Webis Regulatory News (WEB)

For immediate release 30 November 2015

Webis Holdings plc

("Webis" or "the Group")

Annual Report and Financial Statements for the year ended 31 May 2015

Notice of Annual General Meeting

Webis Holdings plc, the global gaming group, today announces its audited results and the publication of its 2015 Report and Accounts ("Accounts") for the year ended 31 May 2015, extracts from which are set out below.

The Accounts are being posted to shareholders together with the Notice of Annual General Meeting, and will be available on the Group's website www.webisholdingsplc.com and at the Group's Registered Office: Viking House, Nelson Street, Douglas, Isle of Man IM1 2AH.

The AGM will be held at The Claremont Hotel, 18/19 Loch Promenade, Douglas, Isle of Man, at 11.00 on 30 December 2015.

Chairman's Statement

Introduction

Shareholders will be aware that the Board took the strategic decision to cease the sportsbook wagering operation, betinternet.com (IOM) Limited and its subsidiaries, during the financial year. This action followed the impact of the global increase in gaming regulation, the associated costs of compliance, and the closure of the important Singapore market to e-gaming. As a result, the Board is determined to ensure that all the Group's operations are both licenced and compliant in the markets within which they are active, and is not prepared to operate under either "black" or "grey" conditions. Thus, the sportsbook operation has been the subject of an orderly wind-down and all outstanding player balances have been returned to their originators, leaving that company and its subsidiaries now dormant.

This closure and subsequent restructuring has had a significant and immediate short-term impact on the Group's profitability, but the Board remain confident that the long-term outlook is positive. The Group is now able to firmly focus, without distraction, on the USA based pari-mutuel wagering business - WatchandWager.com ("WatchandWager"), centred in San Francisco with an operations hub in Lexington, and the race track management business - Cal Expo, based in Sacramento.

I am pleased, therefore, to report that against this background, WatchandWager continues to make good strategic progress in its determination to return to profitability, particularly in increasing the availability of premium global pari-mutuel wagering content, adding to its suite of regulated licences, including access to the Hong Kong Jockey Club pools.

Year End Results Review

Group turnover for the year ended 31 May 2015 was US$ 154.4 million (restated 2014: US$ 119.0 million) - a growth of nearly 30% on continuing operations. Gross Profit, however, decreased by nearly 7% to US$ 4.2 million (restated 2014: US$ 4.5 million), reflecting the cost of remaining competitive. Overall gross margin was 2.7% (restated 2014: 3.8%).

Operating costs were US$ 5.0 million (restated 2014: US$ 4.7 million) - an increase of 6.4%. The majority of the cost increase was attributable to implementing our US growth strategy, together with the relocation expenses following the closure of the legacy Isle of Man operations, and further investment in new staff, marketing, and in meeting compliance and regulatory requirements.

As a result, our loss for continuing operations was US$ 1.6 million (restated 2014: profit of US$ 0.2 million). Including the one-off costs associated with restructuring; the closure of the sportsbook; goodwill write-off and discontinued operations; the loss for the year was US$ 2.0 million (restated 2014: profit of US$ 0.5 million), providing a basic and diluted loss per share for continuing operations of 40 cents (restated 2014: profit of 6 cents).

Shareholder equity, following shareholder approval to cancel the share premium account, has decreased to US$ 3.2 million (2014: US$ 5.2 million). Total cash stands at US$ 6.1 million (2014: US$ 8.4 million), which includes a ring-fenced amount of US$ 1.4 million (2014: US$ 4.7 million) held as protection against our player liability as required under Isle of Man gambling legislation. A further amount of US$ 2.6 million (2014: US$ 2.0 million) is held as bonds and deposits with other regulatory authorities on behalf of players.

WatchandWager - Business to Business ("BTOB")

WatchandWager's turnover for the full year was boosted by significant high volume player activity provided by its access into the Hong Kong Jockey Club pools in particular, and other markets in the USA, Canada, Australia, UK, Ireland and France.

WatchandWager significantly increased the scope and number of players in the BTOB sector of its operations, namely the provision of pari-mutuel wagering to high roller clients, many of whom specialise in algorithmic or computer assisted wagering on a wide range of global racetracks. WatchandWager has been particularly successful in providing access to these global betting pools to its existing and new client base over the year. This access has largely been granted due to WatchandWager's position as a fully licensed and regulated online and racetrack operator in the USA, which has been of significant strategic benefit, setting us apart from other non-racetrack competitors.

Against these positive developments, the BTOB high volume wagering sector has become increasingly competitive over the year, with other operators and player agents providing third party services, and increased racetrack fees being charged in return for access to racetrack wagering and video streaming rights. This has made the sector become increasingly high volume, but low margin in nature. In addition, in January 2015, WatchandWager terminated its commercial arrangement with the Swedish Tote ("ATG"), for anti-competitive pricing policies towards high rollers. Despite these issues, the Board remains very positive for further growth in the high volume business in the future, especially in Hong Kong and the other markets.

Business to Consumer - www.watchandwager.com/mobile

We have concentrated on the full roll-out and marketing of our primary website watchandwager.com and mobile application, specifically designed to cater for wagering from US customers in applicable states. The core functionality and payment processing service for the website was much improved throughout the year, as has been the range of content and betting opportunities on the site. As a result, we launched a significant marketing campaign aimed at increasing player numbers in the second half. We continue to only engage in known successful marketing tactics to support the site. The development of www.watchandwager.com is of primary strategic importance to the Group, providing as it does, enhanced margins and greater stability. We will place considerable emphasis on this aspect of the business for the future.

In conclusion, following and coinciding with the closure of the sportsbook business, we have now built a fully licensed US operational base in Lexington, Kentucky, the heart of horseracing activity in the USA, to augment our HQ in San Francisco. This move entailed the closure of much of our legacy Isle of Man operations towards the end of the year and the transfer and building of staff numbers in Lexington. We are now confident we have a sound operational base to build USA operations for the future.

Cal Expo Racetrack

Cal Expo, our Sacramento based harness racetrack operation, performed well in its third year of operation under our control. In conjunction with our management team at Sacramento we have run the operation in a pragmatic but efficient manner by controlling costs to achieve the best return for all stakeholders and, by keeping a very close control on Health and Safety issues. This helped the track to achieve profitability, whilst also fulfilling our main aim of offering meaningful leverage in developing the pari-mutuel and wider USA-based business. During the period, we also renewed our lease for the racetrack for two further years with our State owned landlord at Cal Expo on more favourable terms, so consolidating our commitment to racetrack operations over the next two seasons.

Post Year, Strategy and Regulatory Developments

WatchandWager has now established full access to the widest range of racetrack betting pools of any Advanced Deposit Wagering (in which the bettor must fund their account before being allowed to place bets) operator in the world, including direct relationships to the USA, Canada, Hong Kong, UK, France and Irish markets, and third-party agreements for Australia, New Zealand, South Africa, Dubai, Singapore and Japan. This range of product will provide an invaluable asset to the growing BTOB wagering operations and volumes globally.

WatchandWager is currently in the final stages of concluding an extended three-year contract with the Hong Kong Jockey Club for betting rights into their pools. All the key commercial terms and the longer term of the agreement have been agreed between both parties. We are expecting to be able to announce the execution of this agreement within the next few weeks. The commitment to a long term business relationship with the Hong Kong Jockey Club is already paying off with significant turnover increases in the first four months of the new financial year.

WatchandWager has now completed the setup of its operational team in Lexington Kentucky. This office now houses the Marketing, Sales, Race-day Operations, Customer Services and Finance functions of the business. As part of this setup we have successfully recruited a senior USA Chief Operating Officer, and have also relocated two senior staff from the Isle of Man to Lexington. The Board now believes it has the correct team in place in the USA to further grow the BTOC side of the business, namely delivering targeted marketing activity for the watchandwager.com website/mobile.

As part of the Lexington development, WatchandWager will be opening a dedicated Call Centre telephone betting operation in Lexington from December 2015. Staff are currently in advanced training and beta testing mode. The Call Centre will be targeted at high volume premium players, we are optimistic that the revenue projections for this area of the business will be achieved, as we believe we can offer a unique service for premium players versus our competitors.

WatchandWager has renewed its California Horse Racing Board racing licence for Cal Expo and our third season of racing restarted in late October. Early indications of horse numbers residing at the track are very encouraging and we are optimistic that the 2015/2016 season will show increased profitability.

WatchandWager has recently renewed its core USA gaming licences in California and North Dakota. In addition, and as previously reported we have recently acquired a licence in Washington State, and are currently working on acquiring licences for the states of Kentucky and New York.

We continue to monitor developments in state-by-state and federal e-gaming regulation, looking to maximise opportunities as they arise. WatchandWager still remains in a strong position as a first mover in regulated e-gaming in multiple states in the USA.

In summary, the Board remains confident that the strategies adopted are compliant, correctly aligned and focussed to ensure the best prospects for future growth and return to profitability.

I would like to thank all of our staff, our customers and our shareholders for their continued support throughout the year.

Denham Eke

Non-executive Chairman

For further information:

Webis Holdings plc Tel: 01624 639396

Denham Eke

Beaumont Cornish Limited Tel: 020 7628 3396

Roland Cornish/James Biddle

Consolidated Statement of Comprehensive Income

For the year ended 31 May 2015

.

Statements of Financial Position

As at 31 May 2015

Statements of Changes in Equity

For the year ended 31 May 2015

Group

Company

Consolidated Statement of Cash Flows

For the year ended 31 May 2015

Notes to the Financial Statements

For the year ended 31 May 2015

1 Reporting entity

Webis Holdings plc is a company domiciled in the Isle of Man. The address of the Company's registered office is Viking House, Nelson Street, Douglas, Isle of Man, IM1 2AH. The Group's consolidated financial statements as at and for the year ended 31 May 2015 consolidate those of the Company and its subsidiaries (together referred to as "the Group").

1.1 Basis of preparation

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and its interpretations as adopted by the European Union.

Standards and interpretations not yet effective

A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 May 2015, and have not been applied in preparing these financial statements. None of these are expected to have a significant effect on the measurement of the amounts recognised on the Group's financial statements; however, IFRS 9 Financial Instruments ("IFRS 9") may change the classification of financial assets. IFRS 9 is first effective for accounting periods beginning on or after 1 January 2018. 

There are no other standards, interpretations or amendments to existing standards that are not yet effective that would be expected to have a significant impact on the Group.

The Group has continued to apply the accounting policies, presentation and methods of computation used in the 31 May 2014 annual report.

Changes in accounting policies

The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 June 2014: 

· IFRS 10 Consolidated Financial Statements (2011) ("IFRS 10 (2011)") along with the consolidation suite of standards, namely: IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IAS 27 (revised) and IAS 28 (revised). The amendments to IFRS 10 require investment entities to state controlled portfolio entities at fair value under IAS 39 instead of consolidating such subsidiaries (see (a))

· IFRS 13 Fair Value Measurement ("IFRS 13") (see (b))

The nature and the effect of the significant changes are further explained below.

(a) Subsidiaries

As a result of IFRS 10 (2011), the Company has changed its accounting policy for determining whether it has control over and consequently whether it consolidates its subsidiary companies. IFRS 10 (2011) introduces a new control model that is applicable to all investee companies, by focusing on whether the Company has power over an investee company, exposure or rights to variable returns from its involvement with the investee company and ability to use its power to affect those returns. In particular, IFRS 10 (2011) requires that the Company consolidate investee companies that it controls on the basis of de facto circumstances.

In accordance with the transitional provisions of IFRS 10 (2011), the Company reassessed the control conclusion for its subsidiary companies at 1 June 2013. No changes resulted from this reassessment. The Directors consider that the adoption of IFRS 11 and IFRS 12 will not have any impact on the presentation in the financial statements.

(b) Fair value measurement

IFRS 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements, when such measurements are required or permitted by other IFRSs. In particular, it unifies the definition of fair value as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date. It also replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7 Financial Instruments: Disclosures.

In accordance with the transitional provisions of IFRS 13, the Group has applied the new fair value measurement guidance prospectively. Notwithstanding the above, the change had no significant impact on the measurements of the Group's assets and liabilities.

Functional and presentational currency

These financial statements are presented in US Dollars which is the Group's primary functional currency and its presentational currency. Financial information presented in US Dollars has been rounded to the nearest thousand. All continued operations of the Group have US Dollars as their functional currency.

(b) Basis of measurement

The Group consolidated financial statements are prepared under the historical cost convention except where assets and liabilities are required to be stated at their fair value.

(c) Use of estimates and judgement

The preparation of the Group financial statements in conformity with IFRS as adopted by the EU requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Although these estimates are based on management's best knowledge and experience of current events and expected economic conditions, actual results may differ from these estimates.

The directors believe the models and assumptions used to calculate the fair value of the share-based payments, outlined in note 17, are the most appropriate for the Group.

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

Going concern

The directors have prepared projected cash flow information for the next 12 months and are satisfied that the Group has adequate resources to meet its obligations as they fall due. The directors consider that it is appropriate that these financial statements are prepared on the going concern basis as the Group has a positive cash balance and no debt.

1.2 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented unless otherwise stated.

Basis of consolidation

The consolidated financial statements incorporate the results of Webis Holdings plc and its subsidiaries. Subsidiaries are

consolidated from the date of acquisition, being the date on which the Group obtains control, and continue until the date that

such control ceases. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating

policies of an entity so as to obtain benefits from its activities.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

Acquisition-related costs are expensed as incurred.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. When necessary amounts reported by subsidiaries have been adjusted to conform with the Group's accounting policies.

Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are

presented in US Dollars, which is also the Group's functional currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of

such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in other comprehensive income as qualifying cash

flow hedges and qualifying net investment hedges. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within 'finance income or costs'. All other foreign exchange gains

and losses are presented in the income statement within 'Other (losses)/gains - net'.

(c) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as

follows:

(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

(ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case

income and expenses are translated at the rate on the dates of the transactions); and

(iii) all resulting exchange differences are recognised in other comprehensive income.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income.

Revenue recognition and turnover

Turnover represents the amounts staked in respect of bets placed by customers on events which occurred during the year. Cost of sales represents payouts to customers, together with betting duty payable and commissions and royalties payable to agents and suppliers of software. Open betting positions are carried at fair market value.

Segmental reporting

Segmental reporting is based on the business areas in accordance with the Group's internal reporting structure. The Group determines and presents segments based on the information that internally is provided to the Managing Director, the Group's chief operating decision maker.

An operating segment is a component of the Group and engages in business activities from which it may earn revenues and incur expenses. An operating segment's operating results are reviewed regularly by the Managing Director to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Borrowing costs

Borrowing costs are recognised in profit or loss in the period in which they are incurred.

Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries except for deferred income tax liability, where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Only where there is an agreement in place that gives the Group the ability to control the reversal of the temporary difference is the liability not recognised.

Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes, assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Discontinued operation

A discontinued operation is a component of the Group's business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:

· represents a separate major line of business or geographic area of operations; and

· is part of a single co-ordinated plan to dispose, or discontinue, a separate major line of business or geographic area of operations.

Classification as a discontinued operation occurs at the earlier of disposal, permanent cessation of activities or when the operation meets the criteria to be classified as held-for-sale.

When an operation is classified as a discontinued operation, the comparative statement of profit or loss and OCI is re-presented as if the operation had been discontinued from the start of the comparative year.

Intangible assets - goodwill

Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the Group's interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units ("CGUs"), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed.

Intangible assets - other

(a) Trademarks and licences

Separately acquired trademarks and licences are shown at historical cost. Trademarks and licences acquired in a business combination are recognised at fair value at the acquisition date. Trademarks and licences have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of trademarks and licences over their estimated useful lives of three years.

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives of three years.

(b) Website design and development costs

Costs associated with maintaining websites are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique websites controlled by the Group are recognised as intangible assets when the following criteria are met:

· it is technically feasible to complete the website so that it will be available for use;

· management intends to complete the website and use it;

· there is an ability to use the website;

· it can be demonstrated how the website will generate probable future economic benefits;

· adequate technical, financial and other resources to complete the development and to use the website are available; and

· the expenditure attributable to the website during its development can be reliably measured.

Directly attributable costs that are capitalised as part of the website include the website employee costs and an appropriate portion of relevant overheads.

Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Website development costs recognised as assets are amortised over their estimated useful lives, which do not exceed three years.

Property, equipment and motor vehicles

Items of property, equipment and motor vehicles are stated at historical cost less accumulated depreciation (see below) and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the financial position date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Depreciation is calculated using the straight-line method to allocate the cost of property, equipment and motor vehicles over their estimated useful lives of three years.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within 'Other (losses)/gains - net' in the income statement.

Impairment of assets

Goodwill arising on acquisitions and other assets that have an indefinite useful life and are not subject to amortisation are reviewed at least annually for impairment.

Other intangible assets, property, plant and equipment are reviewed for impairment whenever there is an indication that the carrying amount of the asset may not be recoverable. If the recoverable amount of an asset is less than its carrying amount, an impairment loss is recognised. Recoverable amount is the higher of fair value less costs to sell and value in use.

If at the financial position date there is any indication that an impairment loss is recognised in prior periods for an asset other than goodwill that no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount.

Share-based payments

The Group operates an equity-settled, share-based compensation plan, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted:

· including any market performance conditions (for example, an entity's share price); and

· excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period).

Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied.

At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.

Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

The Group is not party to any leases that are classified as finance leases.

Equity

Share capital is determined using the nominal value of shares that have been issued.

The share premium account includes any premiums received on the initial issuing of the share capital. Any transaction costs associated with the issuing of shares are deducted from the premium paid.

Equity settled share-based employee remuneration is credited to the share option reserve until related stock options are exercised. On exercise or lapse, amounts recognised in the share option reserve are taken to retained earnings.

Retained earnings include all current and prior period results as determined in the income statement and any other gains or losses recognised in the Statement of Changes in Equity.

Financial instruments

Non-derivative financial instruments include trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other payables. Ante-post sports bets are recognised when the Company becomes party to the contractual agreements of the instrument.

Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes party to the contractual terms of the instrument. Transaction costs are included in the initial measurement of financial instruments, except financial instruments classified as at fair value through profit and loss. The subsequent measurement of financial instruments is dealt with below.

Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

Cash and cash equivalents

Cash and cash equivalents are defined as cash in bank and in hand as well as bank deposits, money held for processors and cash balances held on behalf of players. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.

Bank borrowings

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

Trade and other payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Open sports bets

The Group may have at any point in time, an exposure on open sports bets. These bets meet the definition of a financial liability under International Accounting Standard 32 Financial Instruments: Disclosure and Presentation, and therefore are recorded at fair value.

Employee benefits

(a) Pension obligations

The Group does not operate any post-employment schemes, including both defined benefit and defined contribution pension plans.

(b) Short-term employee benefits

Short-term employee benefits, such as salaries, paid absences, and other benefits, are accounted for on an accruals basis over the period in which employees have provided services in the year.

All expenses related to employee benefits are recognised in the Statement of Comprehensive Income in operating costs.

(c) Profit sharing and bonus plans

The Group recognises a liability and an expense for bonuses and profit sharing, based on a formula that takes into consideration the profit attributable to the Company's shareholders after certain adjustments. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

2 Segmental analysis

3 Operating loss

Operating loss is stated after charging:

4 Finance income / (costs) - net

5 Staff numbers and cost

The aggregate payroll costs of these persons were as follows:

6 Income tax expense

7 Discontinued operation

In March 2015, the Group ceased its Sportsbook and Casino operations due to regulatory changes in its primary geographical market that would have affected its ability to remain competitive and profitable.

The comparative Consolidated Statement of Comprehensive Income has been restated to show the discontinued operation separately from continuing operations.

(a) Results of discontinued operation

The loss from the discontinued operation of $436,000 (2014: profit of $209,000) is attributable entirely to the owners of the Company. The loss from continuing operations of $1,407,000 (2014: profit of $246,000) is also attributable entirely to the owners of the Company.

(b) Cash flows (used in)/from discontinued operation

(c) Effect of discontinued operation on the financial position of the Group

The above represents costs met by Group in relation to the closure of the discontinued operation at the year end. After the year end, outstanding balance sheet items of approximately US$80,000 within the discontinued operation have been received and credited to the benefit of the head office.

8 Earnings per ordinary share

The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.

The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares, on the assumed conversion of all dilutive share options.

An adjustment for the dilutive effect of share options and convertible debt in the previous period has not been reflected in the calculation of the diluted loss per share, as the effect would have been anti-dilutive.

9 Intangible assets

The goodwill balance brought forward relates to the historical acquisition of subsidiary businesses. Following the cessation of the Group's Sportsbook and Casino operations, the goodwill balance was fully impaired during the current period.

The Group tests intangible assets annually for impairment or more frequently if there are indications that the intangible assets may be impaired (see note 1).

10 Property, equipment and motor vehicles

11 Investments

Investments in subsidiaries are held at cost. Details of investments at 31 May 2015 are as follows:

12 Bonds and deposits

A rent deposit of $200,000 was paid to California Exposition & State Fair in 2012 and is for a term of 5 years (2014: $200,000). $500,000 has been paid as a bond in relation to WatchandWager's Californian ADW licence (2014: $500,000). Rent and security deposits of $7,685 have been paid in relation to security deposits (2014: $3,678). A sales tax deposit of $5,850 was paid to the State Board of Equalization and was refunded in June 2014 (2014: $5,850). An annually renewable insurance bond of $2,000 is also in place.

Under the terms of the licencing agreement with the Hong Kong Jockey Club the Company is required to hold a retention account of $1,935,685 / HK$15,000,000 (2014: $1,289,792 / HK$10,000,000).

13 Cash and cash equivalents

The Group holds funds for operational requirements and for its non-Isle of Man customers, shown as 'company and other funds' and on behalf of its Isle of Man regulated customers, shown as 'protected player funds'.

Protected player funds are held in fully protected client accounts within an Isle of Man regulated bank.

14 Trade and other receivables

15 Trade and other payables

Amounts due to Group undertakings are unsecured, interest free and repayable on demand. Included within trade payables are amounts due to customers of $7,591,139 (2014: $7,323,692).

16 Bank loans

The bank loan was provided by Conister Bank Limited (note 21), carried an interest rate of 6.5% per annum on the original principal amount and was fully repaid during the year.

17 Share capital

The authorised share capital of the Company is US$9,619,000 divided into 600,000,000 ordinary shares of £0.01 each.

Options

Movements in share options during the year ended 31 May 2015 were as follows:

Credit in profit and loss account:

18 Open sports bets liabilities

By the nature of the business, a stake can be received from a customer in respect of some event happening in the future, and hence the level of any actual liability to the Group cannot be assessed until after that event has occurred, although the maximum potential liability can be determined. As at the financial position date, there were $1,157 (2014: $8,714) of such stakes that had been received where the event to which they related was after the financial position date. Accordingly, such amount has been reflected as open sports bets in the balance sheet (see note 15).

The maximum possible liability on open sports bets is $0.007m (2014: $3.992m).

19 Capital commitments

As at 31 May 2015, the Group had no capital commitments (2014: $Nil).

20 Operating lease commitments

At 31 May 2015, the Group was committed to future minimum lease payments of:

21 Related party transactions

Identity of related parties

The Group has a related party relationship with its subsidiaries (see note 11), and with its directors and executive officers and with Burnbrae Ltd (significant shareholder) and with Conister Bank Ltd (common director and shareholder).

Transactions with and between subsidiaries

Transactions with and between the subsidiaries in the Group, which have been eliminated on consolidation, are considered to be related party transactions.

Transactions with entities with significant influence over the Group

Rental and service charges of $56,293 (2014: $58,861) and directors' fees of $31,890 (2014: $32,192) were charged in the year by Burnbrae Limited, of which Denham Eke is a common director. A loan from Conister Bank Ltd was repaid during the year (note 16) (2014: $16,952 owed).

Transactions with other related parties

Cash deposits totalling $Nil (2014: $5,697,311) were held with Conister Bank Ltd at the year end.

22 Financial risk management

Capital structure

The Group's capital structure is as follows:

The Group's principal financial instruments comprise cash and cash equivalents, trade receivables and payables that arise directly from its operations.

The main purpose of these financial instruments is to finance the Group's operations. The existence of the financial instruments exposes the Group to a number of financial risks, which are described in more detail below.

The principal risks which the Group is exposed to relate to liquidity risks, credit risks, interest rate risks and foreign exchange risks.

Liquidity risks

Liquidity risk is the risk that the Group will be unable to meet its financial obligations as they fall due.

The Group's objective is to maintain continuity of funding through trading and share issues but to also retain flexibility through the use of short-term loans if required.

Management controls and monitors the Group's cash flow on a regular basis, including forecasting future cash flow. Banking facilities are kept under review to ensure they meet the Group's requirements. Funds equivalent to customer balances are held in designated bank accounts to ensure that Isle of Man Gambling Supervision Commission player protection principles are met. The directors anticipate that the business will continue to generate sufficient cash flow in the forthcoming period to meet its financial obligations.

The following are the contractual maturities of financial liabilities:

2015

Financial liabilities

2014

Financial liabilities

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

Classes of financial assets - carrying amounts

Generally, the maximum credit risk exposure of financial assets is the carrying amount of the financial assets as shown on the face of the balance sheet (or in the notes to the financial statements). Credit risk, therefore, is only disclosed in circumstances where the maximum potential loss differs significantly from the financial asset's carrying amount.

The maximum exposure to credit risks for trade receivables in any business segment:

Of the above receivables, $1,111,000 (2014: $589,000) relates to amounts owed from US racing tracks. These receivables are actively monitored to avoid significant concentration of credit risk and the directors consider there to be no significant concentration of credit risk.

The directors consider that all the above financial assets that are not impaired for each of the reporting dates under review are of good credit quality. No amounts were considered past due at the year end (2014: $Nil).

The credit risk for liquid funds and other short-term financial assets is considered negligible, since the counterparties are reputable banks with high-quality external credit ratings.

Interest rate risk

The Group finances its operations mainly through capital with limited levels of borrowings. Cash at bank and in hand earns negligible interest at floating rates, based principally on short-term interbank rates.

Any movement in interest rates would not be considered to have any significant impact on net assets at the balance sheet date.

Foreign currency risks

The Group operates internationally and is subject to transactional foreign currency exposures, primarily with respect to Pound Sterling, Swedish Krona, Hong Kong Dollar and Singapore Dollar.

The Group does not actively manage the exposures but regularly monitors the Group's currency position and exchange rate movements and makes decisions as appropriate.

At the balance sheet date the Group had the following exposure:

The following table illustrates the sensitivity of the net result for the year and equity in regards to the Group's financial assets and financial liabilities and the US Dollar-Sterling exchange rate, US Dollar-Swedish Krona exchange rate and US Dollar-Hong Kong Dollar exchange rate.

A 5% weakening of the US Dollar against the following currencies at 31 May 2015 would have increased equity and profit and loss by the amounts shown below:

A 5% strengthening of the US Dollar against the above currencies would have had the equal but opposite effect on the above currencies to the amounts shown above on the basis that all other variables remain constant.

23 Controlling party and ultimate controlling party

The directors consider the ultimate controlling party to be Burnbrae Limited and its beneficial owner Jim Mellon by virtue of their combined shareholding of 63.10%.

24 Post balance sheet events

There have been no material events since the end of the reporting period that require disclosure in the accounts.