserve on consolidation.

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal.

Exceptional items

Exceptional items include expenditure that the directors believe are of such a size or nature that they should be shown separately on the face of the statement of comprehensive income.

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the chief executive officer. The Group's segments comprise casino, bingo and mobile (the mobile segment has been discontinued).

Intangible assets

Goodwill

Goodwill represents the excess of the cost of a business combination over, in the case of business combinations completed prior to 1 January 2010, the Group's interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired and, in the case of business combinations completed on or after 1 January 2010, the total acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired.

For business combinations completed prior to 1 January 2010, cost comprises the fair value of assets given, liabilities assumed and equity instruments issued, plus any direct costs of acquisition. Changes in the estimated value of contingent consideration arising on business combinations completed by this date are treated as an adjustment to cost and, in consequence, result in a change in the carrying value of goodwill.

For business combinations completed on or after 1 January 2010, cost comprised the fair value of assets given, liabilities assumed and equity instruments issued, plus the amount of any non-controlling interests in the acquiree plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree. Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent consideration classified as a financial liability, remeasured subsequently through profit or loss. For business combinations completed on or after 1 January 2010, direct costs of acquisition are recognised immediately as an expense.

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income on the acquisition date.

Customer databases

Externally acquired customer databases are capitalised at cost and are subject to 50% straight-line amortisation.

Customer databases acquired as part of business combinations are valued by estimating discounted cash flows that will be generated by the assets over their lifetime and are subject to 50% straight-line amortisation.

The carrying value of player databases is reviewed when there is an indication of impairment.

Internally generated player databases are not capitalised.

Websites and other development costs

Website and other development expenditure relating to the application and infrastructure development of websites is capitalised where the expenditure leads to substantially improved products or processes, the products or processes are technically and commercially feasible and the Group has sufficient resources to complete the development. All other development expenditure relating to planning, content development and other operational activities is charged to the statement of comprehensive income in the period it is incurred. Subsequent expenditure is capitalised only where it clearly increases the economic benefits to be derived from the asset to which it relates.

Website expenses are capitalised at cost and are subject to 50% straight-line amortisation. The carrying value of websites is reviewed when there is an indication of impairment.

Purchased licences for broadcasting TV channels

Purchased licences for broadcasting TV channels are capitalised at cost and are subject to 10% straight-line amortisation. Their carrying value is reviewed when there is an indication of impairment.

Domain names

Externally acquired domain names are capitalised at cost and are subject to 5% straight-line amortisation.

Domain names acquired as part of business combinations are valued by estimating discounted cash flows that will be generated by the assets over their lifetime and are subject to 5% straight-line amortisation.

The carrying value of domain names is reviewed when there is an indication of impairment.

Partner relationships

Partner relationships entered into as part of a business combination are valued by estimating discounted cash flows that will be generated by the assets over their lifetime and are subject to straight-line amortisation over the life of the relationship. Their carrying value is reviewed when there is an indication of impairment.

Internally generated partner relationships are not capitalised.

Investments (Company accounts)

Investments in subsidiary undertakings are stated at the fair value of the consideration paid. Investments that were acquired prior to the Company's conversion to IFRS are held at cost, where cost is the aggregate of the nominal value of the Company's shares and the fair value of any other consideration given to acquire the share capital of the subsidiary undertakings. Provision is made where there is an impairment in the value of the investment.

Property, plant and equipment

All property, plant and equipment is stated in the statement of financial position at historical cost less accumulated depreciation and accumulated impairment losses.

Depreciation is charged so as to write off the cost over their estimated useful lives using the straight-line method of depreciation, as follows:

Computer equipment 33.3% straight line

Fixtures & fittings 33.3% straight line

Leasehold improvements Shorter of the unexpired period of the lease and the estimated useful economic life of the assets

The gain or loss arising on disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is expensed to profit or loss for the period.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all of the risks or rewards of ownership to the lessee. All other leases are classified as operating leases.

Rental payments under operating leases are charged to profit or loss on a straight-line basis over the term of the lease.

Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group ("a finance lease"), the asset is treated as if it had been purchased outright.

Financial instruments

Financial instruments are classified and accounted for, according to the substance of the contractual arrangement, as either financial assets, financial liabilities or equity instruments.

Financial assets

Financial assets held by the Group consist of loans and receivables.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers, but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at cost less impairment provisions.

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. Trade receivables are reported net of impairment provisions, with impairment losses being recognised within administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

The Group's loans and receivables comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position. Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less and, for the purpose of the statement of cash flows, bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the consolidated statement of financial position.

Financial liabilities

Financial liabilities held by the Group consist of bank overdrafts, trade payables and other short-term monetary liabilities.

Financial liabilities are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument and subsequently at amortised cost.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.

The Company's ordinary shares are classified as equity instruments.

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions for onerous contracts are recognised when the expected benefits to be derived from contracts are less than the unavoidable cost of meeting the obligations under the contracts. Provisions are measured at the present value of the amounts that are expected to be paid to settle the obligations.

Share based payments

Where equity settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated statement of comprehensive income over the vesting period.

Where equity settled share options are awarded to parties other than employees in exchange for services performed, the fair value of the options at the date of grant is charged to the consolidated statement of comprehensive income over the expected lifetime of the services received by the Group.

Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Non-vesting conditions and market vesting conditions are considered when calculating the fair value of the options granted.

The fair value of share options issued without market-based vesting conditions is measured by the application of the Black-Scholes option pricing model by reference to the grant date of the options. The fair value of share options issued with market-based vesting conditions is measured by use of the Monte Carlo method.

Capital management

The Group has a relatively small amount of debt financing and as such considers the only significant component of capital to be shareholders' funds and reserves.

The Group will fund its operations with trading cash flows wherever possible. In recent years, given the change in strategy and investment requirements, this has not been possible and the Group has had to turn to external financing. When financing is required the board will consider whether debt or equity financing is more appropriate and proceed accordingly.

The Group is not subject to any externally imposed capital requirements.

Critical accounting estimates and judgements

Estimates and judgements are based on historical experience, expectations of future events, and other factors deemed to be relevant in the circumstances.

Valuation of goodwill and other intangible assets acquired with business combinations

Identified intangible assets and goodwill are capitalised at fair value when entering into a business combination. Establishing the fair value of the assets generally requires use of a technique such as discounting expected future cash flows.

Any process which attempts to estimate future outcomes is subject to uncertainty. Where it is believed that the estimation uncertainty can give rise to material differences in asset carrying values, this will be stated in the relevant notes to the financial statements.

Impairment of goodwill and other intangible assets

Goodwill and other intangible assets are reviewed for impairment and their values are written-down on the basis of the Group's expectations of future economic benefits expected to be received by the group.

Any process which attempts to estimate future outcomes is subject to uncertainty. Where it is believed that the estimation uncertainty can give rise to material differences in asset carrying values, this will be stated in the relevant notes to the financial statements.

Adjustment to prior year comparatives

As described in more detail in note 14, on 12 May 2009 the Group acquired certain assets from Two Way Gaming Limited ("TWG"). Simultaneously, the Group also entered into production and gaming agreements with Virgin Media Television ("VMTV"), to operate the Challenge Jackpot service which was formerly operated by TWG. The assets relating to gaming activities are held by NetPlay TV Group Limited and the assets relating to production are held by NetPlay TV Broadcasting Limited.

When preparing the 2009 annual report, the acquisition of the TWG assets and the contracts entered into with VMTV were treated as separate transactions. The directors considered the transaction with TWG and concluded it should have been treated as an asset purchase. When making this judgement, the directors considered whether the acquired assets could operate as a business in their own right or whether the assets could only operate if integrated into the Group's existing operations. The directors concluded that, as the assets acquired did not include any TV production equipment or arrangements, and because no material supplier contracts were transferred from TWG, the transaction with TWG should be accounted for as an asset purchase. Furthermore, the directors concluded that the transfer of share options to VMTV should be considered a share based payment, resulting in an income statement charge of £902,000 in the year ended 31 December 2009 and a further charge of £638,000 in the year ended 31 December 2010.

The directors have revisited the judgments in these 2010 accounts and now consider it would have been more appropriate to consider the acquisition of the TWG assets and the simultaneous entering into of the contracts with VMTV as a single linked transaction in which the Group acquired the Challenge Jackpot business. In consequence, the directors believe that the transactions should have been accounted for as a business combination under IFRS 3. As a result the directors have taken the decision to restate the 2009 comparatives within this annual report.

The principal effect of the restatement is to reverse an equity-settled share-based payment charge of £902,000 and, instead, include that amount in the cost of the business combination. This has resulted in the recognition of additional intangible assets, relating to customer relationship, production and license agreements, and goodwill.

Under paragraph 10(f) of IAS 1: Presentation of Financial Statements, this restatement would ordinarily require the presentation of a consolidated statement of financial position as at 1 January 2009. However, as the restatement has no effect on the statement of financial position as at that date, the directors do not consider that this would provide any additional information and, in consequence, have not presented it in these financial statements.

This prior period restatement will result in the following adjustments to the 2009 comparative figures:

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Standards and interpretations