TECH.L Regulatory News (TECH)

1 September 2017

TechFinancials, Inc.

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

Unaudited Interim Report for the Six Months Ended 30 June 2017

TechFinancials (AIM: TECH), a leading technology provider to financial trading brokers, today announces its unaudited interim results for the six month period ended 30 June 2017 ("H1 2017").

Financial Overview

Asaf Lahav, Group Chief Executive Officer of TechFinancials, commented:

"The Group performed well in 2016 achieving record revenues and profitability, but as we anticipated, the first half of 2017 has been challenging as a result of the loss of our largest customer and the uncertain and tightening regulatory environment particularly in Europe, which impacted revenues in our core B2B software licensing business. 

"We anticipate the remainder of this financial year continuing to be challenging within the binary options market until there is clarity surrounding the on-going regulatory consultations. Nonetheless, we remain focused on diversifying our business in order to withstand these pressures and we have plans to introduce further products in the coming years.

"We are actively looking at potential projects that will leverage the Company's technology and its expertise in online financial trading solutions and we will provide an update to our shareholders on our progress in due course."

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Chairman's Statement

The Group performed well in 2016 reaching record revenues and profitability, but as we anticipated the first half of 2017 has been challenging as a result of the loss of our largest customer and the uncertain and tightening regulatory environment particularly in Europe, which impacted revenues in our core B2B software licensing business. 

We have worked hard to mitigate the regulatory impact and the loss of our largest customer by diversifying our product offering, restructuring the business and reducing its operational costs. We are actively looking at different potential projects that will leverage the Company's technology and its expertise in online financial trading solutions.

We have reduced the Company's headcount in Israel and Asia and have moved some positions to Ukraine where employment costs are lower. Additionally, all Board and senior management team members have taken a 20 % salary reduction. Nonetheless, until regulatory clarity is restored the outlook for TechFinancials remains challenging.

B2B

Our core software licensing business had a tough first half in which there was a significant reduction in revenues, primarily stemming from the loss of our major customer. We have worked hard to offset this loss by diversifying our product offering through the simplified forex platform and mobile trading solutions, which were introduced in 2015. We also launched the add-on CFD platform in the second half of 2016. Yet, as the entire market is shrinking, we foresee additional reduction in the B2B revenues in H2 2017.

B2C

DragonFinancials, the B2C binary options trading platform focused on the Asia Pacific region and the partnership with the owners of Optionfortune, has continued to perform well. Profit increased in this division by 63% to US$ 2.06m and it continues to generate cash for the Group.

Post period end, on 1 August 2017 DragonFinancials declared an interim dividend pay-out of US$ 2,000,000, payable for the half year. Out of the total interim dividend payout of US$ 2,000,000, TechFinancials received US$ 1,020,000 in line with its 51% holding in the subsidiary.

Cash position

The Group's cash position remains robust with US$ 5.81m as at 30 June 2017 and the Board feels confident it has sufficient working capital to meet the on-going regulatory challenges.

Regulation

The regulatory environment surrounding the marketing of binary options, Forex and CFD trading in a number of countries remains very tight and uncertain. We expect this uncertainty will continue to be a challenge for the industry as a whole in 2017.

A number of regulators have issued notices and consultation papers regarding future regulatory changes. We will continue to cooperate fully with the regulators and will assist the regulators in implementing their changes when the outcomes are published.

We welcome attempts by the regulators to protect customers' interests and we feel that following the outcome of these reviews, the industry will be strengthened and will become more sustainable.

Nonetheless, until clarity is provided on the outstanding consultation papers, the uncertainty will continue to adversely impact the Group's operations. As clarity is provided on various consultation papers, we will update the market as appropriate.

Outlook

We anticipate the remainder of this financial year continuing to be challenging until there is clarity surrounding the on-going regulatory consultations. As a result, this tougher and uncertain regulatory environment will continue to impact our B2B business.

We remain focused on diversifying our business in order to withstand these pressures and we have plans to introduce further products in the coming years, adding to the simplified forex platform, mobile trading solutions and the add-on CFD platform introduced over the last two years. Our goal is to become a provider of diversified online trading solutions.

We are focused on bolstering the B2C business and DragonFinancials, which has been performing well. In Asia, we are shifting the focus from binary options to Forex and CFD products. In Europe, we are increasing in a calculated manner our activity through BO Tradefinancials ("BOT"), our regulated subsidiary that operates the OptionFair trading platform.

We remain committed to creating value for shareholders and I would like to thank our shareholders for their continued support during this challenging year.

Christopher Bell

Independent Non-Executive Chairman

31 August 2017

Chief Executive's Statement

The Group's turnover in the six months ended 30 June 2017 decreased to US$ 6.97m (H1 2016: US$ 9.86m). Revenues in the core software licencing business decreased by 40.6 % to US$ 3.20m from US$ 5.39m. The decrease on a standalone basis was 38.5 % from US$ 5.82m to US$ 3.58m, mainly due to the termination of the previous software license agreement with our largest customer and the tightened regulation in the industry that reduced trading volumes. The trading platform revenues decreased by 15.7% to US$ 3.77m from US$ 4.47m in H1 2016.

Gross profit decreased by 33.8% to US$ 4.87m from US$ 7.36m in H1 2016, predominantly due to the lower revenues from the core software licencing business, which has traditionally higher margins than the trading platform business. The gross margin in the period decreased to 70% (H1 2016: 75%).

Operating profits decreased by 64.8% to US$ 0.56m (H1 2016: US$ 1.59m), partly as a result of maintaining the same level of research and development expenditure, whilst other operating expenses decreased in line with the decrease in revenues compared to H1 2016. This resulted in a profit before taxation of US$ 0.28m (H1 2016: US$ 1.33m) and a profit after taxation of US$ 0.22m (H1 2016: US $1.25m).

Net profit from DragonFinancials, in which TechFinancials holds a 51% stake, increased by 30 % to US$ 2.06m (H1 2016: US$ 1.58).

Pre-tax loss attributable to shareholders was US$ 0.73m (H1 2016: pre-tax profit of US$ 0.52m).

The loss for the period attributable to shareholders of the Company was US$ 0.79m (H1 2016: profit of US$ 0.45m).

The EBITDA loss attributable to the shareholders of the Company was US$ 0.17m (H1 2016: a profit of US$ 1.09m).

The Group cash generated from operating activities was US$ 0.04m compared with net cash of US$ 1.01m generated in H1 2016. Cash outflows from investing activities were US$ 0.24m (H1 2016: US$ 0.37m). Cash outflows from financing activities were US$ 1.56m (2016: US$ 0.00m), which reflects the dividend payment to the non-controlling partners, the shareholders of DragonFinancials. The Group's cash position for the period ended 30 June 2017 was US$ 5.81m (31 December 2016: US$ 7.65m).

Asaf Lahav

Chief Executive Officer of the Group

31 August 2017

Statement of Comprehensive Income

For the six month period ended 30 June 2017

Consolidated Statement of financial position

As of 30 June 2017

Consolidated Statement of changes in equity

For the six month period ended 30 June 2017

Consolidated statement of cash flows

Notes to the financial statements

1. General Information

Techfinancials Inc (the "Company") and its subsidiaries (together, the "Group") is engaged in the development and licensing of financials trading platforms to businesses and the provision of investment services through its trading platform.

The financial statements present the consolidated results of the Group for each of the periods ending 30 June 2017, 30 June 2016 and 31 December 2016.

As permitted, the Group has chosen not to adopt International Accounting Standard 34 'Interim Financial Reporting' in preparing these interim financial statements. The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2016, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

The interim financial information set out above does not constitute statutory accounts. The information has been prepared on a going concern basis in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) as adopted by the European Union. Except as described below, the accounting policies applied in preparing the interim financial information are consistent with those that have been adopted in the Group's 2016 audited financial statements. Statutory financial statements for the year ended 31 December 2016 were approved by the Board of Directors on 5 April 2017 and delivered to the Registrar of Companies. The report of the auditors on those financial statements was unqualified. The Directors approved these condensed interim financial statements on 30 August 2017.

Risks and uncertainties

The key risks that could affect the Group's short and medium term performance and the factors that mitigate those risks have not substantially changed from those set out in the Group's 2016 Annual Report and Financial Statements, a copy of which is available on the Company's website: www.techfinancials.com. The Group's key financial risks are the availability of adequate funding and foreign exchange movements.

Accounting policies

Critical accounting estimates and judgements:

The preparation of condensed consolidated interim financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the end of the reporting period. Significant items subject to such estimates are set out in note 3(w) of the Group's 2016 Annual Report and Financial Statements. The nature and amounts of such estimates have not changed significantly during the interim period. The condensed consolidated interim financial statements have been prepared under the historical cost convention as modified by the measurement of certain investments at fair value.

Changes in accounting policy

New and amended standards adopted by the Group:

There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year commencing 1 January 2017 that would be expected to have a material impact on the Group.

The financial information for the 6 months ended 30 June 2017 and the 6 months ended 30 June 2016 has not been audited.

The business is not subject to seasonal variations. No dividends have been paid in the period (2016: US$ Nil).

2. Earnings per share

The calculation of earnings per share is based on the following earnings and number of shares:

3. Intangible assets

Expenditure incurred on major software development projects is included in Computer Software where it is reasonably anticipated that the costs will be recovered through future commercial activity.

Capitalised development costs are amortised over the estimated useful life of project. The amortisation charge is recognised in cost of sales expenses.

Current estimates of the useful economic life of intangible assets are as follows:

The intangible assets are reviewed for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, the recoverable amount of intangible assets is determined based on a value in use calculation using cash flow forecasts derived from the most recent financial model information available.

The recoverable amounts of all the above have been determined from value in use calculations based on cash flow projections from formally approved budgets covering a five year period to 31 December 2020. The key assumptions used in these calculations include discount rates and turnover projections. Management estimates the discount rates using pre-tax rates that reflect current market assessments of the time value of money and risks specific to expected future projects.

The Group recognises goodwill on acquisition according to the fair value of the consideration transferred including any amounts recognised in respect of rights that do not confer control in the acquiree as well as the fair value at the acquisition date of any pre-existing equity right of the Group in the acquiree, less the net amount of the identifiable assets acquired and the liabilities assumed.

Goodwill that arises upon the acquisition of subsidiaries is presented as part of intangible assets.

An assessment is made annually whether goodwill has suffered any impairment losses. The assessment process is complex and highly judgmental and is based on assumptions that are affected by expected future market or economic conditions. Judgement is required in identifying the cash generating units ("CGU") and the use of estimates. Projections of future revenues were a critical estimate in determining fair value. Actual outcomes could vary from these estimates.

During the financial period, the Group assessed the recoverable amount of the goodwill and determined that no impairment is required.

This assessment of goodwill was done by comparing the gross profit to the value of goodwill for the entity whose acquisition gave rise to the goodwill.

4. Trade and other payables

5. Segmental Information

6 Months ended 30 June 2017

Revenues from the Group's top three customers represent approximately 29.58% of the total revenues.

Year ended 31 December 2016

Revenues from the Group's top three customers in 2016 represent approximately 30.21 % of total revenues.

6 Months ended 30 June 2016

Revenues from the Group's top three customers represent approximately 23% of the total revenues.

6. Subsequent events

On 26 July 2017, the Company granted 1,120,000 options to purchase Ordinary Shares of the Company to certain employees, directors and consultants of the Group under the share-based plan adopted by the board of Directors in November 2014. The options vesting dates ranges from the date of grant and up to 4 years, and are exercisable for a period of 10 years with an exercise price of US$ 0.0915 per share (approximately 7 pence).

On 31 July 2017 the board of directors of DragonFinancials, the Company's 51% subsidiary, recommended the payment of a dividend of US$ 2.000.000, in respect of the six-month period ended 30 June 2017. The Company received 51% of that amount.