STR.L Regulatory News (STR)

 16 November 2015

Stride Gaming plc

("Stride Gaming", the "Company", or "the Group")

Preliminary Results

Successful listing on AIM, completed acquisitions and strong organic growth

Stride Gaming plc (AIM: STR), the multi-branded online gaming operator, today announces its preliminary results for the year ended 31 August 2015 ("the period").

Financial highlights

· IPO on AIM on 19 May 2015 raising £11.2 million (before expenses);

· Net Gaming Revenue ("NGR") growth of 227% to £27.8 million* (2014: £8.5 million);

· Adjusted EBITDA** up 508% to £7.3m (2014: £1.2 million);

· Adjusted profit before tax** up 388% to £3.9 million (2014: £0.8 million)

· Profit after tax of £0.4 million (2014: £0.8 million);

· Gross assets up 740% to £48.7 million (2014: £5.8 million), including cash of £7.4 million (2014: £Nil);

· Yield per player from real money gaming up 14.3% to £112 (2014: £98).

Operational Highlights

· Organic growth complemented by the successful completion of 3 acquisitions:

o Acquisition of InfiApps Limited, a profitable, internationally focused mobile social gaming company, for total consideration payable of up to $40 million;

o Acquisition of the trade and assets of Table Top Entertainment Limited ("TTE") including the brands Jackpot Café, Jackpot Liner and King Jackpot and the acquisition of the propriety gaming platform from Nextec Software Inc for total consideration of £14.7m; and

o Acquisition of Spacebar Media for consideration of £6.0m.

· Funded players*** up 278% to 52,000 (2014: 13,750);

· Mobile and touch represents 48.9% of the NGR (2014: 19.7%)^;

· Launch of three new brands: Bingo Extra, Magical Vegas and Big Top Casino;

· Obtained an Italian gaming license and stake in a Spanish slots operation;

· Completion of migration of several brands into responsive adaptive (RAD) based websites, which is more mobile and tablet oriented; and

· 39 proprietary games in the process of being integrated onto the Company's platforms.

* Stride Gaming plc was incorporated on 25 February 2015 and subsequent to this on 19 May 2015 acquired, via a share for share exchange, the entire share capital of the group headed by Daub Alderney Limited. Following this Group reorganisation the financial statements for the period ended 31 August 2015 have been prepared on a merger accounting basis as though this group structure had always been in place (see note 1 for further details).

** Adjusted EBITDA and adjusted profit before tax excludes income or expenses that relate to exceptional items and non-cash charges relating to share-based payments.

 *** Funded player means an active player has made a deposit with his own funds within the last three months.

^ Percentages exclude three brands which are download-only technology.

Commenting on the results, Nigel Payne, Non Executive-Chairman of Stride Gaming, said:

"I am delighted to present the maiden set of Preliminary Results for the year ended 31 August 2015. It has been an exceptional year for Stride Gaming and the Group's performance in the period has been outstanding.

"We listed on AIM in an oversubscribed placing, raising £11.2 million before expenses, to facilitate our organic and acquisitive growth strategy to take advantage of the consolidation in the online bingo industry, which is being driven by increasing regulation. We are making significant progress on delivering on our strategy.

"The Group acquired InfiApps to move into the social gaming segment of online gaming, delivered record level growth across all our key performance indicators, added three new brands to our portfolio and continued to develop our proprietary software and in-house platforms.

"We believe we have put in place a solid foundation from which to further expedite the growth of the Company and the Board looks to the future with confidence."

Enquiries:

About Stride Gaming:

Stride Gaming is an online gaming operator in the bingo-led and the global social gaming market. The Company operates a multi-branded strategy across its two verticals, and uses its own proprietary and purchased software to provide online bingo and slot gaming for its players, and a social gaming mobile application. Stride Gaming's real money offering is presently focused on the UK market, is licensed and only operates from the regulated jurisdictions of the UK and Alderney. The Company's players' reach is international in the mobile social gaming market with a focus on the North American market.

Further information on the Group is available at: www.stridegaming.com. 

Chairman's Statement

On behalf of the Board, I am delighted to present Stride Gaming's results for the year ended 31 August 2015. The Group has performed strongly in the period and is well positioned for 2016 and beyond.

This year was a transformational year for the Group. We listed on AIM in an oversubscribed placing, raising £11.2 million before expenses, delivered record level growth across all the key performance indicators of the business, acquired InfiApps to move into the social gaming segment of online gaming in line with our strategy, added three new brands to the platform and continued to develop our proprietary software and in-house platforms.

The response to the Group's admission to AIM has been extremely positive and the Company's shares have performed well since the listing, which we believe demonstrates confidence in the Group's strategic plan and in the management team's ability to deliver and generate returns.

Stride Gaming's overall strategy is to become a market leader in the soft gaming verticals of the online gaming industry and to expand our presence in the UK and in international markets. Our listing has enabled us to accelerate our organic and acquisitive growth strategy and take advantage of the opportunities that exist in the sector. We are clear that the global online gaming market will continue to be shaped by further consolidation as a result of increased regulation and taxes, and the need to add scale. In addition, the appeal of social gaming is growing significantly. This environment only serves to enhance our growth prospects and we intend to take full advantage of it by continuing with our stated organic and acquisitive growth strategy. I am pleased to report that the Group is making excellent progress on delivering on its stated strategy.

As part of our buy and build strategy, as well as monitoring opportunities to expand into complementary verticals, we have successfully completed three acquisitions in the year, the most recent of which, InfiApps, was completed on 31 July 2015. A profitable internationally focused mobile social gaming company, the acquisition of InfiApps was immediately earnings enhancing and it is pleasing to see that the business has integrated well into the Group and is making a positive contribution to our product offering.

We also believe the market will be increasingly driven by the use of the mobile smart phone and tablets for gaming, and with the launch of our Responsive platform, we are well positioned to increase our mobile centric customer base. We expect organic growth to remain robust in the coming months as we make further improvements to our propriety software and the gaming experience. The Board remains focused on exploring opportunities to expand into other international markets and progress in this regard is already underway with the Italian gaming licence.

On behalf of the Board I would like to take this opportunity to thank all our staff for their commitment and hard work. The Board also joins me in welcoming all our new shareholders.

This past financial year has been a highly successful period for the Group and our long-term focus remains on delivering strong, sustainable returns for our shareholders. We look to the future with confidence.

Nigel Payne

Non-Executive Chairman

16 November 2015

Chief Executive's Review

I am pleased to report that the year ended 31 August 2015 was an exceptional period for Stride Gaming in which we delivered record results across all KPIs. We have enhanced our profitability and strengthened our balance sheet. The Group also made material progress in achieving a number of operational milestones that provide the Company with a platform for increased growth.

The Operation

The reported period has delivered a strong operational performance with NGR growth from real money gaming increasing by 214%. Our organic growth has outperformed our expectations, a testament to what we can achieve with scale and through owning our own proprietary software. This achievement is particularly pleasing in light of the current climate in which margins are being squeezed due to tax, regulatory compliance and technology costs.

Our number of funded players has now reached 52,000 representing a 278% year-on-year increase, and with software enhancements and continuous improvements to the backend of our platform we have shown a 14.3% growth in Yield per Player at £112 (2014: £98).

Adjusted EBITDA for the Group was up 508% to £7.3m and Adjusted EBITDA on real money gaming (excluding the one month contribution from InfiApps) was up 483% at £7.0 million. In the main this is attributed to the enhanced gaming offering from the Group, the optimisation of marketing costs and an increase in the life time value of our customers, where we continue to deliver a compelling and innovative gaming experience across a multitude of devices including mobile, tablet and PC.

We remain committed to enhancing our performance in real money terms and in social gaming verticals. The Group today has close to 200 staff across five countries.

Acquisitions

Acquisitions remain an integral part of the Group's growth strategy in order to take advantage of the consolidation in the sector and to move into complementary verticals. The Group's ability to successfully integrate acquisitions was demonstrated following the acquisition of the trade and assets of Table Top Entertainment Limited (including the brands Jackpot Café, Jackpot Liner and King Jackpot) and the acquisition of the propriety gaming platform from Nextec Software Inc; in aggregate for a total consideration of £14.7 million as well as Spacebar Media for consideration of £6.0 million.

As part of our strategy to move into complementary verticals and to diversify from solely bingo, on 31 July 2015 Stride Gaming successfully acquired InfiApps, a profitable internationally focused mobile social gaming company. The total consideration payable for the acquisition is up to $40 million. Of this, an initial consideration of US$22 million in cash was paid, together with additional earn-out consideration of up to $18 million payable in cash, determined by the EBITDA generated by InfiApps in the two years following completion of the acquisition. The acquisition provides us with a strong and profitable presence in the social gaming segment of online gaming across new and international geographies. The global social gaming segment is expected to grow from $5.4 billion in 2012 to $17.4 billion in 2019. The acquisition has been immediately earnings enhancing and with some 5.2 million player downloads of the flagship game, Slot Bonanza, and over 550,000 monthly active users worldwide, it adds material scale and reach to Stride Gaming's existing operations.

For the financial year ended 31 December 2014, InfiApps generated turnover of $13.7 million (2013: $4.6 million), EBIT of $3.6 million (2013: $1.0 million) and profit before tax of $3.4 million (2013: $1.0 million). In the financial year ended 31 December 2014, 69% of InfiApp's revenue was generated from North America. For the five months to 31 May 2015, InfiApps generated turnover of $8.3m and profit before tax of $2.3 million. These audited numbers are presented under US GAAP.

 Our Market

Our markets continue to remain robust and, according to the Gambling Commission, revenue in the UK gaming industry is expected to pass £3 billion by 2016. The UK online gaming market, including bingo led and poker, is estimated to grow to approximately £1.6 billion of NGR by 2016 with bingo-led online gaming estimated to account for 32.3 per cent.

Our industry is currently experiencing a wave of M&A activity, driven by increasing regulation, taxes, compliance, and technology costs. Companies are recognising that in order to survive in this more challenging regulatory environment they need to add scale.

We believe these increasing pressures, particularly the Point of Consumption tax ("POC tax") is likely to squeeze out a number of smaller scale online bingo operators, as they will not be able to absorb such an impact on their margins. At the other end of the market, we believe the larger operators will prioritise their marketing spend on their core products and less so on bingo. This presents an online bingo operator with scale an opportunity to increase market share both from organic growth and acquisition.

Mobile

The market is being increasingly driven by the use of the mobile smart phone and tablets for gaming, and with the launch of our new Responsive adaptive platform (RAD), which enables us to maintain a consistent user experience across a multitude of devices, Stride Gaming is well positioned to increase its mobile centric customer base. The effects of this strategy are already being seen, and on the brands that support the mobile device, 48.9% of NGR is now mobile driven (2014: 19.7%).

The RAD platform places great focus on mobile usability and we believe it will serve to further expedite our growth in the mobile sector. This is the fastest growing sector in the UK gambling industry with the percentage of customers betting on a mobile device increasing from 29% in 2013 to 43% in 2014, and in total 30% of overall bingo search volume is attributed to mobile devices (Online Gambling and betting: Mintel, 2014).

International markets

Another major growth opportunity we outlined in our strategy was to expand into international markets. I am pleased to report that the Group has obtained remote gambling licenses from the UK and Italian Gambling Commissions (AAMS), the latter of which provides us with an opportunity to access the Italian market.

Outlook

Our strategy remains focused on growing organically and through acquisition. As well as organic growth prospects remaining strong, we believe there are significant acquisition opportunities available, and we will continue to monitor potential selective strategic acquisitions that support our existing operations or that allow us to expand into complementary verticals. We believe the outlook for the Stride Gaming Group is exciting.

Eitan Boyd

Chief Executive Officer

16 November 2015

Chief Financial Officer's Review

The Group delivered NGR growth of 227% to £27.8 million (2014: £8.5 million) for the financial period. This top line growth was a result of the acquisition of the Table Top Entertainment brands in September 2014, along with strong organic growth reflected in the level of player activity. Of the total NGR for 2015, £1.1 million was also attributed to the InfiApps acquisition, an international mobile social gaming company, which the Group acquired on 31 July 2015.

Cost of sales at £2.8 million (2014: £Nil) relates to the POC tax, which became effective in December 2014, part way through the 2015 financial year.

Distribution costs including licencing, processing, royalties and marketing totalled £9.9 million (2014: £5.7 million). The increase has been driven by marketing costs (up 55%), but is in line with our expectations, reflecting the drive to capitalise on organic growth. The Group has managed to make an incremental cost reduction as a result of the integration of the TTE Sites into the Daub Alderney platform. This has taken the form of reduction in royalty payments in relation to the software on the TTE sites, and from processing charges from Stride Gaming's payment intermediary as a result of the larger scale of the business.

Administration costs of £7.8 million (2014: £1.6 million) increased as a result of the pre-IPO reorganisation of the Stride Gaming Group during the first half of the year. Back office operations were integrated for both the legacy TTE and the Daub Alderney platform operations, which resulted in additional cost reductions for the Group. Capitalisation of proprietary software development costs at £0.25 million (2014: £Nil) represent 30% of total development spend, while amortisation of capitalised development costs was £0.02 million (2014: £Nil).

Adjusted EBITDA increased by 508% to £7.3 million (2014: £1.2 million) reflecting an Adjusted EBITDA margin of 26% (2014: 14%). The result excludes the share-based payment charge on share options provided to certain consultants and the Executive Directors of the Group (£0.3 million), one off AIM listing costs (£1.2 million), costs associated with the acquisition of InfiApps (£1.9 million) and contingent remuneration (£0.2 million). Profit before Tax is down to £0.4 million (2014: £0.8 million) as a result of exceptional costs, share based payments and listing costs.

Group reorganisation, share placing and acquisitions

Stride Gaming plc was incorporated on 25 February 2015 in Jersey and on 19 May 2015 acquired Daub Alderney Limited, the real money gaming operator via a share for share exchange including its subsidiaries, Spacebar Media Limited, Shiftech Limited, Baldo Line SRL and SRG Services Limited, which provides support services to the Group.

The Company was admitted to trading on AIM on 19 May 2015, placing 8.4 million shares raising £11.2 million (£10.6 million net of share issue costs) to support the Group's buy and build and organic growth strategy, and to provide working capital for the development of the Group's proprietary software platform offering.

Subsequent to admission, on 31 July 2015, the Group completed the acquisition of InfiApps Limited, an international mobile social gaming operator for $22 million in cash, together with an earn out consideration of up to another $18 million over a two year period determined by the EBITDA generated. For the acquisition of InfiApps, an £8 million shareholder loan was received at a 7.5% annual interest rate with a two-year repayment period.

Balance Sheet and Cash flow

The Group has a strong balance sheet with gross assets of £48.7 million (2014: £5.8 million) including cash and cash equivalents of £7.4 million (2014: £ nil). As a result of the IPO and the TTE and InfiApps acquisitions, the acquired assets including proprietary software, developed software and other assets strengthened the Group's financial position.

Due to the Group's strong financial performance, substantial cash flow of £4.6 million (2014: £Nil) was generated from operating activities, reflecting a high cash conversion rate of 105%. During the period the Group spent £0.5 million (2014: Nil) and £0.2 million (2014: £Nil) on intangible assets and on capitalisation of internally generated development costs respectively. Proceeds of £10.6 million (net of share issue costs) were raised during the Company's IPO through the issue of 8.4 million of new shares.

In March 2015, as part of the pre-IPO reorganisation, a £7.5 million dividend was declared, partly to clear a balance from the shareholder group, with £3.0 million paid in cash.

EPS and Dividend:

Reported basic and diluted earnings per share was 0.948p (2014: 2.711p) and 0.931p (2014: 2.711p) respectively. As the business is cash generative and highly profitable it is the Board's intention to adopt a progressive dividend policy in the future.

Ronen Kannor

Chief Financial Officer

16 November 2015

Stride Gaming Plc

Consolidated statement of profit or loss and other comprehensive income

for the year ended 31 August 2015

Stride Gaming Plc

Consolidated statement of financial position

at 31 August 2015

Stride Gaming Plc

Consolidated statement of financial position

at 31 August 2015 (continued)

The notes in the following pages form part of these financial statements.

Stride Gaming Plc

Consolidated statement of cash flows

for the year ended 31 August 2015

A description of the significant non-cash movements is given in note 26.

The notes in the following pages form part of these financial statements.

Stride Gaming Plc

Consolidated statement of changes in equity

for the year ended 31 August 2015

Stride Gaming Plc

Notes forming part of the financial statements

for the year ended 31 August 2015

Legal status

Stride Gaming Plc which includes its subsidiaries and together forms the "Group" is a public limited liability company incorporated in Jersey. Stride Gaming Plc was incorporated under Jersey law 1991 on 25 February 2015. The address of its registered office is 12 Castle Street, St Helier, Jersey, JE2 3RT. Stride Gaming Plc shares are listed on the Alternative Investment Market ("AIM") of the London Stock Exchange. The company is not required to present parent company information.

Basis of preparation

Stride Gaming plc was incorporated on 25 February 2015 and subsequent to this on 19 May 2015 acquired, via a share for share exchange, the entire share capital of the Group headed by Daub Alderney Limited. Following this Group reorganisation the financial statements for the period ended 31 August 2015 have been prepared on a merger accounting basis as though this Group structure had always been in place (see below for further details) and a full year of results is therefore presented. The prior year comparatives represent the results of Daub Alderney Limited.

The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below and have been prepared on a historical cost basis. The policies have been consistently applied to all the years presented, unless otherwise stated.

The consolidated financial statements are presented in Sterling, which is also the parent's functional currency and amounts are rounded to the nearest thousand, unless otherwise stated.

These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union, International Accounting Standards and Interpretations (collectively IFRSs) and in accordance with the requirements of the Companies (Jersey) Law 1991.

The preparation of financial statements in compliance with EU adopted IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgment in applying the Group's accounting policies. The areas where significant judgments and estimates have been made in preparing the financial statements are disclosed below.

The financial statements do not constitute the Group's statutory financial statements for the year ended 31 August 2015 or the year ended 31 August 2014. Statutory accounts will be filed following the Company's Annual General Meeting. The auditors have reported on these accounts and their report was unqualified.

Changes in accounting policies

a) New standards, interpretations and amendments effective from 1 September 2014

Where relevant, new standards and amendments to existing IFRS standards that have been published and are mandatory for the first time for the financial year beginning 1 September 2014 have been adopted, but had no significant impact to the Group accounts.

b) New standards, interpretations and amendments not yet effective

New standards, amendments to standards and interpretations that have been issued but are not yet effective (and in some cases have not yet been adopted by the EU) including IFRS 9 Financial Instruments and IFRS 15 Revenue from contracts with customers have not been early adopted and directors do not expect that the adoption of these standards will have a material impact on the financial statements of the Group in future periods.

Stride Gaming Plc

Notes forming part of the financial statements

for the year ended 31 August 2015 (continued)

Basis of consolidation

Group reorganisation

The consolidated financial statements shows the combination of Stride Gaming plc and Daub Alderney Limited following the share for share exchange completed on 19 May 2015 which falls outside the scope of IFRS 3 'Business Combinations'. Accordingly, following the guidance regarding the selection of an appropriate accounting policy provided by IAS 8 'Accounting policies: Changes in accounting estimates and errors', the consolidated financial statements have been prepared using the principles of merger accounting set out in FRS 102 section 19 and UK Generally Accepted Accounting Practice (UK GAAP).

Group reorganisation (continued)

When merger accounting is applied, the investment is recorded in the company's balance sheet at the nominal value of shares issued together with the fair value of any consideration paid. In the consolidated financial statements, merged subsidiary undertakings are treated as if they had always been a member of the group from the date common control was achieved. The corresponding figures for the previous period include its results for that period, the assets and liabilities at the previous balance sheet date and the shares issued by the company as consideration as if they have always been in issue. Any differences between the nominal value of the shares acquired by the company and the nominal value of shares issued by the company to acquire them are taken to a separate merger reserve.

Acquisition of subsidiaries

A subsidiary is an entity controlled directly or indirectly by the Company. Control is achieved if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in the income statement as incurred. The acquiree's identifiable assets and liabilities are recognised at their fair values at the acquisition date.

The results of subsidiaries acquired or disposed of during the period are included in the consolidated statement of comprehensive income from the date that control was obtained to the date that control was lost, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Group.

Common control transactions

Baldo Line SRL a 100% owned subsidiary was contributed to the Group by the former controlling shareholder. As this is a common control transaction it is outside the scope of IFRS 3 'Business Combinations'. Accordingly, following the guidance regarding the selection of an appropriate accounting policy provided by IAS 8 'Accounting policies: Changes in accounting estimates and errors', the consolidated financial statements have been prepared using the principles of merger accounting set out in FRS 102 section 19 and UK Generally Accepted Accounting Practice (UK GAAP). The Group has therefore recognised the book value of assets and liabilities with a corresponding capital contribution being recorded.

The 24.5% shareholding in QSB Gaming Limited was also contributed to the Group in the year. The investment met the definition of an available-for-sale financial asset and was therefore recorded at fair value on initial recognition.

Uniform accounting policies have been adopted across the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

Stride Gaming Plc

Notes forming part of the financial statements

for the year ended 31 August 2015 (continued)

Foreign currencies

Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the financial reporting date. Non-monetary assets and liabilities are translated using exchange rates prevailing at the date of the transactions. Foreign exchange differences arising on translation are recognised in the profit or loss account. On consolidation, the results of foreign operations are translated into sterling at rates ruling when the transaction took place. All assets and liabilities of foreign operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at the opening rate and the results of foreign operations at the actual rate are recognised in other comprehensive income and accumulated in the foreign currency translation reserve. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign currency translation reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income and included in the computation of the profit or loss on disposal.

Revenue recognition

Net gaming revenue (NGR) is derived from online gambling operations and is defined as the difference between the amounts of bets placed by the players less the amount won by players. It is stated after deduction of certain bonuses, jackpots and prizes granted to players. Revenue is recognised in the accounting periods in which the transactions occur.

Social gaming revenue is derived from the purchase of credits and awards on the social gaming sites. Social gaming revenue is recognised to the extent that it is probable economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is recognised in the accounting periods in which the transactions occur.

Cost of sales

Cost of sales consists primarily of gaming duties.

Distribution costs

Distribution costs represent the costs of delivering the service to the customer and primarily consist of processing and royalty fees, promotional and advertising costs together with gaming and other regulatory costs all of which are recognised on an accruals basis.

Administrative expenses

Administrative expenses consist primarily of staff costs, corporate and professional expenses, all of which are recognised on an accruals basis.

Goodwill

Goodwill represents the excess of the cost of a business combination over the total acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair value of assets given, liabilities assumed and equity instruments issued, plus the amount attributable of any non-controlling interests in the acquisition and dependent on the terms of the sale and purchase agreement, deferred and contingent consideration.

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the profit and loss account. Costs incurred in respect of the acquisition are expensed in full in the period of acquisition.

Stride Gaming Plc

Notes forming part of the financial statements

for the year ended 31 August 2015 (continued)

Contingent consideration

When contingent consideration arising on a business combination requires no ongoing employment requirements from the former owners in order to receive payment, the fair value of contingent consideration is included within cost at acquisition date.

Contingent consideration is reviewed at the end of each accounting period as the consideration payable and any subsequent adjustments are recognised in profit or loss account.

When the former owners of an acquired subsidiary are required to remain in employment at each of the deferred or contingent consideration payment dates the fair value of contingent consideration is built up over the period of service to the date of payment with a corresponding charge to the profit or loss account. When future service is required, this is described in the financial statements as contingent remuneration.

Externally acquired intangible assets

Externally acquired intangible assets including intellectual property rights, developed software applications and licenses are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives which is typically over a period of 3-5 years or over the length of the license.

Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual or legal rights. The amounts ascribed to such intangibles are arrived at using appropriate valuation techniques (see section related to critical estimates and judgements below).

The significant intangibles recognised by the Group, their useful economic lives and methods used to determine the cost (at initial recognition) of intangibles acquired in a business combination are as follows:

Amortisation is charged to the profit or loss during the financial period to which it relates.

Internally generated intangible assets (development costs)

Expenditure on internally developed products is capitalised if it can be demonstrated that:

· it is technically feasible to develop the product for it to be sold;

· adequate resources are available to complete the development;

· there is an intention to complete and sell the product;

· the Group is able to sell the product;

· sale of the product will generate future economic benefits; and

· expenditure on the project can be measured reliably.

Capitalised development costs are amortised over the periods the Group expects to benefit from the assets generated, being three years.

Development expenditure not satisfying the above criteria and expenditure is recognised in the consolidated statement of comprehensive income as incurred.

Stride Gaming Plc

Notes forming part of the financial statements

for the year ended 31 August 2015 (continued)

Property, plant and equipment

All property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is calculated to write-off the cost of fixed assets on a straight line basis over the expected useful lives of the assets concerned. The principal annual rates used for this purpose are:

Subsequent expenditures are included in the carrying amount of an asset or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits will flow to the Group and the cost of the item can be measured reliably. All repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

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

Impairment of property, plant and equipment and internally generated assets

Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may be impaired and hence not recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down to its recoverable amount.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating units ('CGUs'). Goodwill is allocated on initial recognition to each of the Group's CGUs that are expected to benefit from the synergies of the combination giving rise to the goodwill.

Impairment charges are included in the profit or loss account, an impairment loss recognised for goodwill is not reversed.

Financial instruments

Financial assets and financial liabilities are recognised on the Group's statement of financial position when the Group becomes party to the contractual provisions of the instrument. Financial assets are de-recognised when the contractual rights to the cash flows from the financial asset expire or when the contractual rights to those assets are transferred. Financial liabilities are de-recognised when the obligation specified in the contract is discharged, cancelled or expired. Financial assets are either categorised as loans or receivables or available for sale. There are no assets classified as held-to-maturity or fair value through profit or loss. All financial liabilities are classified as amortised cost.

Stride Gaming Plc

Notes forming part of the financial statements

for the year ended 31 August 2015 (continued)

Financial instruments (continued)

Financial assets:

Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less provision for impairment. Appropriate provisions for estimated irrecoverable amounts are recognised in profit or loss account when there is objective evidence that the assets are impaired. Interest income is recognised by applying the effective interest rate, except for short term receivables when the recognition of interest would be immaterial.

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

Cash and cash equivalents

Cash and cash equivalents comprise cash held at bank, demand deposits, and other short-term highly liquid investments that have maturities of three months or less from inception, are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Available-for-sale

Non-derivative financial assets not included in the above categories are classified as available-for-sale and comprise principally the Group's strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities. They are carried at fair value with changes in fair value, other than those arising due to exchange rate fluctuations and interest calculated using the effective interest rate, recognised in other comprehensive income and accumulated in the available-for-sale reserve. Exchange differences on investments denominated in a foreign currency and interest calculated using the effective interest rate method are recognised in the profit or loss statement.

Where there is a significant or prolonged decline in the fair value of an available for sale financial asset (which constitutes objective evidence of impairment), the full amount of the impairment, including any amount previously recognised in other comprehensive income, is recognised in profit or loss.

On sale, the cumulative gain or loss recognised in other comprehensive income is reclassified from the available-for-sale reserve to profit or loss.

Stride Gaming Plc

Notes forming part of the financial statements

for the year ended 31 August 2015 (continued)

Financial instruments (continued)

Financial liabilities:

Trade and other payables

Trade payables are initially measured at their fair value and are subsequently measured at amortised cost using the effective interest rate method; this method allocates interest expense over the relevant period by applying the 'effective interest rate' to the carrying amount of the liability. Player liabilities are the amounts that customers place in their accounts along with any bonuses and progressive jackpots. These liabilities are recognised initially at fair value and subsequently at amortised cost.

Loans and borrowings

Loans and borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position.

Current and deferred tax

Taxation represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit

reported in the consolidated statement of comprehensive income 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 reporting date.

Deferred tax

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based upon tax rates that have been enacted or substantively enacted by the reporting date. Deferred tax is charged or credited to profit or loss, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity through other comprehensive income.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial information and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. 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.

The carrying amount of deferred tax assets is reviewed at each consolidated statement of comprehensive income date and reduced to the extent that it 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 measured using tax rates that have been enacted or substantively enacted by the consolidated statement of financial position date and are expected to apply when the related deferred tax asset or liability is realised or settled.

Stride Gaming Plc

Notes forming part of the financial statements

for the year ended 31 August 2015 (continued)

Operating leases

Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group, these are classified as operating leases. The total rentals payable under the lease are charged to profit or loss on a straight-line basis over the lease term.

Pension costs

The Group operates a defined contribution scheme. The amount charged to the profit or loss account in respect of pension costs and other post-retirement benefits is the contributions payable in the period. Differences between contributions payable in the period and contributions actually paid are shown as either other liabilities or prepayments in the consolidated statement of financial position.

Share capital

Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset.

Share-based payments

Where equity settled share options are awarded to employees (refer to Note 22), the fair value of the options at the date of grant is charged to the profit and loss account over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Non-vesting conditions and market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied.

Where equity instruments are granted to persons other than employees, the profit or loss account is charged with the fair value of goods and services received, or in the case of an asset, recorded within the appropriate classification.

National insurance is payable on gains made by employees on exercise of share options granted to them. The eventual liability to National Insurance is dependent on:

- The market price of the company's shares at the date of exercise

- The number of options that will be exercised, and

- The prevailing rate of National Insurance at the date of exercise.

At each period end the potential liability is recorded as an expense within the profit and loss account and a corresponding provision recorded.

Dividends

Dividends are recognised when they become legally payable. In the case of interim dividends this is when paid and in the case of final dividends, this is when approved by the shareholders at the AGM.

Adjusted EBITDA

The Group defines Adjusted EBITDA as the operating result before depreciation, amortisation, finance costs, and income or expenses that relate to exceptional items as well as non-cash charges relating to share-based payments (including employers national insurance). The Directors believe that Adjusted EBITDA represents more closely the underlying trading performance of the business.

Stride Gaming Plc

Notes forming part of the financial statements

for the year ended 31 August 2015 (continued)

Critical accounting estimates

The preparation of the consolidated financial statements under IFRS requires the Group to make estimates and judgments that affect the application of policies and reported amounts. Estimates and judgments are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Reference is made in this note to accounting policies which cover areas that the Directors consider require estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year.

Acquisition accounting and fair value of acquired assets and liabilities including contingent consideration

Identifiable assets, liabilities and contingent liabilities, including earn-outs that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date. The identified intangibles are capitalised if they are separable from the acquired entity or give rise to other contractual or legal rights. The amounts ascribed to these assets are arrived at by using appropriate valuation techniques to determine the fair value. Capitalised intangible assets are amortised over the useful economic life of the assets. This has ranged between three to five years for acquisitions to date. The fair value of contingent consideration, including earn-outs is based on the probability of expected cash flow outcomes and the assessment of present values using appropriate discount rates. Further details in relation to key estimates and judgements are set out in Notes 23.

Capitalisation and amortisation of development costs

The identification of development costs that meet the criteria for capitalisation is dependent on management's judgement and knowledge of the work done. Development costs of gaming software platforms are separately identified. Judgements are based on the information available at each period end. Economic success of any development is assessed on a reasonable basis but remains uncertain at the time of recognition. Capitalised development costs are subject to amortisation over its useful life and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Group amortises the assets over the life of the product. The estimated useful life of these assets at period end is three years.

Stride Gaming Plc

Notes forming part of the financial statements

for the year ended 31 August 2015 (continued)

For management purposes and for transacting with customers, the Group's operations can be segmented into the following reporting segments:

· Real money gaming which is its UK focused, bingo-led online operation, using its proprietary and purchased software to provide online bingo and related gaming activities to players. This segment only operates in regulated markets, principally the UK; and

· Social gaming which internationally provides players with entertaining applications and games.

Each of these operating segments generates independent revenues, and the risks and rewards associated with generating these revenues are considered to be different to each other.

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the management team including the Chief Executive Officer, Chief Operating Officer and the Chief Financial Officer.

The Group evaluates segmental performance on the basis of profit or loss from operations calculated in accordance with IFRS but excluding non-recurring losses, IPO and acquisition costs, and the effects of share-based payments. There are no inter-segment sales.

Stride Gaming Plc

Notes forming part of the financial statements

For the year ended 31 August 2015 (continued)

Stride Gaming Plc

Notes forming part of the financial statements

For the year ended 31 August 2015 (continued)

(a) Listing costs relate to the Group's initial public offering and admission on AIM which completed on 19 May 2015. This excludes any costs associated with the issue of equity which has been allocated against share premium.

(b) Acquisition costs relate to the acquisition of the entire share capital of InfiApps Ltd during the year. Refer to Note 23 for further information.

(c) During the year the company issued share options to certain employees and consultants of the Group. The charge for the year includes national insurance. Refer to Note 22 for further information.

(d) Under the terms of the InfiApps Ltd acquisition the contingent remuneration payable is linked to future employment and therefore has been charged to the profit and loss account. Refer to Note 23 for further details.

Stride Gaming Plc

Notes forming part of the financial statements

For the year ended 31 August 2015 (continued)

(a)  Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, including the directors of the company (listed in Note 7) as well as certain Directors of subsidiary companies.

Stride Gaming Plc

Notes forming part of the financial statements

For the year ended 31 August 2015 (continued)

* Shares held via trusts

The following directors held share options as at 31 August 2015:

The following table presents the Directors' remunerations of the Company for the year ended 31 August 2015:

Stride Gaming Plc

Notes forming part of the financial statements

For the year ended 31 August 2015 (continued)

The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to profits for the year are as follows:

Stride Gaming Plc

Notes forming part of the financial statements

For the year ended 31 August 2015 (continued)

On 13 April 2015 Daub Alderney Limited declared a pre-IPO dividend totalling £7,500,000 comprising of

£4,500,000 to be allocated against a receivable due from a related party and shareholder and

the remaining £3,000,000 paid in cash. The directors are not proposing any further dividend for the year (2014 - Nil).

Stride Gaming Plc

Notes forming part of the financial statements

For the year ended 31 August 2015 (continued)