Pcg Entertainment Plc Regulatory News (PCGE)

30 June 2016

PCG Entertainment Plc

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

PCG Entertainment Plc / Index: AIM / Epic: PCGE

Final Results for the year ending 31 December 2015

PCG Entertainment Plc (AIM: PCGE), the AIM listed Asia-Pacific online gaming and media company today announced its final results for the year ended 31 December 2015. Detailed information can be found below and the full accounts have been posted today both to the Company's website and to its shareholders.

Financial highlights

· Revenue: $10,952,133 (2014: $4,450)

· Gross Profit: $2,805,228 (2014: $4,450)

· Loss on Ordinary Activities: $2,032,557 (2014: $8,696)

· Assets of $15,205,254 (2014: $7,712,305)

Operational Highlights

• Acquisition of Center Point Development Corp., a games and gaming software distributor based in Taiwan. PCGE was able to acquire 100% of the share capital of CPDC, which under AIM rules qualified as a Reverse Takeover ("RTO"). Following completion of the acquisition process in August 2015, trading of the Company's shares resumed on AIM.

• Acquisition ensured that the Company became operationally profitable in Q3 of 2015, and that this profit more than doubled in Q4. It has also provided the expertise, networks and contracts that will enable us to grow the business in 2016 and beyond.

• Chairman, Kung-Min Lin, stepped down to focus on his other business interests in Asia. Replaced by Richard Poulden, formerly Deputy Chairman.

• In May 2016, the Company advised the market of a debt arising from the acquisition of CPDC and a dispute over trading terms with a principal customer. Further information was provided to the market in June 2016, and the Company is continuing to seek an amicable resolution.

• On 3 February 2016, Clive Hyman, the CFO, resigned on the grounds of ill health. Christopher Fisher is currently acting CFO.

• In February 2016 Jack Sun was appointed as COO in Asia.

• On 11 March 2016, the Company appointed Allenby Capital Limited as its nominated adviser.

Outlook

The Company continues to develop major media distribution projects which are expected to develop in late 2016.

Notice of AGM

The Company also posted to shareholders today a notice of the annual general meeting of the Company to be held at 10.00 a.m. on [●] 2016 at the offices of the Company, G1 Haven Court, 5 Library Ramp, Gibraltar. The full report and accounts and the notice of annual general meeting are available to view on the Company's website www.pcge.com

CEO Nick Bryant commented

"I am delighted to announce PCGE's results for 2015. The Company is involved in a number of additional projects involving programme distribution and sport and we intend to provide regular updates on their progress. I remain confident that our strategy for the Company will result in sustained growth and increased shareholder value and I look forward to providing regular trading updates to the market."

The Group will continue to update the markets on further developments. For more information on PCGE please visit the Company's website www.pcge.com.

Matters Raised by the Independent Auditors

The Directors wish to bring to shareholders' attention the following matters raised in the Independent Auditor's Report.

Basis for qualified opinion on financial statements

In respect of intangible assets with a carrying amount of $8,805,000 the audit evidence available to us was limited because, following the acquisition of Center Point Development Corp. ("CPDC") the directors have not completed the fair valuation of the separately identifiable intangible assets held by CPDC within the one year measurement period permitted by IFRS 3 "Business Combinations". As identified in note 14, the directors initially recognised the value of intangible assets as the net of consideration paid and net tangible assets acquired, and have estimated a five year useful life of the intangible assets. We were unable to obtain sufficient appropriate audit evidence by other means.

Qualified opinion on financial statements

In our opinion, except for the possible effects of the matters described in the Basis for Qualified Opinion paragraph:

· the financial statements give a true and fair view of the state of the Group's and of the parent Company's affairs as at 31 December 2015 and of the Group's and parent Company's loss and cash flows 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 Gibraltar Companies Act;

· The financial statements have been prepared in accordance with the Gibraltar Companies Act.

Emphasis of matter - existence of the Group's Sihai Geju licences

In forming our opinion on the financial statements, which is not modified in respect of this matter, we have considered the adequacy of the disclosures made in notes 14 to the financial statements concerning the Group's Sihai Geju licences, which have a carrying value of $3,500,000.

As described in note 14, in May 2016 the Group applied to the Ministry of Culture of the People's Republic of China, the People's Republic of China Ministry of Industry and Information Technology, and the Beijing Regional Communications Administration Bureau (collectively "the Authorities") for a renewal of the licences.

As the renewal of the licences is at the discretion of the Authorities these conditions indicate the existence of a material uncertainty which may cast significant doubt over the likelihood of the renewal of the licences and thus the carrying value of the Group's intangible asset. The financial statements do not include the adjustments that would result if the licences are not renewed.

Notes to the Accounts

The Directors wish to bring to shareholders' attention the following notes to the accounts.

Extract from Note 1

Going concern

The Group reported an operating loss for the year to 31 December 2015 due largely to the costs of readmission following the reverse takeover of CPDC and to Group operating costs. The CPDC business itself was profitable, delivering operating profits of approximately US$0.4m in July - September 2015 and US$0.8m in October - December 2015, and further increases in operating profits in January - March 2016 have given the Group a strong start to the 2016 financial year. 

In May 2016 disputes arose with our principal supplier and a customer (see note 28). The Directors are working to resolve these problems amicably and will keep the market informed of their progress. In light of these disputes and their potential impact on the business the Directors have reviewed the current cash position and projected cash flows and considered that a further fund raising was necessary to secure the going concern nature of the Group. The Directors have concluded a share placement and the necessary funding has been secured. Based on this, the Directors consider that the Group will have adequate resources to meet its liabilities as they fall due for a period of at least twelve months from the date of the approval of these financial statements. Accordingly, they consider it appropriate to continue to prepare the financial statements on a going concern basis.

Extract from Note 14

Investment in Sihai Geju licences:

The Directors of PCGE are of the opinion that there is no impairment in the carrying value of the Sihai Geju licences, accordingly these are carried at their historical cost of US$3,500,000. The licences are subject to an annual renewal by Ministry of Culture of the People's Republic of China, the People's Republic of China Ministry of Industry and Information Technology, and the Beijing Regional Communications Administration Bureau (collectively "the Authorities"). Whilst the renewal is solely at the discretion of the Authorities, it is the Directors' expectation that provided the licence conditions are met annual renewal will be granted.

Due to their expectation of the annual renewal being granted each year and the demand for the licences continuing, the Directors consider that the Sihai Geju licences have an indefinite useful life. They are subject to an annual impairment review accordingly. The application for the renewal of the Sihai Geju licences was lodged in May 2016 and it is normal for the processing of such applications to take a number of months. The Directors expect a wait of three months before the renewal completes, but the Directors have no reason to suppose this will not be completed. As identified at the time of the acquisition of CPDC, the annual renewal of the Sihai Geju licences was a risk factor of the business, but based on the successful historic renewal of these licences, the Directors believe their approach is reasonable.

The annual impairment review of the Sihia Geju licences was made by the Directors based on their value in use and utilised cash flows forecasts for the cash generating units over a period of 10 years. This was prepared using the Directors' experience in the market to determine the key assumptions, being the future revenue projections and the discount factor. Various scenarios were considered by the Directors whereby a 10% and 50% range of discount factors were applied and then expected cash flows were adversely sensitised by up to 50%. The Directors' best estimate, utilising a discount rate of 25%, shows projected asset value in excess of the carrying value of the Sihia Geju licences recognised; the sensitivity analysis conducted utilising a 50% adverse cashflow and a discount rate of 25%, being considered as the worst case scenario reflecting the uncertainty as disclosed in note 4, identifies that the carrying value of the Sihia Geju licences is not materially impaired. The Directors remain of the view that the Sihia Geju licences are fairly stated and no impairment is necessary as at 31 December 2015.

Other intangible assets in respect of gaming licences and customer relationships: 

As part of the acquisition of CPDC (as set out in note 24) the Group recognised intangible assets of US$9,950,000. In accordance with IFRS 3 the Directors are obliged to analyse and classify this into its component assets and determine their fair values. This exercise should be completed within one year of acquisition. The Directors have not been able to finalise this assessment and it will be completed in accordance with IFRS 3 in 2016. The Directors have, in these financial statements, included the intangible assets as one asset class with an estimated useful life of 5 years and applied an appropriate amortisation charge which will be corrected in 2016 once the valuation and assessment of useful life has been completed.

Extract from Note 24

Acquisition of business

In January 2015, the Group commenced negotiations to acquire CPDC, a Belize-registered distributor of online games management software, from Kolarmy. The Group acquired a call option in February 2015 to acquire CPDC at a price of up to US$20,000,000. The option capable of being exercised in cash or through the issue of ordinary shares of the Company. The option price of US$410,000 was paid.

The Company acquired the entire issued share capital of CPDC for an initial consideration of US$10,000,000 less the option price paid which was satisfied by the issue of initial consideration shares of 114,811,491 together with a contingent consideration arrangement. The net assets on acquisition of CPDC was assessed to be US$10,000,000 which equates to the total consideration transferred, therefore no goodwill arose on acquisition.

The fair value of the 114,811,491 ordinary shares issued as part of the consideration paid for CPDC (US$10,000,000) was measured using the closing market price of the Company's ordinary shares on the acquisition date.

This was the initial consideration as described in the Sale and Purchase Agreement ("SPA").

The SPA was agreed on 11 August 2015, the transaction completed on 28 August 2015 and consideration shares were admitted to AIM on this date. Control of CPDC was however deemed to pass on 16 June 2015 as profits of CPDC started to accrue to PCGE on this date and results have been consolidated into PCGE from 16 June 2015.

The contingent consideration arrangement requires the Company to pay the former owners of CPDC up to a maximum amount of US$10,000,000 (undiscounted) based on the net profit of CPDC for the period 1 June 2015 to 31 May 2017. The potential undiscounted amount of all future payments that the Company could be required to make under the contingent consideration arrangement is between US$ Nil and US$10,000,000.

The SPA states that: "…any Further Consideration will be calculated by PCGE acting in its absolute discretion …"

The fair value of the contingent consideration arrangement of US$ Nil was estimated by applying the income approach. The fair value measurement was based on significant inputs that are not observable in the market, which IFRS 13 Fair Value Measurement refers to as Level 3 inputs. The directors have re-evaluated future performance and concluded that these levels of net profit will not be achieved by 31 May 2017.

Accordingly, the directors do not consider that any further consideration is due on the acquisition.

The interim financial statements issued for the 6 months ended 30 June 2015 included intangible assets of US$18,214,000 and deferred consideration of US$8,214,000 in respect of the acquisition. Further to managements review of the intangible assets acquired and the likelihood of the contingent consideration becoming due, the value of the intangible assets have been reduced to US$10,000,000 and deferred consideration to US$Nil.

Enquiries:

CHAIRMAN'S STATEMENT

Dear Shareholders,

Those of you have read my Black Swan newsletters over the years will know that I am firmly of the view that we are in the Asian century, and more particularly the "Age of China". The BREXIT protest vote of last week makes it even more essential in my view to pivot to Asia. In 1980 the EU was 30% of world GDP and today it is 16.5%. From any investment point of view I believe we need exposure to the growth in Asia.

Asia presents a vast opportunity and a challenge for those who embark on commercial endeavours in the region. PCG Entertainment Plc ("PCGE" or "the Company") embarked on an ambitious growth strategy for an emergent media and entertainment business in the People's Republic of China ("PRC") and this year has seen strong progress down this path.

Performance

Since the Company floated on AIM in December 2014, the business has secured a major acquisition of Center Point Development Corp ("CPDC"). Following that, PCGE rapidly demonstrated the benefits of this acquisition with steadily improving Quarterly Results in late 2015 and early 2016. You will have seen from recent RNSs that we have hit a bump in the road with the vendors of CPDC not honouring certain debt commitments and some interference with customers by suppliers. At the moment I remain convinced that we will reach an accommodation here that benefits everyone and in Nick Bryant's CEO statement you will read of some of our other plans.

PCGE continues to offer transparency through participation in the UK's AIM market, and the commitment of the Company to maintain visible and reputable management alongside an experienced Chinese team offers dual security.

There have been a number of concerns around Chinese companies on AIM in recent years, but it is our belief that our continued commitment to transparent reporting and regulation combined with in house experience on the Chinese and media markets gives PCGE the edge in both performance and growth.

Continued Opportunity

The Board remains confident that investors need exposure to China, and the media and entertainment sector presents the greatest opening here. The Chinese consumer market, and in particular the expenditure of the average consumer on leisure, increases exponentially, and in key areas, rapidly adopts new trends. The fundamental point is that this sector is far less exposes to any other woes, which the Chinese economy may face. For what it is worth I think the Western media overplay the Chinese "problems". It is more important to observe what they are doing with financial institutions and the world monetary system.

McKinsey reported recently "Chinese consumers are adopting new products, services, and retail experiences at rates unseen in developed markets. For example, mobile payment penetration in China went from zero in 2011 to 25% of the population in 2015."

The vastness of the market also ensures that even a modest success, by sheer volume of the overall market size, remains significant. The value of the Chinese entertainment and media market overall stands at almost US$155bn, and McKinsey recently valued China's online gaming sector at US$18bn.

PCGE is firmly entrenched in this market and continue to exploit our licenses and the opportunities here.

Management & Advisor Changes

On 24th November 2015, Kung Min Lin resigned as Chairman and I took over. Kung Min and I started PCGE together and brought it to this point. I have greatly enjoyed working with him and wish him well in the other endeavours with which I know he is closely involved.

In February 2016 we appointed Jack Sun as COO in Asia. Jack is one of those rare individuals who can bridge the cultural divide between East and West given the fact that he is a Chinese national but spent part of his education at Oxford. Jack was previously employed as Group Operations and Financial Director for BETEX Group Plc, a bio-fuels software and lottery management company with a primary focus on mainland China. At BETEX he led and won bids for government lotteries in three provinces. Jack has worked as a Financial Director and a Management Accountant in the UK, after receiving a BA (Hons) in Business Accounting from Oxford Brookes University. His further qualifications include an EMBA - Said Business School, University of Oxford, UK, ACCA - Association of Chartered Certified Accountants , UK and a MSc in international finance - Birkbeck College, University of London, UK. He speaks fluent English, Mandarin and Cantonese.

On 3rd February 2016, Clive Hyman, the CFO, resigned on the grounds of ill health. The RNS announcing this is on our website. Chris Fisher is currently acting CFO and brings a wealth of relevant experience of Asia and early stage companies to the role.

On 11th March 2016, the Company appointed Allenby Capital Limited as its nominated advisor. This was in the light of Sanlam's decision to sell its London advisory business and the fact that their key employees moved to Allenby. However, on another note, I have worked with Allenby before and look forward to doing so again.

In conclusion, I would like to thank the board, management team and all our advisers for their hard work during the year and to express all our thanks to you our shareholders for your continuing support. This will be an awfully big adventure and there will be rocks and ups and downs in the road, but you can rest assured that we are in the right sector at the right time and I would never forgive anyone if we did not work to achieve the best result.

Richard O'Dell Poulden

Chairman

30 June 2016

Chief Executive Officer's Statement

In line with the strategy outlined in our Admission Document PCGE has continued to focus on growth, both organic and through acquisition, in 2015.

Acquisition

The key development for PCGE in 2015 was the acquisition of CPDC, a games and gaming software distributor based in Taiwan.

PCGE was able to acquire 100% of the share capital of CPDC, which under AIM rules qualified as a Reverse Takeover ("RTO") but is not a reverse acquisition for accounting purposes. The Directors understood that this acquisition would result in PCGE's temporary suspension from AIM. In February 2015 we paid an initial acquisition fee to secure the transaction and our shares were suspended from trading. Following the readmission process the acquisition was completed in August 2015 and trading resumed.

The Board took the view that the expense and deployment of resources were justified by the value that the acquisition added to the Company and its shareholders. The acquisition ensured that the Group became operationally profitable in Q3 of 2015, and that this profit more than doubled in Q4. It has also provided the expertise, networks and contracts that will enable us to grow the business in 2016 and beyond.

Leveraging the expertise and the networks we acquired through the acquisition of CPDC, the Company now plans to establish itself as a full-service solutions provider to the games industry. Over the course of Q3 and Q4 2016 the Group will launch a world-class games delivery platform and management system. This platform, which will be populated with games from a number of global developers, and managed by a highly experienced team, will give the Company a competitive advantage in the rapidly expending games market in Asia.

In May 2016 the Company advised the market that we were being pursued for a debt arising from our acquisition of CPDC, and that a dispute had arisen over trading terms with a principal customer. Further information was provided to the market in June 2016. Negotiations between the parties are ongoing and we anticipate an amicable settlement of this dispute.

IFRS 3 Valuation of Intangible Assets

The Directors recognise their obligation under IFRS 3 to classify, value and estimate the useful life of the Company's intangible assets appropriately. In relation to the acquisition of CPDC the Directors, whilst acknowledging this requirement, took the view that we would 'husband' our resources at this stage in our development and avoid the significant expense of commissioning a third-party valuation.

It is exceptionally difficult to evaluate the intangible assets of a gaming company in Asia where precedent is hard to establish. The nature of the gaming market is also radically different to that of the West. Accordingly, the Directors acknowledge that we have not met the technical requirements of IFRS 3 in this valuation and have resolved to remedy this in the 2016 accounts. The valuation of the intangible assets identified on the acquisition of CPDC, are set out in note 4.

Exploitation of Licenses

During the course of the year the Group also pursued some major media distribution projects which we expect to come on stream in late 2016.

These include:

· A motor racing 'search for a star' programme to be broadcast by a major satellite channel and distributed widely on line.

· A snooker academy show, fronted by a multiple snooker world champion, also to be distributed through major broadcast and on line channels.

· A major sports tipping service to be delivered on line and on mobile.

The Company is involved in a number of additional projects involving programme distribution and sport and we will provide regular updates on their progress.

The Sihai Geju licences are subject to an annual renewal as explained further in note 14. The application for their renewal was submitted in May 2016 and it is the Directors' expectation that the licences will be granted.

Board Changes

In November, our Chairman, Kung-Min Lin, stepped down to focus on his other business interests in Asia, and we thank him for his titanic efforts in establishing the Company over the past few years.

He has been replaced by Richard Poulden, formerly Deputy Chairman. Richard has many years' experience in a range of businesses in Asia and elsewhere and has been on the Board of a number of listed companies. We believe that Richard's experience will prove invaluable to the future success of the Company.

The Directors are pleased to report that we have generated US$10.952m of revenues in the year achieving a gross profit of US$2.805m. Against this, we incurred administrative expenses, including readmission costs, of US$4.261m.

As a result, we are able to report a reduction in our loss on ordinary activities across the year to US$2.033m, down from US$8.696m in 2014.

Going concern

As explained further in note 1, the Group has generated a loss for the year and having reviewed cash flow projections and the current cash position, we considered that a further fundraising was necessary to secure the going concern nature of the Group. The Directors have concluded a share issue and the funding has been secured.

I remain confident that our strategy for the Company will result in sustained growth and increased shareholder value and I look forward to providing regular trading updates to the market.

Finally, I should like to thank our shareholders, for their continued support and our staff and advisors for their hard work and commitment throughout 2015.

Nicholas Bryant

Chief Executive Officer

30 June 2016

PCG Entertainment Plc

Independent Auditor's Report to the Members of PCG Entertainment Plc

We have audited the financial statements of PCG Entertainment Plc for the year ended 31 December 2015 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statements of Financial Position, the Consolidated and Company Statements of Changes in Equity, the Consolidated and Company Statements of Cash Flows, and the related notes 1 to 29. 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 Gibraltar Companies Act.

This report is made solely to the Company's members, as a body, in accordance with Section 257 of the Gibraltar Companies Act and for no other purpose. 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 auditor

As explained more fully in the Directors' Responsibilities Statement set out on page 10, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. This responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

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 Financial Reporting Council's (FRC's) Ethical Standards for Auditors and the Code of Ethics issued by the International Ethics Standards Board for Accountants, as appropriate.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the FRC's website at

www.frc.org.uk/auditscopeukprivate.

Basis for qualified opinion on financial statements

In respect of intangible assets with a carrying amount of $8,805,000 the audit evidence available to us was limited because, following the acquisition of Center Point Development Corp. ("CPDC") the directors have not completed the fair valuation of the separately identifiable intangible assets held by CPDC within the one year measurement period permitted by IFRS 3 "Business Combinations". As identified in note 14, the directors initially recognised the value of intangible assets as the net of consideration paid and net tangible assets acquired, and have estimated a five year useful life of the intangible assets. We were unable to obtain sufficient appropriate audit evidence by other means.

Qualified opinion on financial statements

In our opinion, except for the possible effects of the matters described in the Basis for Qualified Opinion paragraph:

· the financial statements give a true and fair view of the state of the Group's and of the parent Company's affairs as at 31 December 2015 and of the Group's and parent Company's loss and cash flows 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 Gibraltar Companies Act;

· The financial statements have been prepared in accordance with the Gibraltar Companies Act.

Emphasis of matter - existence of the Group's Sihai Geju licences

In forming our opinion on the financial statements, which is not modified in respect of this matter, we have considered the adequacy of the disclosures made in notes 14 to the financial statements concerning the Group's Sihai Geju licences, which have a carrying value of $3,500,000.

As described in note 14, in May 2016 the Group applied to the Ministry of Culture of the People's Republic of China, the People's Republic of China Ministry of Industry and Information Technology, and the Beijing Regional Communications Administration Bureau (collectively "the Authorities") for a renewal of the licences.

As the renewal of the licences is at the discretion of the Authorities these conditions indicate the existence of a material uncertainty which may cast significant doubt over the likelihood of the renewal of the licences and thus the carrying value of the Group's intangible asset. The financial statements do not include the adjustments that would result if the licences are not renewed.

Opinion on other matter prescribed by the Companies Act

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 Gibraltar Companies Act requires us to report to you if, in our opinion:

· The Company has not kept proper accounting records; or

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

· information specified by law regarding Directors' remuneration and other transactions is not disclosed.

Samual Vidal Moses Cohen Nexia Smith & Williamson

Statutory Auditor Chartered Accountants

for and on behalf of

Benady Cohen & Co Limited

21 Engineer Lane 25 Moorgate

Gibraltar London EC2R 6AY

30 June 2016 30 June 2016

PCG Entertainment Plc

Consolidated Statement of Total Comprehensive Income

for the year ended 31 December 2015

There are no recognised gains or losses other than disclosed above and there have been no discontinued activities in the year.

PCG Entertainment Plc

Consolidated Statement of Financial Position

as at 31 December 2015

Approved by the board on 30 June 2016.

PCG Entertainment Plc

Company Statement of Financial Position

as at 31 December 2015

Approved by the board on 30 June 2016.

PCG Entertainment Plc

Consolidated Statement of Cash Flows for the year ended 31 December 2015

PCG Entertainment Plc

Company Statement of Cash Flows for the year ended 31 December 2015

PCG Entertainment Plc

Notes to the Financial Statements

for the year ended 31 December 2015

1 Accounting policies

The principal accounting policies adopted by the Group in the preparation of its financial statements for the year ended 31 December 2015 with comparatives for year ended 31 December 2014 are set out below. The accounting policies have been consistently applied, unless otherwise stated.

General information

PCG Entertainment plc ("PCG Entertainment") is incorporated in Gibraltar. The registered office is G1 Haven Court, 5 Library Ramp, Gibraltar. PCG Entertainment has direct subsidiaries and affiliated companies in China, where its holding is held through the requisite Chinese structure for foreign investors.

As at 1 January 2015, PCG Entertainment had a direct 100% holding in its subsidiary PCG Entertainment Limited ("PCGEL") (previously Hong Kong Strategic Services Limited) which is incorporated in Hong Kong. PCGEL had a direct 100% holding in its subsidiary Jingtuo World Technology Consulting (Beijing) Limited ("Jingtuo") which is a Wholly Foreign Owned Enterprise under the laws of the Peoples Republic of China ("PRC") ("WFOE") a specialized vehicle to enable PCG Entertainment to invest via a Variable Interest Entity ("VIE") in Beijing Sihaigeju Culture Media Company Limited ("Sihai Geju"). Jingtuo and Sihai Geju are both incorporated in the PRC.

On 17 March 2015, PCG Entertainment acquired a direct 100% holding in PCG Software Services Limited ("PCGSS"), incorporated in Gibraltar for GBP 2,000. The purpose of acquiring PCGSS was to acquire Centre Point Development Corp ("CPDC").

On 28 August 2015, PCG Entertainment (via its wholly owned subsidiary PCGSS) acquired a direct 100% holding in CPDC, incorporated in Belize for a total consideration of US$10,000,000. Under AIM rule 14 the ordinary shares of PCG Entertainment were suspended on 13 February 2015 pending the completion of the reverse takeover of CPDC. This takeover was completed on 11 August 2015 and the shares were readmitted for trading. Further details on the acquisition are set out in note 24.

PCG Entertainment, its subsidiaries and affiliated companies are collectively referred to as the PCGE. The business of the Group comprises of activities relating to various forms of media distribution and gaming services in Asia, primarily in the PRC and Taiwan.

Further share allotments have been made during the year as disclosed in note 19.

Basis of preparation

The financial statements of both the Group and the parent Company have been prepared in accordance with International Financial Reporting Standards ("IFRSs") and Interpretations issued by the IFRS Interpretations Committee ("IFRIC") as adopted by the European Union and with those parts of the Gibraltar Companies Act applicable to companies reporting under IFRS. These are the standards, subsequent amendments and related interpretations issued and adopted by the International Accounting Standards Board ("IASB") that have been endorsed by the European Union at the year end. The consolidated financial statements have been prepared under the historical cost convention. The Directors have taken advantage of section 228 of the Companies Act and have not prepared a Statement of Total Comprehensive Income for the Company alone.

The Government of Gibraltar passed into law the New Act on 1 November 2014. The accounting and audit provisions of the New Act came into force for accounting periods commencing on or after 1 November 2014. The adoption of the New Act by the Group has not had a significant impact on the Group's financial position or results.

Going concern

The Group reported an operating loss for the year to 31 December 2015 due largely to the costs of readmission following the reverse takeover of CPDC and to Group operating costs. The CPDC business itself was profitable, delivering operating profits of approximately US$0.4m in July - September 2015 and US$0.8m in October - December 2015, and further increases in operating profits in January - March 2016 have given the Group a strong start to the 2016 financial year. 

In May 2016 disputes arose with our principal supplier and a customer (see note 28). The Directors are working to resolve these problems amicably and will keep the market informed of their progress. In light of these disputes and their potential impact on the business the Directors have reviewed the current cash position and projected cash flows and considered that a further fund raising was necessary to secure the going concern nature of the Group. The Directors have concluded a share placement and the necessary funding has been secured. Based on this, the Directors consider that the Group will have adequate resources to meet its liabilities as they fall due for a period of at least twelve months from the date of the approval of these financial statements. Accordingly they consider it appropriate to continue to prepare the financial statements on a going concern basis.

Basis of consolidation

The consolidated financial statements combine the financial information of the Company and its subsidiary undertakings drawn up to 31 December 2015.

Subsidiaries are entities over which the Group has power to govern the financial and operating policies, generally accompanied by a share of more than 50 per cent of the voting rights. All inter-company balances, transactions and unrealised profits and losses have been eliminated in the consolidated financial statements.

Subsidiaries acquired or disposed of during the year are fully consolidated from the date of acquisition or to the date of disposal under the acquisition method.

The loss recorded by the Company during the year was US$2,878,120 (2014: US$8,567,840).

Revenue

Revenue relates to the utilisation of licences over a gaming platform. The Group provide access to the platform to operators of games who receive fees from their customers to play games over the platform. The Group receive a percentage of the fees paid by third party customers using a sliding scale based on the level of platform usage. Revenue is earned as the platform is utilised by the customers.

Intangible assets

Intangible assets consist of licences and customer relationships and are recognised as an intangible asset in accordance with the provision of IAS 38 "Intangible Assets". Amortisation of these assets is charged to profit or loss on a straight-line basis over the expected useful economic life of the asset. Amortisation is charged against assets from the date at which the asset becomes available for use.

The estimated useful lives of the intangible assets are as follows:

Customer relationships - Straight line over 5 years

Property, plant and equipment

Property, plant and equipment are stated at cost less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount of the asset and are included in profit and loss.

The carrying values of property, plant and equipment are reviewed for impairment annually and when events or changes in circumstances indicate that the carrying value may be impaired. Any impairment is taken directly to profit or loss.

Depreciation

Depreciation is charged so as to write off the cost, less estimated residual value on assets other than land, over their estimated useful lives, using the straight-line method, on the following bases:

Fixtures and fittings - Straight line over 3-10 years

Impairment of non-financial assets

At each statement of financial position date, the Directors review the carrying amounts of the Group's tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.

Foreign currencies

The presentational currency for the Group's consolidated financial statements is United States Dollars ("US$") and it is this currency in which the Group reports. Foreign currency transactions by Group companies are recorded in their functional currencies at the exchange rate at the date of the transaction. Monetary assets and liabilities have been translated at rates in effect at the statement of financial position date, with any exchange adjustments being charged or credited to profit or loss.

On consolidation, the assets and liabilities of the subsidiary companies with non-US$ functional currency are translated into the Group's presentational currency at the exchange rate at the statement of financial position date and the profit or loss items are translated at the average rate for the year.

For the purpose of foreign currency translation, the net investment in a subsidiary is determined inclusive of foreign currency intercompany balances for which settlement is neither planned nor likely to occur in the foreseeable future.

In the cash flow statement, cash flows denominated in foreign currencies are translated into the presentational currency of the Group at the average exchange rate for the year or at the prevailing rate at the time of the transaction where more appropriate.

Functional and presentational currencies

The individual financial information of each Group entity is measured and presented in the currency of the primary economic environment in which the entity operates (its functional currency).

The functional currency of each of the Group entities is:

PCG Entertainment - US$

PCGEL - Hong Kong Dollars ("HK$")

Jingtuo and VIE - Chinese Renminbi ("RMB")

PGSS - Gibraltan pounds ("GIP")

CPDC -US$

Financial instruments

Financial assets and financial liabilities are recognised on the consolidated statement of financial position when the PCGE becomes a party to the contractual provisions of the instrument.

Trade and other receivables

Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the consolidated statement of total comprehensive income when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

Trade and other payables

Trade and other payables are initially measured at fair value, and are subsequently measured at amortised cost using the effective interest rate method.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts.

Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Equity comprises the following:

· "Share capital" represents amounts subscribed for shares at nominal value.

· "Share premium" represents amounts subscribed for share capital in excess of nominal value.

· "Foreign currency translation reserve" represents exchange differences arising from translation from functional currencies to the Group's presentational currency.

· "Share based payment reserve" represents the equity element of payments to be settled in equity instruments.

· "Issued share reserve" represents shares issued and admitted to trading on AIM, but held by the Company pending fulfilments of contractual obligations of a third party.

· "Other reserves" represents the deemed equity element of a convertible loan note issued below fair value.

· "Retained earnings" represents the accumulated profits and losses attributable to equity shareholders.

Taxation

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

Current tax

Current tax for each taxable entity in the Group is based on the local taxable income at the local statutory tax rate enacted or substantively enacted at the statement of financial position date and includes adjustments to tax payable or recoverable in respect of previous periods.

Deferred tax

Deferred taxation is calculated using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred tax arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for.

Deferred tax is determined using tax rates and laws that have been enacted (or substantively enacted) by the statement of financial position date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available, against which the temporary differences can be utilised.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in profit or loss, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.

Accounting policies in relation to the parent company:

Fixed asset investments

Investments in subsidiary undertakings are stated at cost less permanent provision for impairment.

2 Standards, Interpretations & Amendments to Published Standards adopted during the year

The following new standards, amendments and interpretations to existing standards have been adopted by the Company during the year.

· Amendments to IAS 19 - Defined Benefit Plans - Employee Contributions (effective for accounting periods beginning on or after 1 July 2014).

· Annual Improvements to IFRSs 2010 - 2012 Cycle (effective for accounting periods beginning on or after 1 July 2014).

· Annual Improvements to IFRSs 2011 - 2013 Cycle (effective for accounting periods beginning on or after 1 July 2014).

These new standards, amendments and interpretations to existing standards have had no impact on the financial statements of PCGE.

3 Standards, Interpretations & Amendments to Published Standards not yet effective

The following standards and interpretations issued by the IASB or IFRIC have not been adopted by the Group as they were not effective for the year ended 31 December 2015. The Group is currently assessing the impact of these standards and interpretations will have on the presentation of, and recognition in, its consolidated results in future periods.

· Amendments to IAS 1 - Disclosure Initiative (effective for accounting periods beginning on or after 1 January 2016).

· Amendments to IAS 16 and IAS 38 - Clarification of Acceptable Methods of Depreciation and Amortisation (effective for accounting periods beginning on or after 1 January 2016).

· Amendments to IAS 27 - Equity Method in Separate Financial Statements (effective for accounting periods beginning on or after 1 January 2016).

· IFRS 9 Financial Instruments (2014) (effective for accounting periods beginning on or after 1 January 2018).

· Amendments to IFRS 10 and IAS 28 - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (effective for accounting periods beginning on or after 1 January 2016).

· Amendments to IFRS 11 - Accounting for Acquisitions of Interests in Joint Operations (effective for accounting periods beginning on or after 1 January 2016).

· IFRS 15 Revenue from Contracts with Customers (effective for accounting periods beginning on or after 1 January 2018).

· IFRS 16 leases (effective for periods beginning on or after 1 January 2016 - not yet adopted by the EU).

· Annual Improvements to IFRSs 2012 - 2014 Cycle (effective for accounting periods beginning on or after 1 January 2016).

4 Critical judgements in applying the Group's accounting policies

The following are the critical judgements, apart from those involving estimations uncertainty (see below) that management has made in the process of applying the Group's accounting policies and which have the significant effect on the amounts recognised in the consolidated financial statements.

Impairment of financial assets

The Group follows the guidance of IAS 39 - Financial Instruments: Recognition and Measurement, in determining whether a financial asset is impaired. This determination requires significant judgement, the Group evaluates, among other factors, the duration and extent to which the fair value of a financial asset is less than its cost and the financial health of and near-term business outlook for the financial asset, including factors such as industry and sector performance, changes in technology and operational and financing cash flow.

Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the financial year, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Valuation of Sihai Geju licences

Management review the intangible assets held by the Group on inception and at every statement of financial position date. The valuation of Sihai Geju licences is based on a significant number of variables which require management judgement, as disclosed in note 14.

Valuation of intangible assets on the acquisition of CPDC

On the acquisition of CPDC, management have recognised intangible assets in respect of customer relationships, being the difference between the fair value of the consideration paid and the net assets acquired in the business. Valuing these intangible assets is inherently subjective and at the date of these financial statements the formal exercise to value the individual assets has not been fully completed. Management consider the value of the intangible assets net of the amortisation for the period to be appropriate.

Valuation of investment in subsidiaries

The Company's investment in its subsidiaries are carried at cost less provision for impairment. The value of the investment is inherently linked to the performance of the subsidiaries and an impairment review is undertaken by management annually to assess whether any permanent diminution in value has occurred.

5 Financial risks

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and cash flow risk), credit risk and liquidity risk. The Group's overall risk management programme seeks to minimise potential adverse effects on the Group's financial performance.

(a) Market risk

Foreign exchange risk - The Group has exposure to foreign exchange risk during the periods under review as its cash flows and financial assets and liabilities are mainly denominated in GBP, US$ and RMB and ultimately reported in US$.

Fair value interest rate risk and cash flow risk - The fair values of financial assets and financial liabilities approximate the carrying amounts of those assets and liabilities reported in the statement of financial position.

(b) Credit risk

Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, trade receivables, as well as committed transactions. Individual risk limits are set based on limits set by the board.

(c) Liquidity risk

The overriding financial risk to the PCGE during the year was that of liquidity. At the current stage of the Group's development, major source of funds is likely to be through the injection of new equity capital or a debt facility, or a combination of such sources.

6 Operating segments

PCGE has two operating segments; PCG Entertainment Ltd through its subsidiary company in China is a distributor of media and media related products in Asia; and CPDC which distributes games and gaming services in Asia. All of the central overhead costs have historically been included within the media segment due to the development of the Group in this area. All revenues are derived in Asia and the Group's profit before taxation is derived from its principal activities. The PCGE operations are based in Taiwan and China and its assets and liabilities relate to the two business segments.

The Group's revenue is derived from its principal activities based in Asia, and the directors consider that individual countries within this region have sufficiently similar characteristics and any further country breakdown would be considered immaterial. On this basis no further geographical analysis of revenue has been prepared.

7 Operating loss

8 Staff costs

During the year ended 31 December 2015, excluding Directors, the average number of people employed by the Group was 10 (2014: 9). During the year, the Group paid wages and salaries of US$317,637 (2014: US$ 52,000).

The Company is subject to taxation in respect of all income which is deemed to accrue in or be derived from Gibraltar at the standard rate of corporation tax of 10%.

Taxation of the subsidiaries is recognised based on the rules and regulations in their respective countries of incorporation.

The majority of the Group's operations, income and expenses are in low or zero rated tax jurisdictions, accordingly the Directors view any deferred tax assets or liabilities as being immaterial and no recognition of such assets or liabilities has been made.

Basic loss per share has been calculated by dividing the net results attributable to ordinary shareholders by the weighted average number of shares in issue during the year. Due to the Company and the Group being loss making, the warrants and convertible loan notes are anti-dilutive.

11 Goodwill impairment

Pursuant to a supplemental agreement with the vendors of PCGEL, on 10 October 2014 the Company allotted 105,091,436 Ordinary shares at a premium of GBP 0.029 per Ordinary share, being US$5,242,460. These shares were initially recorded as goodwill and immediately written off to the statement of comprehensive income in the prior year.

Other receivables include US$274,823 (2014 US$ Nil) due from Kolarmy Technology Inc ("Kolarmy"), see note 29 for details of the related party transactions.

13 Cash and cash equivalents

Cash and cash equivalents at 31 December 2015 are represented by cash on hand and in banks.

Investment in Sihai Geju licences:

The Directors of PCGE are of the opinion that there is no impairment in the carrying value of the Sihai Geju licences, accordingly these are carried at their historical cost of US$3,500,000. The licences are subject to an annual renewal by Ministry of Culture of the People's Republic of China, the People's Republic of China Ministry of Industry and Information Technology, and the Beijing Regional Communications Administration Bureau (collectively "the Authorities"). Whilst the renewal is solely at the discretion of the Authorities, it is the Directors' expectation that provided the licence conditions are met annual renewal will be granted.

Due to their expectation of the annual renewal being granted each year and the demand for the licences continuing, the Directors consider that the Sihai Geju licences have an indefinite useful life. They are subject to an annual impairment review accordingly. The application for the renewal of the Sihai Geju licences was lodged in May 2016 and it is normal for the processing of such applications to take a number of months. The Directors expect a wait of three months before the renewal completes, but the Directors have no reason to suppose this will not be completed. As identified at the time of the acquisition of CPDC, the annual renewal of the Sihai Geju licences was a risk factor of the business, but based on the successful historic renewal of these licences, the Directors believe their approach is reasonable.

The annual impairment review of the Sihia Geju licences was made by the Directors based on their value in use and utilised cash flows forecasts for the cash generating units over a period of 10 years. This was prepared using the Directors' experience in the market to determine the key assumptions, being the future revenue projections and the discount factor. Various scenarios were considered by the Directors whereby a 10% and 50% range of discount factors were applied and then expected cash flows were adversely sensitised by up to 50%. The Directors' best estimate, utilising a discount rate of 25%, shows projected asset value in excess of the carrying value of the Sihia Geju licences recognised; the sensitivity analysis conducted utilising a 50% adverse cashflow and a discount rate of 25%, being considered as the worst case scenario reflecting the uncertainty as disclosed in note 4, identifies that the carrying value of the Sihia Geju licences is not materially impaired. The Directors remain of the view that the Sihia Geju licences are fairly stated and no impairment is necessary as at 31 December 2015.

Other intangible assets in respect of gaming licences and customer relationships:

As part of the acquisition of CPDC (as set out in note 24) the Group recognised intangible assets of US$9,950,000. In accordance with IFRS 3 the Directors are obliged to analyse and classify this into its component assets and determine their fair values. This exercise should be completed within one year of acquisition. The Directors have not been able to finalise this assessment and it will be completed in accordance with IFRS 3 in 2016. The Directors have, in these financial statements, included the intangible assets as one asset class with an estimated useful life of 5 years and applied an appropriate amortisation charge which will be corrected in 2016 once the valuation and assessment of useful life has been completed.

The Company has effective control of the following companies: