Pcg Entertainment Plc Regulatory News (PCGE)

Embargoed for release 07:00 30 September 2015

PCG Entertainment PLC

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

PCG Entertainment Plc / Index: AIM / Epic: PCGE 

Interim Results for the six month period ending 30 June 2015

PCG Entertainment Plc (AIM: PCGE), the AIM listed Asia-Pacific gaming and media company today announces its interim results for the six months ending 30 June 2015.

A summary of the interim report and accounts is set out below. The full report and accounts are available to view on the Company's website www.pcge.com

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Chief Executive Officer's Statement

I am pleased to announce interim results for PCG Entertainment plc ("PCGE") that include revenue generated from our recent acquisition of Center Point Development Corporation ("CPDC"). This business was acquired with an effective acquisition date of 16 June 2015, and the results since that date have been consolidated in accordance with IFRS 3. The transaction was the subject of an announcement on 11 August 2015 and was approved by resolution by the shareholders at a general meeting. On 28 August 2015, the enlarged share capital was admitted to AIM.

Revenue of US$745,220 was earned between 16 June 2015 and 30 June 2015. This generated a gross profit of US$256,714 which, after expenses, nets to US$221,086. PCGE anticipate ongoing revenues from CPDC, and look forward to these revenues being reflected in our year-end results.

It has been an active year with PCGE listing on AIM less than a year ago in December 2014, a temporary suspension under Rule 14 of AIM Rules in February 2015 and then readmission in August 2015 following the reverse takeover of CPDC.

Interim Results' Highlights include:

1. Group cash balances at 30 June 2015 of US$719,617 (2014: US$538,420)

2. The loss for the Group is US$2,482,669 (2014: US$114,802) after charging readmission costs of US$1,176,000

3. The CPDC acquisition although completed in August 2015 has been accounted for under IFRS 3 from 16 June 2015, the date of acquisition agreed in the Sale and Purchase Agreement

4. Revenue of US$745,220 was earned and gross profits have been earned by the CPDC acquisition from 16 June 2015 to 30 June 2015 of US$256,714 which after expenses nets to US$221,086

In line with PCGE's stated strategy, the Company is focused on the development of business in the media and gaming industry across the Asia-Pacific region. We aim to continue growth through further acquisition and exploitation of our licenses in China, and the acquisition of CPDC represents a transformational first step in the process.

The media and gaming sectors are among the fastest growing in China. McKinsey calculated that China's online gaming market, valued at US$18bn in 2014, will grow substantially to over US$22bn over the coming year. PCGE offers safe, transparent exposure to this sector for western investors.

Nicholas Bryant

Director, CEO

Date: 30 September 2015

Consolidated Income Statement

for the half year from 1 January 2015 to 30 June 2015

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

Consolidated Statement of Comprehensive Income

for the half year from 1 January 2015 to 30 June 2015

Consolidated Statement of Changes in Equity

for the half year from 1 January 2015 to 30 June 2015

Consolidated Statement of Cash Flows

For the half year from 1 January 2015 to 30 June 2015

Notes

1 Basis of preparation

These interim financial statements for the six months ended 30 June 2015 have been prepared in accordance with IAS 34 'Interim financial reporting'. The interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2014 which have been prepared in accordance with IFRSs as adopted by the European Union.

The operations of PCG Entertainment Plc ("PCGE") are not affected by seasonal variations.

The directors do not recommend the payment of a dividend (30 June 2014: US$ nil).

Non-statutory accounts

The financial information for the six months ended 30 June 2015 set out in this interim report does not comprise the Group's statutory accounts.

Audited consolidated financial information for the year ended 31 December 2014 has been extracted from the consolidated financial information on the Group for the year then ended. Abridged accounts for the Company have been filed in Gibraltar.

The financial information for the six months ended 30 June 2015 and 30 June 2014 is unaudited.

Segmental Analysis

The PCGE Group is a provider of gaming services in Asia. The PCGE Group's revenue and profit before taxation will be derived from its principal activity. Revenues will be derived from external customers based in Asia. The PCGE Group's operations are based in Asia and its assets and liabilities relate to this single business segment.

Basic loss per share have been calculated by dividing the net results attributable to ordinary shareholders by the weighted average number of shares in issue during the period as disclosed in note 12. Due to the Group being loss making, the warrants and convertible loan notes are anti-dilutive.

4 Goodwill impairment

Pursuant to a supplemental agreement with the vendors of PCG Entertainment Limited, a company incorporated in Hong Kong, on 10 October 2014 the Company allotted 105,091,436 ordinary shares at a premium of £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.

5 Readmission costs

Further to negotiations relating to the acquisition of CPDC as per note 6, under AIM rule 14 this acquisition is classified as a reverse takeover since the turnover of CPDC exceeds that of the Group. Consequently the ordinary shares of the Company were suspended on 13 February 2015. The Company proposed to apply for the readmission of the enlarged share capital (note 17) to trading on AIM. These shares were readmitted on 28 August 2015 and costs in relation to the readmission amounted to US$1,176,000.

6 Acquisition of CPDC

In January 2015, the Group commenced negotiations to acquire Center Point Development Corp ("CPDC"), a Belize-registered distributor of online games management software from Kolarmy Technology Ventures Inc. The Group acquired a call option in February 2015 to acquire CPDC at a price of up to US$20,000,000. The option is 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 is to be satisfied by the issue of initial consideration shares of 114,811,491 together with a contingent consideration arrangement. The net assets on acquisition of CDPC was based on the net assets of US$18,264,000 as at 16 June 2015 which equates to the total consideration transferred, therefore no goodwill arising.

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.

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$0 and US$10,000,000.

The fair value of the contingent consideration arrangement of US$10,000,000 was estimated by applying the income approach. The fair value measurement is based on significant inputs that are not observable in the market, which IFRS 13 Fair Value Measurement refers to as Level 3 inputs. Key assumptions include a discount rate range of 10 per cent and assumed probability-adjusted net profits in CPDC of US$29,136,000.

As of 30 June 2015, neither the amount recognised for the contingent consideration arrangement, nor the range of outcomes, nor the assumptions used to develop the estimates had changed. The fair value of the acquired identifiable intangible assets of US$18,214,000 is provisional pending receipt of the final valuations for those assets.

8 Intangible assets

The Directors of PCGE are of the opinion that the licences which have been put in place are worth US$3,500,000 and accordingly have recognised an asset in the consolidated financial statements. The Directors consider that the intangible assets have an indefinite useful life and therefore are subject to an annual impairment review.

Management are in the process of conducting an exercise to identify the classes, fair value on acquisition and useful economic lives of intangible assets obtained on acquisition of CPDC. This exercise is expected to be completed for the 2015 year end. For the purposes of preparing these interim financial statements management have estimated there to be one class of intangible asset (Customer relationships), with a value estimated to be the difference between identifiable net assets upon acquisition and consideration of US$18,214,000, with an estimated useful life of five years.

11 Non-current liabilities

Deferred acquisition consideration represents amounts credited for the contingent consideration arrangement as per note 6, until the consideration shares are issued, when the amounts are taken into share capital and premium.

Included within other payables are amounts payable to Kolarmy Technology Ventures Inc ("Kolarmy") of US$1,590,165. The amount due to Kolarmy relates to a loan note of US$1,000,000 ("the Loan Note") and the remainder relate to short term payables, including the assignment of balances which were repaid on 16 January

2015.

The Loan Note bears interest at 6% and is repayable by 5 May 2016, or any earlier time at the discretion of the Company. A conversion option allows Kolarmy to demand that the Loan Note be settled by the allotment of ordinary shares, based on the average closing price of the Company's shares in the preceding five days of trading prior to the date of Kolarmy's notice to the Company.

During the period and comparative period, the company issued the following shares:

(a) 10,000,000 ordinary shares at a premium of nil per share on 17 September 2014 in consideration of consultancy services provided by Ashton Nominees Inc.

(b) 107,100,000 ordinary shares at a premium of 0.0617p per share on 10 October 2014 in consideration of advisory services provided by Kaitian Investment Company Limited (85,680,000 shares), Jingo Investments Limited (10,710,000 shares) and Zippy Management Limited (10,710,000 shares).

(c) 105,091,436 ordinary shares at a premium of 2.9p per share on 10 October 2014 as additional consideration in respect of the acquisition of Hong Kong Strategic Services Limited.

(d) 1,666,667 ordinary shares at a premium of 5.9p per share on 28 November 2014 in consideration of services provided by Yorkville Advisors, LLC in relation to the Company's admission to the AIM market.

(e) 56,833,334 ordinary shares at a premium of 5.9p per share on admission to the AIM market on 28 November

2014 in consideration of GBP 3.41 million.

(f) 31,456,433 ordinary shares at a premium of 5.9p per share issued to enable the acquisition of 10% of Hainan Huan'ao Culture Media Co., Limited ("HPC") and Hainan Huan'ao Sports Industry Co., Limited ("HLC"), both companies incorporated under the laws of the People's Republic of China. These shares, while admitted for trading to AIM, remain in the custody of PCGE until the acquisition of HPC and HLC complete, and therefore have been recorded within issued shares reserve.

13 Share premium

The share premium arises during the period as a result of the issue of shares detailed in note 12.

14 Equity to be issued reserve

Equity to be issued reserve represents amounts credited for the initial consideration as per note 6, until the consideration shares are issued, when the amounts are taken into share capital and premium. The 114,811,491 ordinary shares were issued at a premium of 5.15p per share on 28 August 2015 as per note 17.

15 Share based payments

The Company issued warrants to service providers on 28 November 2014 in connection with its admission to AIM ("Service Provider Warrants"). Each warrant is convertible into one new ordinary share at an exercise price of 6p per share and may be exercised between 4 December 2014, being the date of admission to AIM, and 4 December

2019.

The Company also granted two warrants for every ordinary share subscribed for on the date of admission to AIM ("Subscriber Warrants").

Details of the warrants in issue during the period ended 30 June 2015 are as follows:

There were no warrants in issue as at 30 June 2014.

Fair value of the Service Provider Warrants is measured by use of the Black & Scholes model with the assumption of 60% future market volatility, future interest rate of 5.6% per annum and no dividend yield It is also assumed that the warrants will be exercised within one year of issue. The fair value of the Service Provider Warrants granted was US$309,408. (30 June 2014: US$nil).

The issue of Subscriber Warrants do not fall under the scope of IFRS 2 'Share Based Payments' and therefore no fair value exercise has been undertaken.

16 Issued shares reserve

The Group entered into an agreement ("Framework Agreement") which grants SihaiGeju an option to purchase 10 per cent. of the equity of each of Hainan Huan'ao Culture Media Co., Limited ("HPC") and Hainan Huan'ao Sports Industry Co., Limited ("HLC") for US$3,000,000 payable in cash and/or shares (the "Option Right"). SihaiGeju despatched notice to exercise the Option Right in December 2014, with 31,456,433 new ordinary shares issued at a premium of 5.9p per share and admitted for trading on AIM pursuant to the terms of the Framework Agreement.

These shares, while admitted for trading to AIM, remain in the custody of PCGE until the acquisition of HPC and

HLC complete, and therefore have been recorded within issued shares reserve.

17 Events after the reporting period

The acquisition of CPDC as per note 6 was to be satisfied by an issue of initial consideration shares and a maximum deferred consideration of US$10,000,000, which is to be satisfied by the issue of further consideration shares. The acquisition was conditional on the passing of a resolution by the shareholders at a general meeting and admission of the enlarged share capital to the AIM. On 28 August 2015, the resolution was passed and the enlarged share capital admitted to AIM. 114,811,491 ordinary shares of 0.1p each was issued to the vendor, as well as

3,145,642 ordinary shares issued to the vendor in respect of the conversion of a loan note of US$300,000 and

333,333 ordinary shares were issued to damson pr in consideration for public relations services to the Company. Since the admission of the enlarged share capital to trading on AIM, the Company has a total issued share capital of 1,180,438,344 ordinary shares.

18 Distribution of the Interim Report

Copies of this announcement may be obtained from the Company Secretary at the registered office: G1 Haven

Court, 5 Library Ramp, Gibraltar.