SJH.L Regulatory News (SJH)

10 February 2016

BOXHILL TECHNOLOGIES PLC

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

Company Update, Internal Restructuring, Change of Year End, Second Interim Results for the 12 months to 31 July 2015 & Update on Acquisition

Boxhill Technologies Plc (AIM:BOX), the AIM quoted lottery, software, gaming and leisure company, announces the following update to shareholders.

Company Update, Internal Restructuring & Change of Year End

The Company acquired Pay Corporation Limited ("PayCorp") in 2013 (see announcement of 13 September 2013) as an element of its strategy of developing a broad range of services within the gaming and lottery sector. As disclosed in note 4 to the annual report and accounts for the year to 31 July 2014, the Company had become aware of an outstanding VAT matter in PayCorp that related to invoices and VAT returns around the time of its acquisition. The Company has been unable to satisfactorily address these issues (which are explained in detail later in this announcement) during the last year, and this would have resulted in a disclaimed audit opinion for the accounts for the year ended 31 July 2015. The Company has therefore taken the following steps to address this matter:

· The business of PayCorp was transferred out of PayCorp within the Group on 29 January 2016.

· The Company's 100% shareholding of PayCorp was transferred to a non-Group company on 29 January 2016.

· The Company's financial year end has been extended to 31 January and the Company is in the process of producing accounts for the 18 months to 31 January 2016 which will be subject to audit (the "Report and Accounts") and which will incorporate these actions (collectively, the "Restructuring").

The Company's ordinary shares of 0.1 pence each ("Ordinary Shares) will remain suspended from trading on AIM until the Company publishes the Report and Accounts. This is in accordance with the AIM Rules for Companies Rule 19 which requires the annual publishing of audited accounts. It is anticipated that the Restructuring will enable the Company to receive an unmodified audit opinion in the Report and Accounts.

Second Unaudited Interim Results for the 12 Months to 31 July 2015

In advance of the publication of the Report and Accounts, the Company announces second unaudited interim results for the 12 months to 31 July 2015.

It was originally anticipated that the Company would release audited accounts for the year to 31 July 2015 (the "2015 Accounts") in January 2016. The Company's auditors provided an audit opinion for the 2015 Accounts on 7 January 2016, which included a disclaimer of opinion for the reasons set out in "Matters that would have resulted in a Disclaimer of Audit Opinion" below.

Due to the wider issues described in the Company Update, Internal Restructuring & Change of Year End section above, and that the 2015 Accounts had not yet been published, the board of directors of Boxhill have concluded that undertaking the Restructuring is in the best interests of the Company.

As a consequence of the Company extending the year end to 31 January 2016, statutory accounts for the year ended July 2015 are not required to be issued by the Company under UK company law and therefore an audit report for the year ended 31 July 2015 is no longer required.

As a result the Directors are today issuing unaudited interim results for the 12 months to 31 July 2015. The Company's Ordinary Shares will remain suspended from trading on AIM under the AIM Rules for Companies, Rule 19, until the Report and Accounts are published.

Shareholders' attention is drawn to the matters that would have resulted in a disclaimer of opinion in the Independent Auditors Report if the Restructuring had not been undertaken. An explanation regarding these matters can be found below.

Financial Highlights

· Revenue on continuing activities increased by 46% to £2,064,000 (2014: £1,410,000)

· EBITDA of £655,000 (2014: EBITDA loss of £172,000)

· Bank and other borrowings reduced to £18,000 (2014: £489,000)

Operational Highlights

· Completion on 31 January 2016 of the agreement to acquire Emex to further grow and develop the operations within the payment processing division (see announcement of 2 December 2015)

· Completion of the state-of-the-art Harvey Hadden Sports Village in Billborough, Nottingham ("HHSV") reopened in September 2015, which includes the company's five-a-side business, allowing that business to resume under the new joint venture (see the announcement of 30 October 2015)

· The lottery business has made good progress as it continues to assist over 900 lotteries with their fund raising

Matters that would have resulted in a Disclaimer of Audit Opinion

Shareholders should note below the matters highlighted by the Company's independent auditors that would have resulted in their disclaimer of opinion as the Restructuring had not been undertaken before 31 July 2015 (the Company's original year end). The matters involve a potential VAT liability of £1.218m within PayCorp, a wholly-owned subsidiary of the Company, dating back to 2013, and in turn the ability by that subsidiary or Boxhill to reclaim that potential VAT liability from third parties from whom it is due. Professional advice has been received by the Company to deal with these matters.

As further background for shareholders this matter has arisen following two VAT repayment claims made by PayCorp in the latter part of 2013 and details were set out in the Company's annual report and accounts for the year to 31 July 2014. An equivalent sum was paid out by PayCorp to non-Group companies immediately following receipt of these monies from HMRC by PayCorp. The consolidated statement of financial position of the Group includes this amount as both an asset and a liability. The Company however does not currently have any visibility on the recoverability of the full amount from the third parties. Legal advice received is that PayCorp would seek to recover the liability from the vendor of PayCorp (under the terms of the sale and purchase agreement entered into with the vendor), prior directors of PayCorp, and de facto Directors of PayCorp (who were appointed or acting as directors of PayCorp at the time these VAT repayment claims were submitted and processed), and against the professional advisors to PayCorp at the time. In light of the uncertainty about the recoverability of this asset and the magnitude of the VAT liability which may be payable to HMRC, the auditors have disclaimed their opinion on this matter.

As detailed in note 4 to the second unaudited interim accounts for the 12 months to 31 July 2015, the Company has sought legal counsel's opinion on this matter which has concluded that the net liability of PayCorp to HMRC is likely to be restricted to a potential VAT penalty which is expected to be more than covered by assets available to the Group. However at this stage it is not possible to quantify any potential VAT penalty since HMRC have not at this stage submitted a claim, and in light of this uncertainty the auditors have disclaimed their audit opinion. The Company has therefore concluded that the Restructuring offers the best option to address this matter.

In last year's accounts the auditors treated this issue as an emphasis of matter. In their opinion, however, the auditors have opined that a disclaimer of opinion would have been included in any audit report issued to the public in respect of accounts prepared to 31 July 2015 given the lack of appropriate audit evidence available to the auditors, this comprising sufficient independent experts' reports being available to quantify the likely VAT penalties that PayCorp could be liable for. Following the transfer of PayCorp to a non-Group company as part of the Restructuring, these issues of uncertainty will not be included in the in the audited consolidated annual accounts for the period to 31 January 2016.

A copy of the second interim unaudited accounts for the 12 months to 31 July 2015 can be found below.

Update on Acquisition

Further to the announcement of 2 December 2015, the Company is pleased to confirm that it has completed on 31 January 2016 the acquisition of Emex (UK) Group Limited, and the associated company, FreePayMaster Limited (collectively, "Emex"). Emex has developed software for peer to peer payments, money transfer and trade services, crowd funding and accounts for individuals and businesses, and is already a significant supplier to the Company and will now form the cornerstone of the Payments Division. The transaction is expected to make a significant positive contribution in the current financial year based on servicing Payment Division's current contracted business. Longer term, the efficiencies from vertical integration and cross-selling will provide further opportunities for growth.

While Emex has been actively building its business in these areas for the last three years, it has begun to grow rapidly since commencing business with the Group in June 2015. Current monthly sales for Emex have grown to £25,000 per month, of which approximately 90% are made to the Group, and as a result, the Group expects to see significant improvements to the profit margin of the Payment Division by bringing Emex within the Group. For the year to 30 September 2014, EmexConsult Limited (the main operating entity of the Emex acquisition and the only constituent to have yet produced annual accounts) made a loss of £13,435 for that year.

As the Company cannot issue new Ordinary Shares while its Ordinary Shares remains suspended from trading on AIM, the consideration for Emex is £1.6m of 0% unsecured, undated, convertible loan stock, which will compulsorily convert into 400,000,000 Ordinary Shares within 14 days of the Company's Ordinary Shares returning to trading on AIM (the "Loan Stock"). The assets of Emex on acquisition are estimated at £100,000, so approximately £1.5m will be recorded as goodwill on the consolidated accounts of the Group. The final numbers for this will be disclosed in the Report and Accounts. No debt other than trade creditors in the ordinary course of business is being assumed by the Group as part of the acquisition. There are 9 vendors of Emex, none of whom are either related parties under the AIM Rules for Companies or will own 3% or more of the Company's Ordinary Shares on conversion of the Loan Stock.

For further information contact:

Boxhill Technologies PLC 020 7493 9644

Philip Jackson, CEO

Website www.boxhillplc.com

Allenby Capital Limited (Nomad & Broker)

Nick Harriss/Nick Athanas/John Depasquale 020 3328 5656

Chairman's Report

Second Interim Results for the 12 months ended 31 July 2015

Operating and Financial Review

The Company has continued to develop its payments business, the growth of this business has brought about a welcome return to profitability. The future brings, with the completion of the acquisition of Emex (UK) Group Limited (EMEXPAY) and FreePayMaster Limited, a complete offering in the FinTech space.

Financial Summary

In my review of the six-month figures to 31 January 2015 the Group made profit before tax £298,000. I am pleased to report that for the 12 months to 31 July 2015 the Group made a profit before tax of £633,000 compared to a loss before tax of £187,000 in the year ending 31 July 2014. In summary the Group performance was as follows:

Revenue £2,064,000

Operating Profit before interest £626,000

Interest receivable £7,000 (nil payable)

Profit from ordinary activities £633,000

The significant progress made in revenue growth and gross profit demonstrates the Board's focus on building a sustainable business, no doubt helped by our small team of dedicated staff. The biggest contributor is the payment software business and this is where the Board believes we are only just beginning on a journey toward building a significant player in the exciting FinTech sector. The lottery business remains steady, and has seen some behind the scenes improvements in both the technology it relies upon and the day to day functioning of the business. It is now well placed for growth.

In note 4 to the annual report and accounts for the year to 31 July 2014, reference was made to a matter relating to a subsidiary company and a possible liability for VAT and an equivalent amount due from debtors. The auditors concerns therein relates to proof of recoverability of this amount from those recipients and others and the relating liability to HMRC. The matter is not a liability of the parent company but falls to be treated within the Group by reason of the liability resting with, and solely with, a wholly owned subsidiary.

The Board has taken Counsel`s opinion and the accounts have been prepared in accordance with this advice, and subsequently undertaken the Restructuring. The circumstances of this matter are further explained in Note 4 "Other Payables and Other Receivables". 

Operational Summary

The Board has delivered on its promise of profitability. The Company has also subsequently aquired EMEXPAY and FreePayMaster Limited. EMEXPAY was a supplier of acquiring services to the Company, bringing further services to the group and widening the appeal to our customers. There are, at the time of writing, several significant opportunities that the Company would have had to pass over before the merger of these complimentary businesses. We expect a significant and immediate contribution to the Group as a result of this exciting acquisition.

Prize Provision Services Limited, which operates The Weather Lottery, has performed in line with expectations and continues to play an important role in raising funds for hundreds of small charities and non-profit organisations. This year we saw a jackpot winner. Since incorporation and to date the Company has paid out prizes to the value of £4.9m and has raised £5.4m for good causes. The opportunity remains to support good causes at grass root level, a gap created when the National Lottery announced it will only support sports at an elite level.

Outlook

The payments division continues to win new customers across all areas of eCommerce. The move into working with channel sales partners has bought a number of large customers who previously may not have been accessible to the Company. With the additional services offered by EMEXPAY and FreePayMaster Limited we can now offer a more complete set of payment services to customers, opening up new revenue opportunities. We expect the merger to bed in quickly as the Company was working closely with EMEXPAY already. Fees paid to EMEXPAY for their services are of course now revenue for the Group. We expect a minimum contribution of £0.5m based on fees paid by PayCorporation Limited to EMEXPAY alone, as well as other indirect benefits such as software and escrow management support for the roll out of Casino Cash products.

The Board will continue its focus on managing costs and realising the additional value that the enlarged business will bring about. It has delivered on its promise made last year of returning to profitability and this year sees the challenge of building upon a hard but rewarding year and delivering shareholder value through the acquisition and continuing growth in the payments business. The joint venture with Soccerdome secures its future and will bring about a modest income and save approximately £200,000 in capital cost, and again allows the management team to focus on the core businesses.

Lord E T Razzall

Chairman

CONSOLIDATED INCOME STATEMENT

For the 12 months ended 31 July 2015

All of the profit for the period is attributable to equity holders of the Parent Company.

The Group has no recognised gains or losses for the year other than the profit for the current year.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

For the as at 31 July 2015

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 12 months ended 31 July 2015

As described in the accounting policies, bank overdrafts and borrowings repayable on demand fluctuate from being positive to overdrawn and are considered an integral part of the Group's cash management for cash flow statement purposes.

There is no material difference between the fair value and the book value of cash and cash equivalents.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the 12 months ended 31 July 2015

1. General Information

Boxhill Technologies PLC is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is 39 St James Street, London, SW1X 1JD. The nature of the Group's operations and its principal activities are described in the Directors' Report.

These financial statements are presented in Pounds Sterling because that is the currency of the primary economic environment in which the Group operates.

2. Adoption of new and revised International Financial Reporting Standards

In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (the IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for accounting periods beginning on or after 1 August 2014.

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:

These Standards and Interpretations are not expected to have any significant impact on the Group's financial statements in their periods of initial application.

3. Significant accounting policies

Basis of accounting

The financial statements, upon which this financial information is based, have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs).

The financial information has been prepared on a going concern basis, as at 31 July 2015, in accordance with International Financial Reporting Standards ("IFRSs") as issued by the International Accounting Standards Board ("IASB") as well as all interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC"). The Group has not availed itself of early adoption options in such standards and interpretations.

The financial statements, upon which this financial information is based, have been prepared under the historical cost basis except where specifically noted. The principal accounting policies adopted are set out below:

Going concern

The financial statements have been prepared on a going concern basis notwithstanding the profit for the financial year.

The Directors' cash flow forecasts indicate that the Group will be able to operate within its existing bank facilities in the future. As with any business, there are uncertainties in the forecast, but as at the date of approval of these financial statements the Directors are unaware of any indications that would suggest inappropriate assumptions have been made in relation to trading volumes. As a result of these, the Directors are of the opinion that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and have continued to adopt the going concern basis in preparing the financial statements. The financial statements do not include any adjustments which would result from this basis of preparation being inappropriate.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 July each year. Control is achieved where the Company has the power to govern the financial and operating policies so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the Consolidated Income Statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Business combinations

The purchase method of accounting is used for all acquired businesses as defined by IFRS 3 - Business Combinations.

As a result of the application of the purchase method of accounting, goodwill is initially recognised as an asset being the excess at the date of acquisition of the fair value of the purchase consideration plus directly attributable costs of acquisition over the net fair values of the identifiable assets, liabilities and contingent liabilities of the subsidiaries acquired. Where fair values are estimated on a provisional basis they are finalised within 12 months of acquisition with consequent changes to the amount of goodwill.

Intangible assets

Identifiable intangible assets acquired as part of a business combination are initially recognised separately from goodwill if the assets fair value can be measured reliably, irrespective of whether the asset had been recognised by the acquirer before the business combination was affected. An intangible asset is considered identifiable only if it is separable or arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.

Intangible assets relate to the development of the lottery and on-line gaming (software and related costs). It is considered that the software has a finite useful life and amortisation has been calculated so as to write off the carrying value of it over its useful economic life of 5 years.

Goodwill

Goodwill arising on consolidation represents the excess cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed.

For the purpose of impairment testing, goodwill is allocated to each of the Group's cash generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication of impairment. The amount of the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Negative goodwill arising on consolidation is credited to the income statement where the Directors consider that the fair value of the assets is reliable and do not need adjustment and that the negative goodwill relates to a true bargain purchase.

Revenue recognition

Lottery turnover represents takings received for entry into the lottery prize draws. Revenue is recognised upon receipt of the money for the period that the draw takes place. Football pitch turnover represents cash takings received. Payment processing turnover is recognised when transactions are processed.

Taxation

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

The tax currently payable is based on taxable profits for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that is no longer probable that sufficient taxable profits will be available to allow all, or part, of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Useful lives are reviewed annually by the Directors.

Depreciation is charged so as to write off the cost or valuation of assets over their estimated useful lives using the straight-line method, on the following bases:

Property - 5% per annum

Fixtures, fittings and equipment - 25% per annum

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income. Where there is evidence of impairment, fixed assets are written down to their recoverable amount.

Leased assets

Rentals payable under non-onerous operating leases are expensed in the income statement on a straight-line basis over the lease term.

Impairment of tangible and intangible assets excluding goodwill

At each balance sheet date, the Group reviews the carrying amounts of its 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). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair values less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimate of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Foreign currencies

The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in Pounds Sterling, which is the functional currency of the Group, and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's function currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical costs in a foreign currency are not retranslated.

Exchange differences are recognised in profit or loss in the period in which they arise.

Share based payments

Other than for business combinations, the only share based payments of the Group are equity settled share options and certain liability settlements. The Group has applied the requirements of IFRS 2 - Share-based Payments.

For share options granted an option pricing model is used to estimate the fair value of each option at grant date. That fair value is charged on a straight line basis as an expense in the income statement over the period that the holder becomes unconditionally entitled to the options (vesting period), with a corresponding increase in equity.

For shares issued in settlement of fees and/or liabilities, the Directors estimate the fair value of the shares at issue date and that value is charged on a straight line basis as an expense in the income statement (for fees) or reduction in the balance sheet liability (for liabilities) with a corresponding increase in equity.

Inventories

Inventories are stated at the lower of cost and net recognised value. Cost comprises direct materials using the first in first out (FIFO) basis. Net recognised value represents the estimated selling price less estimated costs of completion, marketing and selling.

Cash and cash equivalents

Cash and cash equivalents comprise of cash on hand and demand deposits and are subject to an insignificant risk of changes in value.

Trade 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 profit and loss 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 compound at initial recognition.

Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.

Financial liability and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual agreements 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 are recognised at the amount of proceeds received net of costs directly attributable to the transaction. To the extent that those proceeds exceed the par value of the shares issued they are credited to a share premium account.

Bank borrowings

Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis in profit or loss using effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Trade payables

Trade payables are not interest-bearing and are stated at their nominal value.

Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

4. Critical accounting judgements and key sources of estimation uncertainty

In application of the Group's accounting policies above, the Directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities. These estimates and assumptions are based on historical experience and other factors considered relevant. Actual results may differ from estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period which the estimate is revised if the revision affects only that period or in the period of the revision and future payments if the revision affects both current and future periods.

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, 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.

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of cash generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.

Share-based payments

Share-based payments are measured at grant date fair value. For share options granted to employees, in many cases market prices are not available and therefore the fair value of the options granted shall be estimated by applying an option pricing model. Such models need input data such as expected volatility of share price, expected dividends or the risk-free interest rate for the life of the option. The overall objective is to approximate the expectations that would be reflected in a current market price or negotiated exchange price for the option. Such assumptions are subject to judgements and may turn out to be significantly different to expected.

Other Payables and Other Receivables

As at 31 July 2015 a subsidiary of the Group ("the Subsidiary") had a potential VAT liability of £1.2m and potential debtors of an equivalent value. This potential VAT liability arose from two repayment claims in the latter part of 2013. An equivalent sum was paid out to non-Group companies immediately following receipt of these monies. In the event that any potential claim is made it is unlikely that those recipient companies have the resources to repay the funds to the Subsidiary. The Director of The Subsidiary has been advised that legal claims exist against prior Directors and de facto Directors of the Subsidiary who were appointed or acting at the time these VAT repayment claims were submitted and processed, and, importantly, against the professional advisors to the Subsidiary at the time. The Subsidiary or the Group made no net gain from these transactions. The Directors of the Subsidiary and Boxhill Technologies PLC have sought Counsel's opinion on this matter. Legal opinion received is that the Subsidiary's liability to HMRC will be restricted to the greater of a penalty charge and the amount recovered from the recipient companies and the professional advisors. Separately the Subsidiary has a claim against third party assets with a current value of approximately £325,000. Therefore Counsel's opinion received is that the Subsidiary's net liability will be restricted to a potential VAT penalty which will be more than covered by the available assets. The Group accounts have therefore been prepared on this basis.

5. Segment analysis

The primary reporting format is by business segment, based on the different services offered by the operating companies within the Group. The Directors consider that the Group now has three business segments, namely that of lottery administration, IT payment facilities and Astroturf football pitches. The Group operates solely in one geographical area, the United Kingdom.

The Directors consider that the on-line gaming segment and part of the payment processing segment are classed as discontinued during the period

The analysis of continuing operations per segment for the 12 months ended 31 July 2015 is as follows:

5. Segment analysis (continued)

The following table analyses assets and liabilities not allocated to business segments as at 31

July 2015:

6. Expenses

The following material expenses are included in cost of sales:

6. Expenses (continued)

The following material expenses are included in administrative expenses:

7. Operating profit

Operating profit has been stated after charging/(crediting) the following:

As permitted by Section 408 of the Companies Act 2006, the holding company's profit and loss account has not been included in these financial statements. The profit/(loss) for the period after taxation was £602,000 (2014: (£662,000)).

8. Discontinued activities

9. Personnel costs

Included within Directors' emoluments is £57,000 (2014: £54,000) paid to directors via related companies, as detailed in note 27.

10. Finance income and costs

11. Income taxes

12. Earnings per share

The calculation is based on the earnings attributable to ordinary shareholders divided by the weighted average number of Ordinary Shares in issue during the period as follows:

In June 2010 the Company issued 24 million options to subscribe for Ordinary Shares of 0.1p each. At the year end 8.1 million options were outstanding. None of these options were exercised in either the prior or the current period, but had they been they would have increased the weighted average number of equity shares to 1,460,452,425 (2014: 1,111,320,540) and this amount is used in the calculation of diluted earnings per share.

13. Goodwill

Included within goodwill is an amount relating to the subsidiaries Prize Provision Services Limited and PayCorporation Limited. The carrying amount for goodwill for these respective subsidiaries is £158,000 and £460,000 respectively.

The principal assumptions made (in both 2015 and 2014) in determining the value in use of the cash-generating unit were:

• Basis on which recoverable amount determined - value in use;

• Period covered by management plans used in calculation - 1 year;

• Pre-tax discount rate applied to cash flow projection - 5%;

• Growth rate used to extrapolate cash flows beyond management plan - 3%;

• Difference between above growth rate and long term rate for UK - 0.5%

The calculation of value in use shown above is most sensitive to the assumptions on discount rates and growth rates. The assumptions used are considered to be realistically achievable in light of economic and industry measures and forecasts. The Directors believe that any reasonable possible change in the key assumptions on which the recoverable amount is based would not cause its carrying amount to exceed its recoverable amount.

13. Goodwill (continued)

Whilst there can be no certainty that the forecasts used in the impairment calculation will be achieved, the carrying value of goodwill at 31 July 2015 reflects the Directors best estimate based on their knowledge of the business at 8 January 2016 and reflects all matters of which the Directors are aware as at the date of approval of these financial statements.

14. Other intangible assets

15. Property and office equipment

16. Subsidiaries

Details of the company's subsidiaries at 31 July 2015 are as follows:

17. Inventories

18. Other financial assets

The average credit period taken on all sales is 58 days for the year ended 31 July 2015, 0 days for the 12 months ended 31 July 2014.

The Group has provided fully for all receivables which are not considered recoverable. In determining the recoverability of all receivables, the Group considers any change in the credit quality of the receivable up to the reporting date. (See note 4 under estimation uncertainty on page 25).

The Directors consider that the carrying amount of the receivables approximates their fair value.

Cash and cash equivalents

Cash and cash equivalents comprises cash held by the Group and short-term bank deposits with an original maturity of 6 months or less. The carrying amount of these assets approximates their fair value.

19. Borrowings

Borrowings at 31 July 2015 include loans of £18,000 (2014: £489,000).

A separate loan amount included of approximately £11,000 is repayable on a fixed monthly repayment basis and due for settlement within 12 months.

20. Derivatives financial instruments and hedge accounting

At 31 July 2015 and 2014 the Group had no derivatives in place for cash flow hedging purposes.

21. Other financial liabilities

Trade and other payables

Accrued liabilities and deferred income represents miscellaneous contractual liabilities that relate to expenses that were incurred, but not paid for at the year end and income received during the period, for which the Group had not supplied the goods or services at the end of the year.

The Directors consider that the book value of trade payables, accrued liabilities and deferred income approximates to their fair value at the balance sheet date.

The average credit period taken for trade purchases is 120 days (2014: 91 days).

22. Financial instruments: information on financial risks

Financial risks are discussed in the Directors' Report and below.

Capital risk management

The Group manages its capital to ensure that the Group as a whole will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 19, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 24 to 25.

Gearing ratio

As at 31 July 2014 the Group gearing ratio was 46.95%. As at 31 July 2015 the gearing ratio is as follows:

Debt is defined as long and short-term borrowings.

Equity includes all capital and reserves of the Group attributable to equity holders of the parent.

Financial risk management objectives

The main market risks to which the Group is exposed are interest rates. There is also exposure to credit risk and liquidity risk. The Group monitors these risks and will take appropriate action to minimize any exposure.

Credit risk

The Group's exposure to credit risk is minimal due to turnover being in the main recognised upon cash receipt, hence the amount of trade receivables is negligible.

Liquidity risk

Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

22. Financial instruments: information on financial risks (continued)

Regulatory compliance risk

Regulatory compliance risk is the risk of material adverse impact resulting from failure to comply with laws, regulations, codes of conduct or standards of good practice governing the sector in which the Group operates. The Group is monitored by the financial director who is responsible for meeting regulatory and compliance obligations.

Interest rate risk

The Group's exposure to interest rate risk mainly concerns financial assets and liabilities, which are subject to floating rates in the Group. At present the Group's loans are on fixed rate interest rates and hence it is not exposed to risk on these should rates move.

23. Deferred taxation

A deferred tax asset has not been recognised in the years ended 31 July 2015 nor 31 July

2014 in respect of taxable losses carried forward of approximately £770,000 (2014: £770,000) as there is insufficient historic evidence that it will be recoverable in full against taxable profits during the next 12 months.

There are not considered to be any material temporary differences associated with investments in subsidiaries for which deferred tax liabilities have not been recognised.

24. Equity share capital

During the year the Company issued 0.1p Ordinary shares as follows:

· 28,846,154 shares issued at 0.1625p each to Bay Capital for loan conversion.

25. Other reserves

26. Share-based payments

Certain Directors and key management were issued with share options on 8 June 2010, exercisable immediately at a price fixed at the date of issue. If the options remain unexercised after a period of seven years from the date of grant the options expire.

Details of options granted to date and still outstanding at the end of the year are as follows:

All of the above options were outstanding at the year end. The options had a weighted average exercise price of 1p and a remaining contractual life of 1.8 years. The Directors consider that the estimated fair values of the options at grant date was £nil due to the prevailing market price being lower than the exercise price. As the fair value is currently considered to be £nil, no amount has been recognised in either the income statement or in equity in respect of these options.

27. Transactions with related parties

The transactions set out below took place between the Group and certain related parties.

Lord E T Razzall

Lord E T Razzall, a director, charged the Group £24,000 (2014: £24,000) in the year, for directorship services provided, via an entity trading as R T Associates. At the year end R T Associates was owed £21,200 (2014: £9,600).

Andrew J A Flitcroft

Andrew Flitcroft, a director, charged the Group £33,000 (2014: £30,000) in the year, for directorship and company secretarial services provided, via an entity FS Business Limited. At the year end FS Business Limited was owed £47,850 (2014: £23,100).

Mr Flitcroft is a director of SVS Securities PLC, during the year the Group earned fees of £9,228 (2014: £nil) from SVS Securities PLC.

Philip I Jackson

During the period Philip Jackson was a director of EuPay Group Limited and PhilliteD Limited. During the year the Group earned fees from EuPay Group Limited and PhilliteD Limited of £1,024,370 and £416,952 respectively (2014: £695,818 and £nil). At the year end the Group was owed £224,108 and £109,643 from EuPay Group Limited and PhilliteD Limited respectively (2014: £nil and £nil).

James Rose

James Rose is a director of Prize Provision Services Limited ("PPSL") a wholly owned subsidiary of Boxhill Technologies PLC. During the year James Rose charged PPSL £60,000 for consultancy services via an entity 1912 Management Limited (2014: £65,000). At the year end 1912 Management Services Limited was owed £90,000 (2014: £78,000).

Remuneration of key management personnel

The remuneration of the Directors, who are the key management personnel of the Group, is as referred to above, and on page 8 within the Directors Report and in Note 9.

Issue of Equity

As referred to in Note 26, share options were granted in 2010 to Directors and key management, all of which were outstanding at the year end. The following options were held by the Directors and key management at the year end:

A - 1,100,000 at 0.75p, 1,100,000 at 1p and 1,100,000 at 1.25p

B - 1,600,000 at 0.75p, 1,600,000 at 1p and 1,600,000 at 1.25p

All of the options are exercisable by 2 June 2017.

28. Operating lease commitments

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

Operating lease payments represent rentals payable by the Group for office premises. Leases are negotiated over the term considered most relevant to the individual subsidiary and rentals are fixed where possible for that term.

29. Controlling Party

No single individual has sole control of the company.

30. Events after the balance sheet date

On 2 December 2015 the Company announced that it had agreed heads of terms to acquire Emex (UK) Group Limited, and the associated company, FreePayMaster Limited (collectively, "Emex"). These acquisitions were completed on 31 January 2016. Emex has developed software for peer to peer payments, money transfer and trade services, crowd funding and accounts for individuals and businesses, and is already a significant supplier to the Company's Payments Division.

On 29 January 2016 the business of PayCorp was transferred out of PayCorp to within the Group, also on this date, a corporate restructuring exercise took place and the Company's 100% shareholding of PayCorp was transferred to a non-Group company.

The Company's year end has been extended from 31 July 2015 to 31 January 2016, therefore audited accounts for the eighteen month period ended 31 January 2016 will be prepared.

31. Going Concern

The Group made an after taxation profit for the 12 months to 31 July 2015 of £503,000 (2014: loss for the year of £683,000) and an EBITDA profit of £655,000 (2014: loss of £172,000).

The management have controlled costs and continued with the expansion of the business based on past acquisitions to produce a profitable Group of companies in the year ended 31 July 2015. The Group is forecasting further turnover growth and improved profitability in the forthcoming year.

Given the trading results for 2015 and expected continuing and improving profitability for 2016, together with the additional capital available from the supporting shareholders, the Directors consider that the Group continues to be a going concern and they forecast that that there is sufficient funding in place to enable the continuance of the Group.