TECH.L Regulatory News (TECH)

26 May 2016

TechFinancials Inc.

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

Preliminary Results for the year ended 31 December 2015

Strong performance in B2B division & solid foundations in place for renewed growth

2016 has started well and Q1 trading was in line with market expectations

TechFinancials (AIM: TECH), a leading technology provider to binary options brokers, today announces its results for the year ended 31 December 2015.

Operational Highlights

Software Licensing (B2B)

· B2B business has performed strongly with significant revenue growth of 30% year-on-year

· Growth in number of active brands using the Company's platform increased 16.7% to 56 (2014: 48)

· Bolstering B2B offering through new product launches:

o Launch of simplified Forex platform

o Launch of Mobile and Tablet Trading solutions

o Launch of an add-on Contract For Difference ("CFD") trading platform targeted for the second half of 2016

· Major push into the Asia Pacific region through the opening of a Hong Kong office to expand B2B services in the region

· Developing a regulated solution for Japan

· Expect to complete our trading solution to comply with US regulations in 2016

Trading Platform (B2C)

· The tougher regulatory environment in the B2C sector impacted revenues and profitability in this division

· Signed two agreements:

o With Optionfortune Trade Ltd. ("Optionfortune") in October 2015 to run a new B2C binary options trading platform focused on the Asia Pacific Region

o With IBID Holdings Limited ("IBID") in February 2016 to grow one of the Company's existing B2C binary options trading brands

Financial Highlights

· Group revenue decreased by 12% to US$13.6 million (2014: US$15.5 million)

· Net cash generated from operating activities remains positive

· Core software licensing revenue increased by 30% to US$8.6 million (2014: US$6.6 million)

· Trading platform revenues decreased by 44% to US$5.0 million (2014: US$8.9 million)

· Gross margins increased to 71% (2014: 65%)

· Operating loss of US$0.1 million (2014: operating profit US$1.0 million)

· Adjusted EBITDA was US$0.6 million (2014: US$2.3 million)

· Pre-tax loss of US$0.4 million (2014: pre-tax profit of US$0.8 million)

· Strong cash position of US$3.4 million as at 31 December 2015

· Basic earnings per share ('EPS') has fallen from a profit of US$0.012 in 2014 to a loss of US$0.0073 in 2015

· 2016 has started well and Q1 trading was in line with market expectations

The financial statements will be made available on the website: https://group.techfinancials.com/annual-interim-reports/.

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

"2015 was a transformational year in which we completed our AIM listing. Our B2B software licencing division continued to perform well. However, the Company also had to deal with an increased regulatory environment which impacted our B2C OptionFair business. In response to this, the Group undertook a number of actions to reverse the difficulties it faced due to increased regulatory supervision and we are confident that the Group is now better positioned moving forwards and that we have built strong foundations for renewed growth.

"Looking ahead, we will continue to invest heavily in R&D, new markets, ongoing regulatory compliance and marketing activities that will increase our global brand awareness. Our focus in 2016 will be on integrating our new agreements with Optionfortune and IBID, and building on the recent progress made in restoring our B2C offering to profitability. We are pleased to report that the 2016 financial year has started well and Q1 trading was in line with market expectations. We remain committed to creating value for shareholders and we look forward to updating the market on our progress in due course."

For further information:

Notes to Editors 

TechFinancials Inc. (AIM: TECH) is a leading proprietary software solutions company for online brokers delivering services for retail traders in binary options and other instruments. The Group operates a B2B division which provides software solutions for binary options brokers. TechFinancials also operates a B2C division in which it has an agreement with IBID, a company specialising in developing high growth online solutions, to grow one of the Company's existing B2C binary options trading brands. The Group has a second partnership in place with Optionfortune, a B2C binary options trading platform registered in Hong Kong. 

TechFinancials listed on AIM in March 2015 to facilitate its expansion in the fast growing global binary options market which is expected to increase to c. $20bn in trade volume by 2016, double that of 2014 at c. $10bn (ForexMagnates). A major part of the Group's strategy is to increase its share in existing markets and to penetrate emerging and regulated markets with high growth potential. As part of this, the Company recently announced the opening of a Hong Kong office to focus on the Asia Pacific region and signed an agreement with Optionfortune, to run a new B2C binary options trading platform, which also provides TechFinancials with exposure to this region.

Further information can be found at http://techfinancials.com.

Chairman's Statement

I am pleased to present my second report on TechFinancials, covering the consolidated results of the Group for the year ended 31 December 2015. 2015 was a transformational year in which the Company successfully completed its AIM listing. Our B2B software licensing business grew, but the Company had to react to an increased regulatory environment, which impacted our B2C OptionFair business. TechFinancials nonetheless continued to make significant progress in building ourselves as a leading proprietary software solutions company for online brokers delivering services for retail traders in binary options, Forex and other financial instruments.

Our core B2B software licensing business continued its strong growth during the period and we saw the number of brands actively using our platforms increase by 16.7% over the year to 56 brands. In addition, we successfully bolstered our B2B offering having launched a series of new products including a simplified Forex platform and new mobile and tablet trading solutions.

However, increased regulatory supervision was particularly felt in Europe as a consequence of CySEC changes which impacted the results of our B2C OptionFair business, and also in Japan, which affected our growing B2B division in this market. These factors, coupled with an increased R&D spend to maintain the growth of our customer base, as well as ongoing product development, regrettably impacted our profitability for the period under review.

In light of the increased regulatory environment, we, as a Board, undertook resolute action throughout the year to better position the business for 2016 and a return to profitability. We continued to target markets with high growth potential and as such, strengthened our presence in the Asia Pacific region through the opening of a Hong Kong office. We expect to complete our trading solution to comply with US regulations later this year, which should create additional revenue opportunities. The Group further established its distribution capabilities in Japan and China and the regulated solution for the Japanese market is expected to be introduced later this year.

In terms of our B2C division, we signed two agreements, one with Optionfortune, to run a new B2C binary options trading platform and the other with IBID to grow one of the existing B2C binary options trading brands, which we believe will help return our B2C division to profitability in 2016.

Regulation

2015 saw a worldwide tightening of regulatory guidelines and increased monitoring of binary options trading. Whilst the implications of this were challenging for the Company, management strongly believes that TechFinancials technological edge in supporting regulatory compliant trading will provide it with a clear competitive advantage and a catalyst for growth in the longer term.

Margins

We have been able to improve the gross margin by reducing the cost of customer acquisition in the existing B2C binary options trading platform and have been prudent in our control of the cost of sales despite the increased investment in customer support. We have continued to invest heavily in R&D and we expect to introduce new products such as the CFD platform and the regulated solutions to the US and the Japanese markets during the course of 2016, which should further improve our performance.

Business summary and operational review

B2B

Our B2B business has again performed well and revenues have grown strongly. We are confident that our new products and brands will continue to attract new customers, which will help to drive further revenue growth during 2016. We continue to focus on opportunities in new geographic territories with high growth potential. We opened an office in Hong Kong in order to increase our market presence in the fast growing Asian market where we see considerable opportunity for our simplified trading offering that includes binary options, Forex, and, later on, the CFD platform. We are developing a regulated solution for Japan and, by improving our current solutions, we expect to grow our customer base in Europe. We expect to complete our trading solution to be compliant with US regulation in 2016 and this should provide us with additional revenue opportunities.

We have successfully launched our simplified Forex platform and have also introduced Mobile and Tablet Trading solutions. These platforms are key to our future growth prospects as consumers continue to move away from web trading solutions, preferring instead to trade via mobile devices. We continued to focus on new products and expect to launch an add-on CFD trading platform in the next few months. The CFD offering will expand our service to spot traders following the introduction of the Forex platform in 2015.

B2C

The tougher trading environment in the B2C sector has impacted revenues and our bottom line, resulting in a loss before tax of US$0.4 million. We have however recorded positive EBITDA of US$0.6 million on an adjusted basis (2014: US$2.3 million). We have taken decisive action to return the B2C arm of our business to profitability. We have strengthened the senior management team and, with the extra working capital available to the Group, we have been able to conclude two agreements to capitalise on the growth potential in Asia and Europe.

In April 2015 we successfully established a position as a software vendor for liquidity providers operating in the US binary options market. This will allow liquidity providers to offer US compliant binary options and as a result will allow online brokers to operate in a fully regulated environment through the Cantor Exchange, a US regulated retail-focused binary options exchange owned by Cantor Fitzgerald.

In October 2015 we partnered with the owners of Optionfortune, a Hong Kong registered company to run a B2C binary options trading platform focused on the Asia Pacific region. We have a 51% stake in the newly established company, Dragon Financials Ltd ("Dragon"), which started its trading platform activity in January. The agreement provides for the issue of TechFinancials shares to the partners' shareholders if the new company reaches its financial target for 2016. I am pleased to say that the relationship with the new partners is progressing well and that trading is in line with our current expectations.

In February 2016 we entered into an agreement with IBID, a company specialising in developing high growth online solutions. Following this agreement, we have established a new company, IBID Financials Ltd. ("IBID Financials"), which is focused on the European regulated markets. It has been designed to allow both partners to pool their resources and expertise in order to increase the Company's B2C market share, revenues and profitability in Europe. Development work has already commenced to integrate TechFinancials trading platform into the partner's online marketing systems. IBID Financials, in which TechFinancials holds a stake of 51%, is expected to contribute significantly to the Group's profit milestones with the injection of marketing expertise and provision of working capital by IBID.

Dividends

For the year ended 31 December 2015, the Board does not recommend the payment of a dividend. The Board and Management's policy is to pay a dividend in the future when the Group returns to profitability.

Outlook

TechFinancials recently completed its first 12 months as an AIM quoted company. Joining AIM has raised our profile and credibility and provided the resources to widen our geographical presence and to invest in the development of the Group's regulatory compliant solutions for the US and Japanese markets as well as the further development of the Group's solutions in the Asian and European market. The Group believes that the Asian market, in particular, offers big opportunities and it will strive to increase its penetration of this market.

2015 was a challenging year but also a transformational one. Our B2B software licencing division continued to perform well, but our B2C OptionFair business was impacted by the increased regulatory environment. The Group undertook a number of actions to reverse the difficulties it faced due to increased regulatory supervision and we are confident that the Group is now better positioned moving forwards and that we have built strong foundations for renewed growth.

We have hard-working, motivated and talented employees who deliver exceptional service and solutions to our customers. I would again like to thank them on behalf of the Board for all their efforts in another busy and transformational year.

We remain confident about the long-term prospects of the Group and in achieving what we set out in our AIM admission, which is to grow our market share in the global binary options industry and to target high growth markets. Our overall goal remains on becoming the leading proprietary software solutions company for online brokers delivering services for retail traders in binary options, Forex and other financial instruments.

We continue to adapt to the evolving regulatory environment and with a healthy cash position of US$3.4m as at 31 December 2015 we will continue to invest heavily in R&D, new markets, ongoing regulatory compliance and marketing activities that will help increase our global brand awareness. Our focus in 2016 will be on integrating our new agreements with Optionfortune and IBID, and building on the recent progress made in restoring our B2C offering to profitability. We remain committed to creating value for shareholders and I would like to thank our shareholders for their continued support.

We are pleased to report that 2016 has started well and Q1 trading was in line with market expectations. We look forward to updating the market on our progress in due course.

Christopher Bell

Independent Non-Executive Chairman

26 May 2016

CEO's Strategic Report

Financial Results

The Group generated revenues of US$13.6 million in the year ended 31 December 2015, (2014: US$15.5 million), a 12% decrease from the prior year. The reduction in revenues has led to the Group recording a small operating loss of U$0.1million (2014: Operating profit of US$2.1 million).

The Group has continued to grow its core software licensing revenues which have increased from US$6.6 million to US$8.6 million in 2015, a growth rate of 30% on the previous year. The number of active brands using TechFinancials' platform increased by 8 to 56 (2014: 48). Revenue growth has been driven mainly by the existing brands which have continued to produce significant additional revenues from licensees. The Directors believe that the additional brands should provide further opportunities for growth in 2016.

Revenues from the Company's existing B2C trading platform have however decreased from US$8.9 million to US$5.0 million, a decline of 44% on the previous year. As announced on 21 August 2015, the senior management of OptionFair instigated changes to its management and operations in Cyprus to restore and improve its rate of customer conversion, as well as to reduce non profitable marketing expenditure. These were both in response to a lower than expected rate of customer conversion resulting in part from the impact of new CySEC regulations in Cyprus. The number of active customers fell by 71%, which has resulted in a corresponding fall in trading volumes. As described more fully, in the notes to the financial statements, the Company has recently entered into two agreements which we hope will restore customer levels to those seen in 2014.

Overall, the improvement in gross margins which was seen in the Interim Results to 30 June 2015, has been maintained to produce a full year margin of 71%, up from 65% in 2014. B2C margins have responded positively as the costs of affiliate acquisitions have fallen, reflecting a concentration on smaller affiliates and other marketing channels, margins have increased from 54% in 2014 to 69.4% in 2015. B2B margins have however fallen back from 80% to 71.4%, in part because of the cost of amortising the new trading solutions released during the year.

Overall, profitability has been affected by the reduction in trading platform revenues but also an increase in overheads, particularly with regard to R&D expenditure and ongoing costs associated with the Company being admitted to AIM in March 2015.

During the year much of the Company's R&D expenditure was devoted to maintaining the growth of the customer base as the Company continually looks to improve its infrastructure and customer experience as well as ongoing product development. The increased charge against profits of US$0.95 million represents a 72% increase on 2014. The Company successfully released the Simplified Forex platform and Mobile and Tablet applications, both projects generated revenues in 2015 and has provided for US$0.33million of amortisation in respect of these intangible assets.

Part of the increase in the R&D expense reflects a lower level of development costs capitalised as intangible assets. Whilst total R&D expenditure fell from US$3.6million to US$3.1million, the amount capitalised was US$0.8million compared with US$1.4million in 2014. The Simplified Forex trading solution and the mobile and tablet applications were completed in 2014 and are now being amortised.

Further development expenditure was incurred in order to continue the US regulated solution and the CFD project and to progress the IBs regulated solution in Japan which we expect to complete in the first half of 2016.

The costs of a strengthened management team and an expense of US$0.32 million (US$0.11million in 2014) in respect of non-cash share based compensation following the issue of new share options on the Company's admission to AIM has also contributed to an increase in administration expenditure.

This combination of lower revenues and increased expenditure has had a marked impact on the bottom line. The result before tax has declined from a pre-tax profit (before exceptional charges) of US$1.9 million in 2014 to a pre-tax loss of US$0.4 million in 2015.

The profits for 2014 are stated after a one-off, non-trading and non-cash exceptional charge relating to the reorganisation of the Group prior to its flotation on AIM. An aggregate amount of US$1.13 million was extracted from the Group's assets and charged against the results for 2014.

The adjusted EBITDA* was US$0.6 million against an adjusted EBITDA* of US$2.3 million in 2014.

* Earnings before interest, tax, depreciation and amortisation, non-trading items and non-cash charges.

The decrease in trading platform revenues has resulted in pre-tax losses of US$1.5 million compared with a profit of US$0.02 million in 2014. Licence income has produced US$1.1 million of pre-tax profit compared with a pre-tax profit of US$1.9 million 2014. The losses from the trading platform reflect the downturn in revenues notwithstanding the cost savings which have been made in affiliate acquisitions and acquiring traffic from other channels.

There is a tax expense of US$0.1 million in 2015 (2014: US$0.18 million) notwithstanding the losses for the year. In Israel the Group is taxable at a rate of 26.5% of assessable profits (2014: 26.5%) while in Cyprus the statutory rate of tax is 12.5%.

Basic earnings per share ('EPS') have deteriorated from a profit of US$0.012 in 2014 to a loss of US$0.0073 in 2015. Diluted EPS has shown a corresponding deterioration from a profit of US$0.011 in 2014 to a loss of US$0.0073 in 2015.

The Group generated net cash from operating activities of US$0.78 million compared with US$2.1 million in 2014. Net funds of US$3.2 million from the placing and admission to AIM have allowed the Group to invest in new products and services; cash outflows from investing activities was US$1.3 million (2014: US$1.5 million). This investment was primarily focused on the development of new products and services as well as improvements to the Group's office facilities. The Group was able to generate cash from its operations despite the loss incurred during the year. This is largely because of non-cash items of expenditure (depreciation, amortisation and share option charges) were significantly higher than in 2014 and impacted the bottom line profit.

The Group has continued to place great importance on strong controls over the collection of cash from operators. However, debtor days have increased from 17 days at the end of 2014 to 27 days at the end of 2015. This reflects the position that the Group's largest customer no longer pays in advance. Cash inflows from financing activities were US$3.1 million, largely as a result of the proceeds from the Company's admission to AIM in March 2015. The Group's cash balances at the end of 2015 totalled US$3.39 million (2014: US$1.66 million).

Operations

Although the Group's bottom line has been impacted by a decrease in revenue from the B2C existing binary trading platform business and an increase in research and development expenditure, we remain positive about the long term prospects of the Group. We are confident that with the current strengthened senior management and along with the new agreements signed that a broader-based platform for growth has been put in place.

Asia will be a particular focal point of the Group's activities. We are confident of further expansion in the world's leading and most promising market for simplified trading platforms and that TechFinancials will continue to advance its software development as needed for the regulated European market.

We have opened an office in Hong Kong to target the Asian B2B market and are building a regulated solution for Japan. We expect to continue to grow the customer base in Europe by improving the current solutions. The recent agreements are expected to enhance our operations both in Asia and Europe.

TechFinancials continues to look to introduce new products to the market in order to accelerate growth. The Company's second trading platform Simplified Forex, which is designed to allow brokers to approach mass market audiences, was launched in 2015 and management is pleased with how this has been received by customers. The platform can be accessed via smartphones and tablets and aims to capture the increasing number of customers who prefer to trade via mobile devices.

The Company also added a pricing engine for fixed strike binary options for US regulated exchanges. This is a solution for market makers who wish to connect to a regulated exchange in the US which offers binary options to the retail market. We will continue to work closely with Cantor Fitzgerald, our partner, to further enhance the solution.

TechFinancials continues to invest in the development of the Group's regulatory compliant solutions for the US and Japanese markets as well the further development of the Group's solutions in the EU market.

A fixed strike binary options trading platform with supporting IT systems for retail brokers, which has been designed to address the Japanese regulated market will be introduced in the second half of 2016. A simplified CFD trading platform through which traders are able to trade CFDs on stocks and indices in broadly the same way as they trade Forex will also be introduced in the second half of 2016.

The online trading industry continues to evolve and grow, and with the extra working capital available to it following the successful admission to AIM, the Group has been able to consider additional opportunities including two agreements which have recently been concluded.

In October 2015 the Company entered into an agreement with the owners of Optionfortune to run a B2C binary options trading platform focused on the Asia Pacific region. The new company, Dragon, started its trading platform activity in January 2016. On 1 February 2016 the Company entered into an agreement with a partner specialising in the development of high growth, online oriented companies. The new company, IBID Financials, will leverage the expertise of the Group and the partner to accelerate the growth of the Company's existing B2C binary options trading brands of the Group in Europe.

The Directors have continued to build infrastructure to support the Group's long-term growth plans whilst keeping day-to-day overhead costs under control. Whilst administration costs have increased for the reasons noted above, selling and marketing costs at US$4.4 million have in overall terms been held at a similar level to that in 2014 increasing by approximately 1%. Whilst B2B marketing expenditure has been increased, which has supported revenue growth in this sector, B2C expenditure has been reduced.

Key Performance Indicators

The Board monitors key performance indicators ('KPIs') on a monthly basis. The Board considers that the most important ones for the success of the business are:

· Numbers of licensees using the Group's software: 56 (2014: 48). The increase in the number of brands has resulted in a 12% increase in revenues. Whilst the number of brands fell back in the second half of the year, these brands were small in revenue terms and reflected tighter regulations in Japan.

· Total number of trades executed through its licensees: 16.96 million (2014: 19.38 million)

· The number of active customers on the existing binary trading platform has decreased by 71% compared to the previous year.

· Total revenues: US$13.6 million (2014: US$15.5 million)

· Cash generation from operating activities: US$0.078 million (2014: US$2.1 million)

The Company's systems track trading volumes on a daily basis. These statistics provide an early and reliable indicator of current performance of the trading platform.

Profitability of the business, with its relatively low fixed cost base, is managed primarily via a review of revenue and margins. Working capital is reviewed by measures of absolute amounts and debtor days.

Growth Strategy and Outlook

The Group's near term goals are to return the business to profitability and to increase margins. With the opening of the Hong Kong office and the completion of the establishment of the new subsidiary with Optionfortune, we have strengthened our presence in the Asia Pacific region and we continue to view this as a high growth market. Our focus in 2016 will be on increasing our market share in this region and in creating additional locally-customised solutions for trading in China and Japan. We will also be focused on implementing and growing the new entity established with IBID and on growing our market share in Europe.

We will continue to launch new trading platforms and other products to meet the changing demands of our global customer base. We will continue to target markets with high growth potential and develop solutions for newly regulated jurisdictions. We welcome the increased regulation in the global simplified trading market and we will continue to ensure that our offering is flexible to meet these new requirements. Our plan is to invest in marketing activities to strengthen the Company's brand awareness.

We are confident that the actions taken in 2015 have positioned the Company for growth during 2016 and the outlook for TechFinancials in the new financial year is encouraging. The long-term prospects for the business remain strong and our objective remains to increase our customer base and to become a leading provider of software solutions for the global simplified trading market.

Asaf Lahav

Chief Executive Officer

26 May 2016

Consolidated statement of comprehensive income

For the year ended 31 December 2015

Consolidated Statement of financial position

As at 31 December 2015

Consolidated statements of changes in equity

For the year ended 31 December 2015

Consolidated statements of cash flows

For the year ended 31 December 2015

The consolidated statements of cash flow for the Group for the years ended 31 December 2014 and consolidated for the year ended 31 December 2015 are set out below:

NOTES TO THE FINANCIAL STATEMENTS

1. General Information

The Financial Statements present the consolidated results of the Group for each of the years ended 31 December 2015 and 2014, following the reorganisation described in note 2.

The Group

TechFinancials Inc. (formerly Mika Holdings Inc.), a company incorporated in the British Virgin Islands on 16 June 2009 as a British Virgin Island company under the BVI Business Companies Act, 2004, is the holding company for the Group.

The Financial Statements of the Group includes the Financial Statements of B.O. TradeFinancials Limited a Cyprus Investment Firm (''CIF'') in accordance with license no. 216/13 granted by the Cyprus Securities and Exchange Commission (''CySEC'') on 27 September 2013, MarketFinancials Limited a company regulated by the Financial Services Authority in Seychelles under the license SD006 issued on 21 October 2014, Techfinancials (Israel) 2014 Ltd, an Israeli incorporated company and NetMavrik Ltd. an Israeli incorporated company held by common direct shareholders with the Company until 14 November 2014.

The companies within the Group are set out below, all of which are private companies limited by shares.

The registered offices for the companies within the Group are as follows:

TechFinancials, Inc.:  Craigmuir Chambers, PO Box 71, Road Town, VG1110 Tortola, British Virgin Islands.

B.O.TradeFinancials Limited: 1, Kosta Hadjikakou, Kyriakos Tower, 1st Floor

4107, Agios Athanasios, Limassol, Cyprus.

Techfinancials (2014) Israel Ltd: 3 Hamada St. Herzliya, Israel.

DragonFinancials Ltd: Francis Rachel St. Victoria, Mahe, Seychelles

MarketFinancials Ltd: Suite 3, Global Village, Jivan's Complex, Mont Fleuri, Mahe, Seychelles

NetMavrik Ltd: 3 Hamada St. Herzliya, Israel.

Primary Activity

The principal activity of the Company is to act as a holding company to a group involved in the development and licensing of financial trading platforms to businesses.

The Group is engaged in the provision of marketing, investment services, including reception and transmission of orders in relation to one or more financial instruments, execution of orders on behalf of clients in relation to one or more financial instruments and ancillary services which comprise the safekeeping and administration of financial instruments for the account of clients.

2. Summary of significant accounting policies

Basis of preparation

The Company was incorporated on 16 June 2009, under BVI Business Companies Act, 2004.

In October 2014 the Company entered into an agreement to acquire the entire issued share capital of B.O. Trade and in September 2014 formed a new entity TechFinancials Israel (2014) Ltd. to assume the role of NetMavrik on 1 November 2014. In April 2014 a new entity MarketFinancials was formed, in January 2015 MarketFinancials started its activity as a liquidity provider to the Group.

B.O. TradeFinancials and NetMavrik were previously held by parties under common control with the Company (NetMavrik left the group on 14 November 2014). Until 31 October 2014, the Financial Statements were prepared on the basis of presenting the results for the Company and subsidiaries on a combined basis.

In determining the appropriate accounting treatment for this transaction, the Directors considered IFRS 3 - Business Combinations (Revised 2008). However, they concluded that this transaction fell outside the scope of IFRS 3 (revised 2008) since the transaction described above represents a combination of entities under common control. In accordance with IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors, in developing an appropriate accounting policy, the Directors have considered the pronouncements of other standard setting bodies and specifically looked to accounting principles generally accepted in the United Kingdom ("UK GAAP") for guidance (FRS 6 - Acquisitions and Mergers) which does not conflict with IFRS and reflects the economic substance of the transaction.

Under UK GAAP, the assets and liabilities of both entities are recorded at book value, not fair value. Intangible assets and contingent liabilities are recognised only to the extent that they were recognised by the legal acquirer in accordance within applicable IFRS, no goodwill is recognised, any expenses of the combination are written off immediately to the income statement and comparative amounts, if applicable, are restated as if the combination had taken place at the beginning of the earliest accounting period presented.

Therefore, although the Group reorganisation did not become unconditional until 14 November 2014, these consolidated Financial Statements are presented as if the Group structure has always been in place, including the activity from incorporation of the Group's principal subsidiary. Both entities had the same management as well as majority shareholders.

The Financial Statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") issued by

The Financial Statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") issued by the International Accounting Standards Board ("IASB") including related interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC"). The Financial Statements have been prepared in a manner consistent with the accounting policies to be adopted by the Company in its financial statements.

The individual Financial Statements of each group entity is measured and presented in the currency of the primary economic environment in which the entity operates (its functional currency). The Financial Statements of the Group are presented in US Dollars, which is the presentation currency for the financial statements.

Basis of consolidated reporting

The consolidated Financial Statements include the Financial Statements of all subsidiaries. The financial year ends of all entities in the Group are coterminous.

The Financial Statements of subsidiaries are included in the consolidated Financial Statements from the date on which control over the operating and financial decisions is obtained and cease to be consolidated from the date on which control is transferred out of the Group. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain economic benefits from its activities.

All intercompany balances and transactions, including recognised gains arising from inter‑group transactions, have been eliminated in full.

Unrealised losses are eliminated in the same manner as recognised gains except to the extent that they provide evidence of impairment.

3. Intangible assets - development expenditure

Project A - Forex trading solution.

Project B - Mobile and tablet native applications adjusted to different screen sizes.

Project C - Trading solution for the US market.

Project D - Trading solution for the Japanese market.

Project E - Trading solution for CFD.

Computer software - expenditure incurred on major software development projects 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 useful economic live 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.

Major assumptions are as follows:

A 25% increase in the discount rate would result in no impairment charge.

The Group has reviewed intangible assets for impairment at the end of the period. As of 31 December 2015, no impairment was recorded.

4. Share capital

On 4 February 2015, all ordinary A shares of US$0.01 each in the capital of the Company were converted into ordinary shares of US$0.01 each in the capital of the Company.

On 4 February 2015, the shares of the Company were split by 20, thus increasing the number of the issued shares from 2,844,235 to 56,884,700. The number of shares for year ended 31 December 2014 are presented above as US$0.0005 shares despite the split having occurred after this date.

On 16 March 2015, the Company's shares were admitted to trading on the AIM market of London Stock Exchange. As part of the placing and admission, the Company issued 11,304,901 shares of US$0.0005 par value at 27 pence per share which raised a gross amount of approximately US$4.62 m. Subsequent to the IPO the number of shares in issue is 68,189,601. The share issue costs amounted to $1.35 m. In addition, as part of the IPO, a Shareholder of the Company sold 1,683,502 shares to the public in consideration for £454,545 (about US$700,000). On 16 March 2015, trading in company's shares commenced on AIM.

In connection with the Placing, the Company has agreed to issue 215,629 warrants in respect of Ordinary Shares to Northland at the Placing Price, which are valid and exercisable for 5 years following Admission.

During 2015 a total of 438,621 shares were issued pursuant a share based compensation exercise of options (see also note 5).

5. Share-based payment transactions (Group)

During the year ended 31 December 2015, the Group introduced a share-based payment arrangements which are summarised below.

Employee Stock Option Plan:

Type Share Option Plan on behalf of certain senior employees of the Group

Date of Grant: 15 October 2013

Number Granted: 3,714,000 options to purchase ordinary shares of US$0.0005 each.

Contractual life: 6 years

Vesting conditions: 2,414,000 on the date of grant, 250,000 option a year after the date of grant and 1,050,000 vest on monthly equal quantity over a period of 3 years.

Earliest Exercise date: 15 October 2013

Exercise price: US$0.0005

Date of Grant: 5 February 2015

Number Granted: 2,222,760 options to purchase ordinary shares of US$0.0005 each.

Contractual life: 4 years

Vesting conditions: 1,260,314 on the first year of grant, 428,095 option a year after the date of grant, 230,499 after two years and 123,633 on the fourth year.

Earliest Exercise date: 5 February 2015

Exercise price: Between US$0.083- US$0.416

Date of Grant: 1 April 2015

Number Granted: 134,680 options to purchase ordinary shares of US$0.0005 each.

Contractual life: 4 years

Vesting conditions:  42,278 on the first year of grant, 33,696 option a year after the date of grant, 32,388 after two years and 26,318 on the fourth year.

Earliest Exercise date: 1 April 2015

Exercise price: Between US$0.17- US$0.42

On 29 October 2014, the shares of the Company were split by 100, accordingly the share price was adjusted to US$0.01.

On 4 February 2015, the shares of the Company were split by 20, accordingly the share price was adjusted to US$0.0005. The number of options for year ended 31 December 2014 are presented above post-split despite the split having occurred after this date.

On 4 February 2015 and on 1 April 2015 the Company granted 2,336,700 and 134,680 options respectively, to purchase ordinary shares of the company to 51 employees and 2 consultants under a new 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 that varies between $0.083 and $0.416 per share.

On 6 March 2015, prior to the placing, 4 employees and 2 advisors exercised 3,011,000 options pursuant to the 2013 employee share option plan to acquire ordinary shares of US$0.0005 ("Ordinary Shares") of the Company.

On 20 July 2015, Jonathan Shkedi (OptionFair former CEO) exercised 241,685 options pursuant to the 2014 employee share option plan, to acquire 192,514 ordinary shares of US$0.0005 ("Ordinary Shares") in the Company in consideration for the cancellation of the balance of 49,171 options.

On 8 August 2015, Edit Avital (OptionFair former CEO) exercised 300,362 options pursuant to the 2014 employee share option plan, to acquire 168,677 ordinary shares of US$0.0005 ("Ordinary Shares") in the Company in consideration for the cancellation of the balance of 180,218 options.

On 3 September 2015, Jonathan Shkedi (OptionFair former CEO) exercised 105,742 options pursuant to the 2014 employee share option plan, to acquire 77,430 ordinary shares of US$0.0005 ("Ordinary Shares") in the Company in consideration for the cancellation of the balance of 15,073 options.

This estimated fair value was calculated by applying a Black-Scholes option pricing model. In the absence of a liquid market for the share capital of the group the expected volatility of its share price is difficult to calculate. Therefore the directors have considered the expected volatility used by listed entities in similar operating environments to calculate the expected volatility.

The model inputs for the 2013 plan were:

* share prices at grant date US$0.0088 following the split;

* exercise prices of US$ 0.0005;

* expected volatility of 55 per cent;

* contractual life of 6 years; and

* a risk-free interest rate of 4.5 per cent.

The model inputs for the 2015 plans were:

* share prices at grant date US$0.4- US$0.4494 following the split;

* weighted average exercise prices of US$ 0.0440;

* expected volatility of 55 per cent;

* contractual life of 10 years; and

* a risk-free interest rate of 4.5 per cent.

The expense and equity reserve arising from share based payment transactions recognised in the Year ended 31 December 2014 and 2015 was US$111,000 and US$320,000 respectively.

6. Income tax expenses

A reconciliation of income tax expense applicable to the profit before taxation at the statutory tax rate to the income tax expense/(release) at the effective tax rate of the Group is as follows:

7. Earnings per share

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

The difference between basic and diluted earnings per share is due to shared based compensation transaction.

The calculation of basic and diluted earnings per share for all periods presented have been adjusted retrospectively to reflect the share splits that occurred after the balance sheet date.

8. Segment Information

Business segment

The Group's primary format for reporting segment information is business segments, with each segment representing a product category.

Geographical information has not been disclosed as it is not available and the cost to develop it would be excessive.

The segment information provided to management for the reportable segments for the year ended 31 December 2014 and 31 December 2015 is as follows:

Year ended 31 December 2014

Revenues from the Group's top three customers in 2014 represent approximately 20% of the total revenues. Most of the 20% is consisting of one customer.

Year ended 31 December 2015

Revenues from the Group's top three customers in 2015 represent approximately 34.6% of the total revenues. Most of the 34.6% is consisting of one customer.

9. Contingencies

On 27 April 2016 BO TradeFinancials a subsidiary of the group ("the Company") received a letter of findings by the Cyprus Securities and Exchange Commission (the "CySEC") according to which the Company may have been in violation of Articles of the Cyprus Investment Firm Laws of 2007 and the Anti Money Laundering Law (Law 188(I) / 2007) and / or provision of Directives issued in respect of the two Laws (the "Laws").

In combination with a prior letter of findings received by CySEC on 18 December 2015, the two letters create a possibility that CySEC will proceed with a decision to impose an administrative fine to the Company. There is a remote possibility of withdrawal or suspension of license but the directors believe it is more likely the Company will receive an administrative fine.

The level of the fine and the timing of the fine cannot currently be determined as this is a matter to the absolute discretion of the Board of CySEC. Furthermore, the implications for the Company cannot be currently determined as this will only be feasible to be assessed with certainty based on further events and the financial position of the Company as at the date any possible fine will be imposed.

Any possible fine will be determined based on the representation of actions taken by the Company in order to regularize its position for the alleged violations of the Laws. The directors have considered similar cases in relation to similar violation of Articles of the Laws, and the fact that these findings are a result of the first visit by the officers of CySEC and examination of the Company's activities during 2015, and concluded that the fines are likely to not have a material impact on the financial statements.

Based on the response letter of the Company dated 23 May 2016, discussions between management and based on the actions taken by the Company to remedy the violations as stated in the response letters, it is anticipated that the Company will incur a fine, however it cannot be estimated with any certainty as to the monetary level of this fine. The Company believes that despite there being a risk of a fine the impact would not be material and no provision has been made.