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TECH Techfinancials Inc

0.45
0.00 (0.00%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Techfinancials Inc LSE:TECH London Ordinary Share VGG870911077 ORD USD0.0005 (DI)
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 0.45 0.40 0.50 0.00 00:00:00
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
0 0 N/A 0

TechFinancials Inc. Preliminary Results (7338B)

06/04/2017 7:00am

UK Regulatory


Techfinancials (LSE:TECH)
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TIDMTECH

RNS Number : 7338B

TechFinancials Inc.

06 April 2017

6 April 2017

TechFinancials Inc.

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

Preliminary Results for the year ended 31 December 2016

TechFinancials Inc. (AIM: TECH), a leading technology provider to financial trading brokers, today announces its results for the year ended 31 December 2016.

The Company also announces that in accordance with AIM Rule 20, electronic copies of its Annual Report and Accounts for the year ended 31 December 2016 are available from the Company's investor relations website at https://group.techfinancials.com/. Hard copies of the 2016 Annual Report and Accounts will be posted to shareholders on Wednesday 12(th) April.

Financial Highlights

   --     Revenue increased by 57% to US$21.3 million (2015: US$13.6 million) 
   --     Core software licensing revenue increased by 22% to US$10.4 million (2015: US$8.6 million) 
   --     Trading platform revenues increased by 117% to US$10.9 million (2015: US$5.0 million) 

-- Revenue from DragonFinancials of UD$9.3 million; net profit of US$5.6 million - Company holds a 51% stake in DragonFinancials

-- Net cash generated from operating activities increased to US$5.9 million (2015: US$0.1 million)

   --     Gross margins increased to 78% (2015: 71%) 
   --     Operating profit increased to US$5.0 million (2015: operating loss US$0.1 million) 
   --     EBITDA attributable to shareholders was US$2.8 million (2015: US$0.6 million) 

-- Pre-tax profit attributable to shareholders was US$1.3 million (2015: pre-tax loss of US$0.4 million)

   --     Strong cash position of US$7.7 million as at 31 December 2016 (2015: US$3.4 million) 

-- Basic earnings per share ('EPS') have increased to a profit of US$ 1.72 cents in 2016 from a loss of US$ 0.73 cents in 2015

-- DragonFinancials, the Company's 51% subsidiary, paid an interim dividend of US$2.0 million in November 2016 and an additional final dividend of US$3.0 million was paid in March 2017

-- Additional consideration of US$1.54 million payable in shares to owners of Optionfortune (non-controlling interest holders of TechFinancials) based on DragonFinancials' results for 2016 - contingent consideration of US$4.53 million payable on results for 2017

Operational Highlights

Software Licensing (B2B)

-- B2B software licensing division continued its strong performance with significant revenue growth

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

-- Continued international expansion - major push into the Asia Pacific region opening Chinese office to expand B2B services to China

-- R&D focused on solutions for Asian markets and on development of products to meet regulatory changes.

   --     Strengthened R&D team in Ukraine 

Trading Platform (B2C)

-- Returned to profitability in the B2C division through the successful integration and operation of DragonFinancials, a new B2C trading platform focused on the Asia Pacific Region

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

"The Group enjoyed a good year in which we have seen profitability restored as a result of the decisions we took as a Board to diversify our product offering and focus on high growth markets such as Asia.

"However, going forwards we expect 2017 will be challenging due to the loss of our largest customer and the uncertain and tightening regulatory environment particularly in Europe. We anticipate these regulatory changes will have an impact on the B2B performance for the rest of 2017, both on its revenues and on earnings.

"Our focus in 2017 will be on mitigating the loss of our largest customer and adapting to the tougher regulatory environment by diversifying our product offering with the introduction of Forex and CFD online trading solutions and with plans to introduce further products in coming years. We will also build on the success achieved by our B2C offering and focus on Asia.

"We do feel that ultimately the regulatory changes will strengthen the industry and that there will be clarity by the end of 2017, and once that occurs, with a strong balance sheet, we will be well positioned to serve the market from 2018 onwards."

For further information:

 
 TechFinancials, Inc. 
 Asaf Lahav, Group Chief Executive 
  Officer 
 Yuval Tovias, Chief Financial       www.group.techfinancials.com 
  Officer 
  Jeremy Lange, Chief Operations 
  Officer / Investor Relations 
 
 
 Grant Thornton UK LLP (Nominated 
  Adviser) 
 Colin Aaronson / Samantha Harrison   Tel: +44 (0) 20 
  / Carolyn Sansom                     7383 5100 
 
 
 Northland Capital Partners Limited 
  (Broker) 
 Patrick Claridge / David Hignell     Tel: +44 (0) 20 
  / John Howes                         3861 6625 
 
 
 Peterhouse Corporate Finance 
  (Joint Broker) 
 Lucy Williams / Eran Zucker    Tel: +44 (0) 20 
                                 7469 0932 
 
 
 Yellow Jersey PR Limited (Media   Tel: +44 (0) 
  Relations)                        7825 916 715 
  Felicity Winkles / Alistair de 
  Kare-Silver 
 

About TechFinancials

TechFinancials plc (AIM: TECH) is a leading innovator and supplier of financial trading solutions for retail clients. The Group operates a B2B division licensing white label software solutions to online brokers. In addition, the Company operates a B2C division operating trading platforms worldwide and incorporating a strategic joint venture focusing on solutions for traders in the Asia Pacific region.

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

Chairman's Statement

I am delighted to report that we achieved record revenues and profitability in 2016. Overall, revenues have increased by 57% and profits attributable to shareholders were US$1.2 million against a loss of US$0.5 million in 2015. EBITDA attributable to shareholders grew from US$0.6 million in 2015 to US$2.8 million in 2016.

During the year, we successfully implemented many of our international expansion plans which have transformed our business and financial performance. Our strategy has been focused on the high growth markets in Asia where we successfully integrated our investment in DragonFinancials.

DragonFinancials is a partnership with the owners of Optionfortune Trade Limited to operate our B2C trading platform focused on the Asia Pacific region and the partnership has exceeded our expectations in its first year of operation. As a result, contingent consideration is payable as outlined in Note 8. The performance of DragonFinancials has restored the B2C division to profitability and generated excellent cash flows for the Group.

Our B2B software licensing business has continued to grow its revenues although EBITDA has declined as the Company has invested in building for the long-term. The simplified Forex platform and mobile and tablet trading solutions have continued to support growth across the business. In the second half of the year, we launched the CFD platform, our third trading platform, which expands our offering to spot traders.

An analysis of the financial performance of each segment of the Group's business is provided in Note 9 to the financial statements.

The improvement in the Group's financial performance has benefitted our cash flows and at the year-end our cash balances stood at US$7.7 million. These positive cash flows have supported a continued, and indeed enhanced, programme of R&D expenditure which, the Board believes, should support future revenue and growth opportunities.

We have completed our trading solution to comply with regulations in the Japanese market. At this stage the marketing of this product has been delayed until the Company decides whether to allocate resources to the Japanese market based on its prospects compared to alternative markets. Much of the R&D and technology development work is being applied to meet the European regulations likely to be adopted by CySEC and the FCA.

In the US, we had hoped to complete our trading solution to comply with US regulations in 2016. This has been delayed due to continuous discussions and work with Cantor Exchange around the business model that should apply to this market; however, like our Japanese project much of our development work is being applied to meet the European regulations likely to be adopted by CySEC and the FCA. This along with the Japanese trading solution developed should create further revenue opportunities toward the end of 2017 or at the beginning of 2018.

Regulation

The regulatory environment surrounding the marketing of binary options, forex and CFD trading in a number of countries is tightening and remains uncertain. Regulators in Europe have published consultation papers and until the conclusions are published the uncertainty will remain. It is also likely that regulatory changes will have an impact on our product offerings.

We expect this uncertainty will continue to be a challenge for the industry as a whole in 2017. As a Company we seek to operate to the highest regulatory standards and we will continue to work with the regulators and respond to consultation papers accordingly. As clarity is provided on various consultation papers we will update the market as appropriate.

In light of this we will continue in 2017 as we did in 2016 to take steps to mitigate the impact of these regulatory changes on our business. We have focused heavily on building and enhancing our technologies to the highest levels of compliance and diversifying and developing our product offering with Forex and CFD online trading solutions with plans to introduce further products in the coming years such as fixed strike options. We have enlarged our R&D team in Ukraine to support the ongoing adjustments to products as regulation tightens and to enhance the growth of the Asian markets through solutions that are relevant to this region.

Margins

We have once again been able to improve margins through control of expenditure and by efficiently controlling the cost of customer acquisitions. I am pleased to say that the improvement seen in the first half of the year continued in the second half of 2016. Our investment in new technologies has been an important element in improving our customers' user experience as well as enhancing operational efficiencies. The launch of the CFD platform should also have a beneficial impact on future margins.

Business summary and operational review

B2B

I am pleased to report that our core software licensing business enjoyed further strong growth this year, with revenues increasing by 22% to US$10.5 million, and revenues on a standalone basis increased by 27% to US$11.5 million. The simplified forex platform and mobile and tablet trading solutions which were introduced in 2015 have both performed strongly in 2016 and the launch of the add-on CFD platform in the second half of 2016 should contribute to revenues in 2017. Our focus on the Asian markets has proved to be a fruitful one and helped to drive higher revenues.

Our increasingly diversified product offering and geographic spread have helped us to continue to grow our customer base. The regulatory environment however, remains uncertain and challenging and we will need to be innovative and proactive in order to respond to these changes and to maintain our momentum and competitive edge. We have continued to invest in our R&D team and a programme of new products. Our R&D expenditure increased by 46% to US$3.3 million in 2016.

We have also increased our investment in selling and marketing activity and staff levels to support long term-growth. In the short term, these increased levels of expenditure have impacted the profitability of the B2B division, with EBITDA attributed to shareholders on a standalone basis falling from US$2.4 million in 2015 to US$1.3 million in 2016.

Whilst we have made progress on completing our US and Japanese compliant trading solutions, we have delayed their launch. The development work is instead being applied to our European operations in order for us to move quickly to adapt to changes likely to be adopted by CySEC and the FCA. We believe this will bring further growth opportunities.

B2C

The B2C business has been transformed by the establishment of DragonFinancials, a partnership with the owners of Optionfortune, a B2C binary options trading platform focused on the Asia Pacific region, which began operating in January 2016.

Overall, revenues have increased by 117% to US$10.9 million. This includes revenues of US$9.3 million from DragonFinancials which commenced its trading platform activity in January 2016. Following a loss in 2015, the business has been transformed by the establishment of DragonFinancials. With increased operational efficiencies and careful control of overheads, the division achieved positive EBITDA attributed to shareholders of US1.5 million against negative EBITDA attributed to shareholders of US$1.8 million in 2015.

Under the terms of the agreement with the owners of Optionfortune, an additional consideration payment of US$1.54 million is payable in shares in respect of the results of DragonFinancials in 2016. A total of 3,868,615 Techfinancials shares were placed in escrow pending finalisation of the financial results of DragonFinancials and were transferred to the owners of Optionfortune on 22 March 2017.

In addition, as part of the agreed contingent consideration arrangements, Techfinancials will make an additional payment of US$4.528 million, at its option, in either cash or shares calculated at a minimum of 27p per share, provided that DragonFinancials' net profit in the calendar year 2017 is at least US$4.176 million, representing 90% of the Eligible Profit achieved in 2016. The Company has therefore recognised a contingent consideration payable of US$4.528 million (see Note 8). Goodwill of US$5.0 million has been recognised as a non-current asset in relation to these arrangements.

In February 2016, we entered into an agreement with IBID, a company specialising in developing high growth online solutions. We established a new company, IBID Financials Ltd. ("the Partner"), focused on the European regulated markets. Our aim was to integrate Techfinancials' trading platform into the Partner's online marketing systems. However, in July 2016, the contract was cancelled as a result of breaches of the agreement by the Partner.

The Board does however remain committed to the European regulated markets and is continuously seeking alternative solutions to develop this market.

Dividends

The Board and Management's policy is to pay a progressive dividend. However, in light of the near term challenges as a result of the regulatory headwinds the Board will not be recommending a final dividend for FY2016. The Board's intention is to resume dividend payments when it is prudent to do so.

Outlook and current trading

The Group enjoyed a good year in which we have seen profitability restored as a result of the decisions we took as a Board to diversify our product offering and focus on high growth markets such as Asia. This could not have been achieved without the skill, passion and hard work of all of our staff. On behalf of the Board, I would like to thank them for their efforts during the year.

In February 2017, the Company received a notice of termination from its largest software licensee Richfield Capital, owner of www.24option.com ("Richfield"), to its current agreement with the Group with effect from 1 April 2017. While Richfield migrated most of its trading activity to its in-house system, as of the report date Richfield Capital continues trading activities in low volumes using the Company's product. The Company has agreed with Richfield effective 1 April 2017, the terms of a new license agreement that will support this decreased level of trading that Richfield performs on the Company's system.

Performance during the first quarter of 2017 is in line with management expectations. However, 2017 will be challenging due to the loss of the Group's largest customer and the uncertain and tightening regulatory environment particularly in Europe, which has already caused some of the Company's licensees to halt their operations. We anticipate business owners may choose to postpone additional or new investments until the results of regulatory consultations are published and clarity is restored. The Company believes that regulatory changes may also occur in the Asian market. We anticipate these changes will have an impact on the B2B performance for the rest of 2017, both on its revenues and on earnings.

Our focus in 2017 will be on mitigating the loss of our largest customer and adapting to the tougher regulatory environment by diversifying our product offering with the introduction of Forex and CFD online trading solutions and with plans to introduce further products in coming years. As a result of these product changes, we have become a provider of diversified online trading solutions rather than a binary options business. We will also build on the success achieved by our B2C offering and focus on Asia.

The Company's balance sheet is strong with US$7.7 million of cash as at 31 December 2016, and this allows us to plan for the long-term.

We do feel that ultimately the regulatory changes will strengthen the industry and that there will be clarity by the end of 2017, and once that occurs we will be well positioned to serve the market from 2018 onwards.

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

We look forward to updating the market on our progress in due course.

Christopher Bell

Independent Non-Executive Chairman

6 April 2017

Strategic Report

Financial Results

The Group generated revenues of US$21.3 million in the year ended 31 December 2016, (2015: US$13.6 million), a 57% increase from the prior year. The increase in revenues has led to a turnaround in results with the Group recording an operating profit of US$5.0 million (2015: operating loss of US$0.1 million). EBITDA attributable to shareholders has grown from US$0.6 million in 2015 to US$2.8 million in 2016.

The Group has continued to grow its core software licensing revenues which have increased from US$8.6 million to US$10.5 million in 2016, an increase of 22% on the previous year (on a standalone basis revenues have increased from US$9.1 million to US$11.5 million in 2016, a growth rate of 27%).

B2B revenue growth has been driven mainly by an increase in revenues from existing customers rather than an increase in the number of active brands using Techfinancials' platform.

Revenues from the Company's B2C division have also grown, from US$5.0 million in 2015 to US$10.9 million in 2016, an increase of 117%, reversing the decline in 2015. This growth has been achieved through the successful integration of DragonFinancials, which runs our B2C trading platform in the Asia Pacific region. DragonFinancials started operations in January 2016 and produced revenue of US$9.3 million in its first year. The successful integration of DragonFinancials, coupled with improved operational and marketing efficiencies in Asia have transformed the financial performance of the division. This success means that additional contingent consideration is payable as outlined in Note 8.

Margins have also increased, reflecting the operational and marketing efficiencies implemented in 2016. The improvement in gross margins seen in the interim results has continued. Overall, the Group achieved a full year gross margin of 78%, up from 71% in 2015. B2C margins have responded positively to the focus on the Asia Pacific region where operating costs are lower than in Europe. Margins on a standalone basis have increased from 59.3% in 2015 to 75.3% in 2016. B2B margins on a standalone basis have improved from 73.0% to 73.4%.

Overall, pro tability has benefitted from the increased level of revenues and margins and a semi-variable overhead cost structure which has seen overheads grow less quickly than revenues. In particular, whilst selling and marketing costs have remained stable at US$4.2 million, R&D expenditure increased by 47% to US$3.3 million, reflecting a continued focus on product innovation, regulation and improving customer experience. The Company successfully launched its CFD trading platform in the second half of 2016.

The amount of R&D expenditure capitalised was US$0.3 million compared with US$0.8 million in 2015. Further development expenditure was incurred on the CFD project and on trading solutions for the Asian markets. Further details are provided in Note 3 to the Financial Statements.

Administration costs increased by 27% to US$4.1 million which reflects performance related bonuses to staff and management, additional overheads to support the Group's geographical expansion and an increase in bad debts from US$332,000 to US$541,000.

The Group recognised a finance charge of US$558,000 in respect of the contingent consideration payable to the owners of Optionfortune as more fully described in Note 8.

Notwithstanding these increases in expenditure, the combination of increased revenues and enhanced margins has had a significant impact on the bottom line. The result before tax has improved from a pre-tax loss of US$0.4 million in 2015 to a pre-tax profit of US$4.1 million in 2016.

The increase in B2C trading platform revenues have resulted in positive EBITDA attributed to shareholders for the division of US$1.5 million on a standalone basis compared with a loss of US$1.8 million on standalone basis in 2015. The lower costs of operating in Asia have also contributed to improvement in profitability.

B2B licence income on a standalone basis has produced US$1.3 million of EBITDA attributed to shareholders compared with US$2.4 million in 2015. Increased R&D expenditure to support future growth, as well as higher selling, marketing and administration costs have offset the growth in revenues.

Detailed information on the financial performance of each segment is provided in Note 9 to the financial statements.

There is a tax expense of US$136,000 in 2016 (2015: US$100,000). A majority of the Group's profits have not been taxable as the profits generated by DragonFinancials are sourced from the Seychelles and are not subject to tax. In Israel, the Group is taxable at a rate of 25.0% of assessable pro ts (2015: 26.5%) while in Cyprus the statutory rate of tax is 12.5%. Further details are provided in Note 6.

Basic earnings per share ('EPS') have increased from a loss of US$ 0.73 cents in 2015 to a profit of US$ 1.72 cents in 2016. On a diluted basis, EPS increased from a loss of US$ 0.73 cents in 2015 to a profit of US$ 1.70 cents.

The Group generated net cash from operating activities of US$5.9 million compared with US$0.1 million in 2015. This level of cash generation has allowed the Group to continue its investment in new products and services and regulatory infrastructure; cash out ows from investing activities was US$0.5 million (2015: US$1.3 million).

The Group has continued to place great importance on strong controls over working capital and the collection of cash from operators. Debtor days at the end of 2016 were 28 days compared with 27 days at the end of 2015.

Cash out ows from nancing activities were US$1.1 million compared with an inflow of US$3.1 million in 2015 when the Company received proceeds from its admission to AIM.

The Group's cash balances at the end of 2016 totalled US$7.7 million (2014: US$3.4 million).

Operations

The Group has benefitted from its R&D activities of recent years and its strategic focus on Asia during the past year. The investment in DragonFinancials has transformed the B2C online trading platform and whilst the regulatory environment continues to tighten, the Group is well placed to meet these challenges.

We have launched our CFD trading platform and and are developing online trading solutions for the Asian markets. Our Asian focus will continue as we see considerable growth opportunities in the region.

Whilst our agreement with IBID Financials was not successfully concluded, we continue to explore alternative solutions to the European regulated markets.

We have delayed the completion of our trading solution to comply with US regulations and the marketing of the trading solution to comply with Japanese regulations, but the development work on these solutions should enable us to meet increased regulations in Europe where further changes are anticipated from CySEC and the FCA.

As previously noted, the Company's largest software licensee will terminate its current agreement with the Group with effect from 1 April 2017. This will have a negative impact on financial performance of the B2B segment but the Board has actively planned for this loss and its strategic focus on new revenue sources should serve to mitigate the shortfall.

Techfinancials will continue to develop new products and invest in its highly experienced R&D team. The regulatory and competitive environment is evolving quickly and the Board will seek to maximise the opportunities that come from these changes. Our cash reserves and strong balance sheet mean that we are well placed to capture growth from new products and markets.

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.

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: 34 (2015: 56). Whilst the number of brands has fallen due to the tightened regulations around the world, revenues per brand have grown and resulted in a 26% increase in licence revenues.

   --      Total number of trades executed through its licensees: 20.98 million (2015: 16.96 million). 
   --      Total revenues: US$21.3 million (2015: US$13.6 million) 
   --      EBITDA attributed to shareholders: US$2.8 million (2015: US$0.6 million) 
   --      Cash generation from operating activities: US$5.9 million (2015: US$0.078 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. Pro tability of the business, with its relatively low xed 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 seek partners for its B2C division for expansion in Europe, diversify our product offering and build on the success achieved by our B2C o ering in Asia. The Company believes that this strategy can successfully mitigate the effects of the loss of its largest B2B customer. We have successfully integrated DragonFinancials and will continue our focus on the high growth potential of Asian markets.

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.

Investment in our brand is vital and our marketing activities will seek to strengthen further the Company's brand awareness. As the regulatory landscape continues to change, we have been diversifying our product offering with Forex and CFD online trading solutions with plans to introduce further products in coming years. As a result, we have become a provider of diversified online trading solutions rather than a binary options business.

The anticipated changes coming from the European regulators have created an uncertainty in the market, leading business owners to postpone additional or new investments until the new regulatory requirements are published and, as a result, will result in lower short term demand for the Company's products in the EU territory. However, the Company believes that this situation will be resolved towards the end of the year, and is in process of making changes to its product line, so as to be well positioned to serve the market towards 2018.

We have achieved a significant improvement in financial performance in 2016 and are working on alternative solutions to meet the challenges that lie ahead in 2017. Regulatory challenges abound and whilst 2017 is likely to prove to be a challenging year, we believe that in the longer term the tightening of regulatory procedures governing financial trading will prove to be an opportunity to the Company.

We remain con dent about the long-term prospects of the Group and continue to invest for the future and adapt to the evolving regulatory environment.

Asaf Lahav

Chief Executive Officer

6 April 2017

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2016

 
                                            2016                           2015 
                                       ---------  ----------------------------- 
                                 Note    US$'000                        US$'000 
 
 Revenue                                  21,325                         13,575 
 Cost of sales                           (4,675)                        (3,983) 
                                       ---------  ----------------------------- 
 
 Gross profit                             16,650                          9,592 
 
 Other income                                  2                              - 
 Research and development                (3,336)                        (2,276) 
 Selling and marketing 
  expenses                               (4,202)                        (4,247) 
 Administrative expenses                 (4,077)                        (3,214) 
                                       ---------  ----------------------------- 
 Operating profit/(loss)                   5,037                          (145) 
 
 
 Bank fee                                  (141)                           (66) 
 Foreign exchange loss                     (285)                          (151) 
 Finance cost of contingent                (558)                              - 
  consideration 
 Other financials expenses                   (2)                           (14) 
                                       ---------  ----------------------------- 
 Financing expenses                        (986)                          (231) 
 
 Profit/ (loss) before 
  taxation                                 4,051                          (376) 
 
 Income tax expense              6         (136)                          (100) 
                                       ---------  ----------------------------- 
 Profit/(loss) after 
  taxation                                 3,915                          (476) 
 
 Other comprehensive                           -                              - 
  income 
 
 Total comprehensive 
  income                                   3,915                          (476) 
                                       =========  ============================= 
 
 Profit/ (loss) attributeable 
  to: 
 Owners of the Company                     1,179                          (476) 
 Non-controlling interest        8         2,736                              - 
                                       ---------  ----------------------------- 
 Profit (loss) for the 
  period                                   3,915                          (476) 
 
 Earnings per share 
  attributable to owners 
  of the parent during 
  the year: 
 Basic (Cents USD)               7          1.72                        (0. 73) 
                                       =========  ============================= 
 Diluted (Cents USD)             7          1.70                        (0. 73) 
                                       =========  ============================= 
 
 

Consolidated Statement of financial position

As at 31 December 2016

 
                                         31 December    31 December 
==============================  =====  -------------  ------------- 
                                                2016           2015 
==============================  =====  -------------  ------------- 
                                 Note        US$'000        US$'000 
==============================  =====  =============  ============= 
 Non-current assets 
==============================  =====  =============  ============= 
 Intangible assets               3             7,843          2,821 
==============================  =====  =============  ============= 
 Property and equipment                          510            471 
==============================  =====  =============  ============= 
 Other long term assets                           42              - 
==============================  =====  -------------  ------------- 
                                               8,395          3,292 
==============================  =====  -------------  ------------- 
 Current assets 
==============================  =====  =============  ============= 
 Trade and other receivables                   2,121          1,627 
==============================  =====  =============  ============= 
 Restricted bank deposits                        279            203 
==============================  =====  =============  ============= 
 Cash and bank balances                        7,651          3,391 
==============================  =====  -------------  ------------- 
                                              10,051          5,221 
==============================  =====  -------------  ------------- 
 Total Assets                                 18,446          8,513 
==============================  =====  =============  ============= 
 Current liabilities 
==============================  =====  =============  ============= 
 Trade and other payables                      4,546          1,474 
==============================  =====  =============  ============= 
 Income tax payable                              138            142 
==============================  =====  -------------  ------------- 
                                               4,684          1,616 
==============================  =====  =============  ============= 
 
 Non-current liabilities 
==============================  =====  =============  ============= 
 Contingent consideration                      4,058              - 
==============================  =====  =============  ============= 
 Due to shareholders 
  (non--trade)                                     -            281 
==============================  =====  -------------  ------------- 
                                               4,058            281 
==============================  =====  =============  ============= 
 
 Share capital                   4                55             36 
==============================  =====  =============  ============= 
 Share premium account                         7,500          5,979 
==============================  =====  =============  ============= 
 Treasury shares                             (1,540)              - 
==============================  =====  =============  ============= 
 Share-based payment 
  reserve                        5               925            877 
==============================  =====  =============  ============= 
 Accumulated profits 
  / (losses)                                   1,008          (276) 
==============================  =====  -------------  ------------- 
 Equity attributable 
  to owners of the Company                     7,948          6,616 
==============================  =====  =============  ============= 
 Non-controlling interests                     1,756              - 
==============================  =====  =============  ============= 
 Total equity                                  9,704          6,616 
==============================  =====  =============  ============= 
 
 Total Equity and Liabilities                 18,446          8,513 
==============================  =====  =============  ============= 
 
 

Consolidated statements of changes in equity

For the year ended 31 December 2016

 
                                                                             Accumulated 
                                                                                profits/ 
                                                                                                              Non 
                                                                                                     -controlling 
                                      Share                                     (losses)               interests- 
                                                                     Share 
                     Share                                           based 
                  capital-                        Treasury         payment 
                     (Note    Premium-(Note   Shares-(Note   reserve-(Note         (Note                    (Note 
                        4)               4)             4)              5)            4)     Total             8)      Total 
                 ---------  ---------------  -------------  --------------  ------------  --------  -------------  --------- 
                   US$'000          US$'000        US$'000         US$'000       US$'000   US$'000        US$'000    US$'000 
                 ---------  ---------------  -------------  --------------  ------------  --------  -------------  --------- 
 
 Balance 
  at 1 January 
  2015                  28            2,753              -             557           372     3,710              -      3,710 
                 ---------  ---------------  -------------  --------------  ------------  --------  -------------  --------- 
 
 Total 
  comprehensive 
  income 
  for the 
  year                   -                -              -               -         (476)     (476)              -      (476) 
 Dividends 
  to owners              -                -              -               -         (172)     (172)              -      (172) 
 Share 
  based 
  payment                -                -              -             320             -       320              -        320 
 Issue 
  of shares              8            3,226              -               -             -     3,234              -      3,234 
                            ---------------  -------------  --------------  ------------  --------  -------------  --------- 
 
 
 
 Balance 
  at 31 
  December 
  2015                  36            5,979              -             877         (276)     6,616              -      6,616 
                 =========  ===============  =============  ==============  ============  ========  =============  ========= 
 
 Total 
  comprehensive 
  income 
  for the 
  year                   -                -              -               -         1,179     1,179          2,736      3,915 
 Dividends 
  to owners              -                -              -               -             -         -          (980)      (980) 
 Share 
  based 
  payment                -                -              -             153             -       153              -        153 
 Transfer 
  of Share 
  based 
  payment 
  reserve 
  on lapsed 
  options                -                -              -           (105)           105         -              -          - 
 Issue 
  of shares             19            1,521              -               -             -     1,540              -      1,540 
 Treasury 
  shares                 -                -        (1,540)               -             -   (1,540)              -    (1,540) 
 
 Balance 
  at 31 
  December 
  2016                  55            7,500        (1,540)             925         1,008     7,948          1,756      9,704 
                 =========  ===============  =============  ==============  ============  ========  =============  ========= 
 

Consolidated statements of cash flows

For the year ended 31 December 2016

The consolidated statements of cash flows for the Group for the years ended 31 December 2015 and consolidated for the year ended 31 December 2016 are set out below:

 
                                          Years ended 31 December 
                                        -------------------------- 
                                                2016          2015 
                                        ------------  ------------ 
                                             US$'000       US$'000 
                                        ------------  ------------ 
 
 Cash Flows from operating 
  activities 
 (Loss)/ Profit before tax 
  for the period                               4,051         (376) 
 Adjustment for: 
 Profit on disposal of property 
  and equipment                                    3             2 
 Amortization of intangible 
  assets                             3           352           330 
 Depreciation of property 
  and equipment                                  100            70 
 
 Share option charge                 4           153           320 
 Operating cash flows before 
  movements in working capital 
 (Increase)/decrease in 
  trade and other receivables                  (494)         (214) 
 (Increase) in long term 
  receivables                                   (42)             - 
 (Decrease)/ increase in 
  trade and other payables                     1,799          (42) 
 Interest Expenses                                 2             - 
 Income tax paid                                   -          (12) 
                                        ------------  ------------ 
 Net cash generated/ (used) 
  from operating activities                    5,924            78 
                                        ------------  ------------ 
 
 Cash flows from investing 
  activities 
 Proceeds from disposal 
  of property, plant and 
  equipment                                       10            15 
 Increase of restricted 
  bank deposits                                 (76)         (163) 
 Development of intangible 
  assets                           3.1         (334)         (833) 
 Acquisition of property, 
  plant and equipment                          (146)         (344) 
                                        ------------  ------------ 
 Net cash used in investing 
  activities                                   (546)       (1,325) 
                                        ------------  ------------ 
 
 Cash flows from financing 
  activities 
 Interest Paid                                   (2)             - 
 Dividends paid                                (980)         (172) 
 Repayment of borrowings                        (92)             - 
 Investment in Equity                              -         3,226 
                                        ------------  ------------ 
 Net cash generated/(used) 
  in financing activities                    (1,074)         3,054 
                                        ------------  ------------ 
 
 Net increase/ (decrease) 
  in cash and cash equivalents                 4,304         1,807 
 Cash and equivalents at 
  beginning of period                          3,391         1,663 
 Effect of changes in exchange 
  rates on Cash                                 (44)          (79) 
                                        ------------  ------------ 
 Cash and equivalents at 
  end of period                                7,651         3,391 
                                        ============  ============ 
 

NOTES TO THE FINANCIAL STATEMENTS

   1.         General Information 

Techfinancials Inc (the "Company") and its subsidiaries (together, the "Group") is engaged in the development and licensing of financials trading platforms to businesses and the provision of investment services through its trading platform. The Financial Statements present the consolidated results of the Group for each of the years ended 31 December 2016 and 2015.

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 Company is listed on AIM. 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, DragonFinancials Limited a company incorporated on 27 October 2015 in Seychelles owned 51% by Techfinancials, Techfinancials Asia a dormant company incorporated in Hong Kong and Slidepoint Trading Limited, a dormant company incorporated in Cyprus. The companies within the Group are set out below, all of which are private companies limited by shares.

 
                        County of 
 Registered              registration       percentage 
  office                 or incorporation    of ownership   Principal activity 
---------------------  ------------------  --------------  --------------------- 
 Techfinancials,        British                             Development and 
  Inc.                   Virgin Islands                      licensing of 
                                                             financial trading 
                                                             platforms. 
 B.O. TradeFinancials   Cyprus              100%            The provision 
  Limited.                                                   of investment 
                                                             services, being 
                                                             the operation 
                                                             of the OptionFair 
                                                             trading platform. 
 Techfinancials         Israel              100%            The provision 
  (Israel) 2014                                              of services to 
  Ltd.                                                       the Group from 
                                                             November 2014 
 MarketFinancials       Seychelles          100%            Liquidity provider 
  Ltd.                                                       since January 
                                                             2015. Providing 
                                                             Binary Option 
                                                             and Forex market 
                                                             maker services 
                                                             and risk management 
                                                             to the Group 
 DragonFinancials       Seychelles          51%             The provision 
  Ltd.                                                       of marketing 
                                                             services, being 
                                                             the operation 
                                                             of the Option33 
                                                             trading platform 
                                                             from January 
                                                             2016. 
 Slidpoint              Cyprus              100%            Dormant 
  Trading Ltd 
 Techfinancials         Hong Kong           100%            Dormant 
  Asia 
 Capital Financials     Vanuatu             100%            Dormant 
  Ltd 
 

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

Slidepoint Trading Ltd.: 6 Tassou Papadopoulou, office/flat 22, 2373 Ag.

Dometios, Nicosia, Cyprus

Techfinancials Asia Ltd.: Room 506A5/F, Tower 1, Admiralty Centre, 18

Harcourt Road, Hong Kong

Capital Financials Ltd.; S.I.P Building, Rue Pasteur, Port Vila, Vanuatu

   2.         Summary of significant accounting policies 

Basis of preparation

The consolidated 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 consolidated Financial Statements have been prepared under the historical cost convention, as modified by the revaluation of financials assets and liabilities at fair value through the profit and loss.

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 consolidated financial statements are presented in US Dollars, which is the presentational currency for the financial statements, and all values are rounded to the nearest thousand ($000).

The preparation of Financial Statements in conformity with IFRS require the use of certain critical accounting estimation. It also requires management to exercise its judgment in the process of applying the Group's accounting policies.

Basis of consolidated reporting

The financial statements of the subsidiaries are prepared for the same reporting year as the parent Company using consistent accounting policies. Control is achieved where the Group is exposed, or has rights, to variable returns from its involvement with the investee entity and has the ability to

affect these returns through its power over the investee. Control is lost when the Group no longer has rights to variable returns from its involvement with an investee entity and no longer has the ability to affect those returns as it no longer has power over the investee. When control is lost the subsidiaries are de-recognised and no longer consolidated.

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

The Group uses the acquisition method of accounting 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 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 agreement. Acquisition related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition by acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the Consolidated Statement of Comprehensive Income.

Investments in subsidiaries are accounted for at cost less impairment. Acquisition related costs are expressed as incurred. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

   3.    Intangible assets 
 
                                       Year ended 31 December 
                                      ------------------------ 
                                             2016         2015 
                                      -----------  ----------- 
                                          US$'000      US$'000 
                                      -----------  ----------- 
 
Computer software                               5            5 
Development expenditure recognized 
 as intangible assets                       2,798        2,816 
Goodwill*                                   5,040            - 
                                      -----------  ----------- 
                                            7,843        2,821 
                                      ===========  =========== 
 

* The amount of goodwill is remeasured and does not correspond to the figures in 2016 interim statements since adjustments to the final valuation of acquisition of DragonFinancials were made, as detailed in Note 8.

   3.1      Intangible assets - development expenditure and computer software 
 
                 Project                                                         Computer 
                       A  Project B  Project C           Project D   Project E   Software    Total 
                 -------  ---------  ---------  ------------------  ----------  ---------  ------- 
                 US$'000    US$'000    US$'000             US$'000     US$'000    US$'000  US$'000 
                 -------  ---------  ---------  ------------------  ----------  ---------  ------- 
As at 31 
 December 
 2015 
Cost 
At 1 January 
 2015                784        858        673                   -           -          4    2,319 
Additions              -          -        259                 359         211          4      833 
                 -------  ---------  ---------  ------------------  ----------  ---------  ------- 
At 31 December 
 2015                784        858        932                 359         211          8    3,152 
                 -------  ---------  ---------  ------------------  ----------  ---------  ------- 
 
Accumulated 
 amortisation 
At 1 January 
 2015                  -          -          -                   -           -          1        1 
Charge for 
 the year            157        171          -                   -           -          2      330 
                 -------  ---------  ---------  ------------------  ----------  ---------  ------- 
At 31 December 
 2015                157        171          -                   -           -          3      331 
                 -------  ---------  ---------  ------------------  ----------  ---------  ------- 
 
Net book 
 value 
At 31 December 
 2015                627        687        932                 359         211          5    2,821 
                 =======  =========  =========  ==================  ==========  =========  ======= 
 
 
As at 31 
 December 
 2016 
Cost 
At 1 January 
 2016                784        858        932                 359         211          8    3,152 
Additions              -          -         82                  87         162          3      334 
                 -------  ---------  ---------  ------------------  ----------  ---------  ------- 
 
At 31 December 
 2016                784        858      1,014                 466         373         11    3,486 
                 -------  ---------  ---------  ------------------  ----------  ---------  ------- 
 
Accumulated 
 amortisation 
At 1 January 
 2016                157        171          -                   -           -          3      331 
Charge for 
 the year            157        171          -                   -          21          3      352 
                 -------  ---------  ---------  ------------------  ----------  ---------  ------- 
At 31 December 
 2016                314        342          -                   -          21          6      683 
                 -------  ---------  ---------  ------------------  ----------  ---------  ------- 
 
Net book 
 value 
At 31 December 
 2016                470        516      1,014                 446         352          5    2,803 
                 =======  =========  =========  ==================  ==========  =========  ======= 
 
 

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.

Current estimates of useful economic live of intangible assets are as follows:

 
Development expenditure recognized as intangible assets  5 years 
Goodwill                                                   N/A 
Computer software                                        3 years 
                                                         ------- 
 

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 flows 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 flows 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:

 
                                        2016 
           -------------------------------------------------------------- 
             Project    Project   Project   Project   Project    Computer 
                   A          B         C         D         E    software 
           ---------  ---------  --------  --------  --------  ---------- 
             US$'000    US$'000   US$'000   US$'000   US$'000     US$'000 
           ---------  ---------  --------  --------  --------  ---------- 
Discount 
 rate              -          -       15%       15%       15%         N/A 
IRR                -          -       42%       57%       85%         N/A 
 

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

During 2016 the Company covered all its expenses recognised as intangible assets for projects A and B.

   3.2      Intangible assets - Goodwill arose on the acquisition of DragonFinancials Ltd. 

This assessment of goodwill was done by comparing the gross profit to the value of goodwill for the entity whose acquisition gave rise to the goodwill. (see also Note 8)

 
 
                              Goodwill 
 Discount rate on future 
  cash flows                   40% 
 
   4.                 Share capital 
 
                                          As at 31 December 
                               ----------------------------------- 
                                           2016               2015 
                               ----------------   ---------------- 
                                     Number of        Number of 
Authorised                             Shares           Shares 
                               ----------------   ---------------- 
The Company Ordinary share 
 of US$0.0005                       100,000,000        100,000,000 
                               ----------------   ---------------- 
Authorised                          100,000,000        100,000,000 
                               ================   ================ 
 
 
 
 
                                         As at 31 December 
                               --------------------------------- 
                                          2016            2015 
                               ----------------------   -------- 
Issued and fully paid                    US$'000         US$'000 
                               ----------------------   -------- 
The Company Ordinary share 
 of US$0.0005                              55              36 
                               ======================   ======== 
 
 
 

Ordinary shares issued and fully paid

 
                                              US$'000 
                                     ---------------- 
At 1 January 2016                                  36 
Treasury shared issued                             19 
share based compensation exercise 
 of options                                        -* 
                                     ---------------- 
At 31 December 2016                                55 
                                     ================ 
 

*less than a thousand

Share Capital -Amount subscribed for share at nominal value.

Share Premium -Amount subscribed for share capital in exercise of nominal value.

Share-based payment reserve-The share-based payments reserve is used to recognise the value of equity-settled share-based payments provided to employees, including key management personnel, as part of their remuneration. Refer to Note 5 for further details of these plans.

Treasury Shares-On 8 June 2016, in accordance with the agreement with the owners of Optionfortune Trade Limited, the Company issued and allotted 3,868,615 Ordinary Shares (Treasury Shares) in certificated form in the name of Capita Trust Company Limited A/c 25379, being US$ 1.54 million at 27 pence, which are held in escrow pending the determination of the 2016 results.

   5.                 Share-based payment transactions (Group) 

During the years ended 31 December 2013 and 31 December 2014, the Group introduced two share-based payment arrangements ("2013 Plan") and ("2014 plan") which are summarised below.

Employee Stock Option Plan:

 
                                      Year ended 31 December 
                                                2015 
                            -------------------------------------- 
                                                  Weighted Average 
                                 Numbers of         Exercise Price 
                                     Option                  (US$) 
                            ---------------  --------------------- 
 Balance at beginning 
  of period                       3,714,000                   0.01 
 Granted                          2,357,440                 0.3080 
 Lapsed during the period       (4,175,160)                 0.0645 
                            ---------------  --------------------- 
 Balance at end of period         1,896,280                 0.0440 
                            ===============  ===================== 
 
                                      Year ended 31 December 
                                                2016 
                            -------------------------------------- 
                                                  Weighted Average 
                                 Numbers of         Exercise Price 
                                     Option                  (US$) 
                            ---------------  --------------------- 
 Balance at beginning 
  of period                       1,896,280                 0.0440 
 Granted                     569,800          0.189 
 Lapsed during the period        (407 ,020)                  0.211 
                            ---------------  --------------------- 
 Balance at end of period         2,059,060                  0.151 
                            ===============  ===================== 
 
 

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

   Date of Grant:                       8 June 2016 (2014 Plan) 
   Number Granted:                569,800 options to purchase ordinary shares of US$0.0005 each. 
   Contractual life:                   10 years 

Vesting conditions: 330,441 on the first year of grant, 101,010 option a year after the date of grant,

87,628 after two years and 50,721 on the fourth year.

   Earliest Exercise date:       8 June 2016 
   Exercise price:                      US$0.189 

The model inputs for the 2016 grant were:

   *              share prices at grant date US$0.189 
   *              weighted average exercise prices of US$ 0.189; 
   *              expected volatility of 55 per cent; 
   *              contractual life of 10 years; and 
   *              a risk-free interest rate of 4.5 per cent. 

On 8 June 2016 the Company granted 569,800 options respectively, to purchase ordinary shares of the company to 35 employees 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 of $0.189 per share.

On 11 November 2016, a former employee of the Company exercised 79,845 options pursuant to the 2014 employee share option plan, to acquire 45,329 ordinary shares of US$0.0005 ("Ordinary Shares") in the Company in consideration for the cancellation of the balance of 34,516 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 expense and equity reserve arising from share based payment transactions recognised in the Year ended 31 December 2015 and 2016 was US$320,000 and US$153,000 respectively.

   6.                 Income tax expenses 
 
                       Years ended 31 December 
                      ------------------------- 
                              2016         2015 
                      ------------  ----------- 
                           US$'000      US$'000 
                      ------------  ----------- 
Current income tax             136          100 
                               136          100 
                      ============  =========== 
 
 

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:

 
                                     Years ended 31 December 
                                   -------------------------- 
                                           2016          2015 
                                   ------------  ------------ 
                                        US$'000       US$'000 
                                   ------------  ------------ 
 
Profit (Loss) before taxation 
 and exceptional loss on group 
 reorganisation.                          3,915         (476) 
                                   ============  ============ 
 
Profit multiplied by standard 
 rate of EIT of 0%                            -             - 
Effect of: 
Different tax rates in different 
 countries                                  136           100 
Israeli tax rates 2015-2016: 
 26.5% -25% 
 Cyprus tax rates 2015-2016: 
 12.5%. 
                                   ------------  ------------ 
                                            136           100 
                                   ============  ============ 
 
 
   7.                 Earnings per share 

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

 
                                       Years ended 31 December 
                                     -------------------------- 
 
                                             2016          2015 
                                     ------------  ------------ 
                                          US$'000       US$'000 
                                     ------------  ------------ 
 
Profit/(loss) attributable to 
 equity holders                             1,179         (476) 
                                     ============  ============ 
Weighted average number of shares 
basic*                                 68,634,680    65,494,411 
 
 
Earnings/(loss) per share basic          0.0172       (0.0073) 
 
 
Weighted average number of 
 shares diluted                      69,334,680     65,494,411 
                                                 ============= 
 
 
 
 
Earnings/(loss) per 
 share diluted            0.0170     (0.0073) 
 

*Including treasury shares held in escrow (see Note 4).

The difference between basic and diluted earnings per share is due to shared based compensation transaction. (see Note 5)

   8.                 Business acquisition 

On 20 October 2015, the Company entered into an agreement with the owners of Optionfortune Trade Limited, a company registered in Hong Kong ("Optionfortune owners") to operate a B2C binary options trading platform focused on the Asia Pacific region.

Under the terms of the agreement a new business entity, DragonFinancials Ltd, was incorporated, and is owned 51% by Techfinancials and 49% by Optionfortune owners.

On 1 January 2016 (the closing date) DragonFinancials started its trading platform activity.

Under the terms of the agreement on 22 March 2017, an amount of 3,868,615 Techfinancials shares, worth US$1.54 million, previously held in escrow, were transferred to the owners of Optionfortune.

Furthermore Techfinancials will make an additional payment, at its option, in either shares or cash worth of US$4.528 million, provided that DragonFinancials' net profit in the calendar year 2017 will be at least US$4.176 million, representing 90% of the net profit Eligible Profit achieved in 2016.

The estimates of the fair value of the assets acquired based on management assumptions:

 
 Fair value of consideration:            US$5.040 million 
 Acquired: 
 Assets: 
 Account receivable                          $0.2 million 
 Liabilities: 
 Trade payable                             ($0.2 million) 
                                ------------------------- 
 
 Net Assets acquired                               US$NIL 
                                ------------------------- 
 Goodwill                                US$5.040 million 
 

The Contingent consideration from this agreement amounts to US$5.040 million consisting of:

 
                                                 Period ended 
                                                  31 December 
                                                         2016 
                                                      US$'000 
 Current liabilities - Value of 
  consideration due to Optionfortune 
  owners as a result of DragonFinancials 
  milestone achievement in the calendar 
  year 2016.                                            1,540 
 Long term liabilities- Assuming 
  that profits in 2017 are at least 
  90% of the Eligible Profit of 
  US$4.640 million in 2016. Long 
  term liability represents the 
  amount of US$4.528 million discounted 
  at 6% over a period of one year.                      4,058 
 Total Contingent liabilities*               US$5.598 million 
 

* The difference of US$0.558 million between the contingent consideration and the contingent liabilities represents the PV as of 1 January 2016 discounted at 6% over a period of one year.

   9.                 Segment Information 

Business segment

IFRS 8 requires operation segments to be identified at the basis of internal report about component of the Group that are regularly reviewed by the Chief Financial Officer ("CFO"), and by the board. For this purpose's 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 2015 and 31 December 2016 is as follows:

Year ended 31 December 2015

 
                                     B2C        B2B            Services 
                                 Trading    Licence    between segments 
                                platform     income                         Total 
                              ----------  ---------  ------------------  -------- 
                                 US$'000    US$'000             US$'000   US$'000 
                              ----------  ---------  ------------------  -------- 
 Revenue and result: 
                              ---------- 
 Revenues from external 
  customers                        5,006      9,070               (501)    13,575 
 Cost of sales                     2,036      2,448               (501)     3,983 
 Gross profit                      2,970      6,622                   -     9,592 
 Research and development              -      2,276                   -     2,276 
 Selling and marketing 
  expenses                         3,096      1,151                   -     4,247 
 Administrative expenses           1,756      1,458                   -     3,214 
 Finance expenses                    115        116                   -       231 
 Profit before tax 
  from recurring activities      (1,997)      1,621                         (376) 
 EBITDA*                         (1,843)      2,418                   -       575 
 EBITDA attributed 
  to shareholders                (1,843)      2,418                   -       575 
 
 Assets and liabilities 
 Assets                            1,539      6,974                   -     8,513 
 Liabilities                       1,111        786                   -     1,897 
                              ----------  ---------  ------------------  -------- 
 Depreciation and additions 
 Depreciation                         35         35                   -        70 
 Additions to property, 
  plant and equipment                109        235                   -       344 
                              ----------  ---------  ------------------  -------- 
 

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

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.

Year ended 31 December 2016

 
                                   B2C        B2B    Services     Acquisition 
                               Trading    Licence     between    related cost 
                              platform     income    segments              **     Total 
                            ----------  ---------  ----------  --------------  -------- 
                               US$'000    US$'000     US$'000         US$'000   US$'000 
                            ----------  ---------  ----------  --------------  -------- 
 Revenue and result: 
 Revenues from external 
  customers                     10,870     11,527     (1,072)               -    21,325 
 Cost of sales                   2,685      3,062     (1,072)               -     4,675 
 Gross profit                    8,185      8,465           -               -    16,650 
 Other (income) 
  expenses                           -        (2)           -               -       (2) 
 Research and development          192      3,144           -               -     3,336 
 Selling and marketing 
  expenses                       2,350      1,852           -               -     4,202 
 Administrative 
  expenses                       1,358      2,719           -               -     4,077 
 Finance expenses                  169        259           -             558       986 
 Profit before tax 
  from recurring 
  activities                     4,116        493           -           (558)     4,051 
 
 EBITDA*                         4,329      1,313           -               -     5,642 
 EBITDA attributed 
  to shareholders                1,523      1,313           -               -     2,836 
 
 Assets and liabilities 
 Assets                         10,144      8,302           -               -    18,446 
 Liabilities                       296      2,611           -           5,697     8,604 
                            ----------  ---------  ----------  --------------  -------- 
 Depreciation and 
  additions 
 Depreciation                       31         69           -               -       100 
 Additions to property, 
  plant and equipment                -        146           -               -       146 
                            ----------  ---------  ----------  --------------  -------- 
 
 

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

** see Note 8

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

   10.               Contingencies 

The Company's Israeli subsidiary has recently undergone a tax audit for the year 2014-2016. No provision in relation to this matter has been recognised in the Financials Statements based on legal advice which indicates that it is not probable, at this stage, that a significant liability will arise.

   11.               Subsequent events 

In February 2017, the Company received a notice of termination from its largest software licensee Richfield Capital, owner of www.24option.com ("Richfield"), to its current agreement with the Group with effect from 1 April 2017.

The Company has agreed with Richfield effective 1 April 2017, the terms of a new license agreement that will support this decreased level of trading that Richfield performs on the Company's system.

On 1 March 2017 the board of directors of DragonFinancials, the Company's 51% subsidiary, recommended the payment of a dividend of US$3.000.000, payable within 15 days from the approval. The Company received 51% of that amount.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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