Webis Holdings plc Global Gaming Group Annual Report and Consolidated Financial Statements for the year ended 31 May 2019 AIM Stock Code: WEB www.webisholdingsplc.com AIM Stock Code: WEB Webis Holdings plc Contents Our Performance 2 3 Group at a Glance Chairman’s Statement Our Governance 6 7 9 13 14 15 The Board of Directors Directors’ Report Corporate Governance Statement Audit, Risk and Compliance Committee Report Statement of Directors’ Responsibilities Report of the Remuneration Committee Our Financials 17 21 22 23 24 25 Independent Auditor’s Report Consolidated Statement of Comprehensive Income Statements of Financial Position Statements of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Shareholder Information Notice of Meeting Company Information 47 49 www.webisholdingsplc.com AIM Stock Code: WEB 1 Webis Holdings plc Group at a Glance Webis Holdings plc (the “Company”) and its subsidiary companies (together the “Group”) operates two primary segments as described below: - WatchandWager.com Ltd and WatchandWager.com LLC – Advanced Deposit Wagering (“ADW”) WatchandWager.com LLC – Cal Expo Harness Racetrack WatchandWager.com Ltd is regulated in the Isle of Man and operates a totalisator wagering hub through its United States Tote supplier, which enables it to conduct its ADW business by passing wagers directly into global racetrack betting pools in real time. its operational base in WatchandWager.com LLC has Lexington, Kentucky, with its head office in Larkspur, California, and provides pari-mutuel wagering, or pool-betting, services through a number of distribution channels to a global client base. The company holds United States pari-mutuel licences for its ADW business in the USA, including a multi- jurisdictional licence issued by the States of North Dakota, and individual licences for the States of California, Maryland, Colorado, Minnesota, New York, Washington and Kentucky. Three further individual State licences are in the process of negotiation. The business provides wagering opportunities predominantly on horse and greyhound racing and has contracted with a significant number of prestigious racetrack partners within the United States, Hong Kong, France, Canada, United Kingdom, Ireland, and Australia amongst others. It provides wagering facilities to customers through its interactive website, watchandwager.com, as well as offering a business-to-business wagering product and a telephone call centre. WatchandWager.com LLC also operates Cal Expo Harness Racetrack in Sacramento, California, under a licence issued by the California Horse Racing Board. This ‘bricks and mortar’ presence in the largest state economy in the USA continues to provide leverage for our related global pari-mutuel operations. As part of the requirements for the Isle of Man licence, client funds for the Isle of Man licensed companies are held in fully protected segregated client accounts within an Isle of Man regulated bank. www.webisholdingsplc.com AIM Stock Code: WEB 2 Webis Holdings plc Chairman’s Statement Introduction It has been a mixed year for our core USA based business, WatchandWager.com LLC (“WatchandWager”) over the financial year reported, with a reduction in amounts wagered, and an overall loss returned, but against that a significant strengthening of our licensed USA position in the increasingly expanded world of USA regulated gaming. Despite the loss reported, the Board is overall satisfied with the performance over the year reported for our three core business units, namely “Business-to-Consumer”, “Business- to-Business” and our racetrack operation at “Cal Expo” in Sacramento, California, and three sectors are these commented upon in more detail below. Equally importantly, and as shareholders are aware, the company, as an Isle of Man owned operation, still occupies a unique advantage in the USA, with our array of USA licenses, banking, settlement and general business operational skills. We also consider our license and lease at the Cal Expo racetrack in Sacramento, California, to be a significant asset in regulated gaming globally, but of course mainly in the USA and California. The Company still stands well positioned in particular in California, and also other States that it is licensed and operates in. Year End Results Review The Group amounts wagered for the year ended 31 May 2019 was US$136.4 million (2018: US$461.2 million) – a significant decline due to the loss of a large wagering syndicate as previously reported to shareholders on 19 October 2018 and commented on below. Gross Profit reported was US$4.5 million (2018: US$5.6 million). This led to an overall loss on the year. Operating costs were US$5.3 million: down 5% on 2019 (2018: US$5.6 million), as we continue to manage costs over the entire operation. We expect these costs to reduce in the current financial year. As a result, our loss from operations was US$930,000. Shareholder equity stands at US$1.2 million (2018: US$2.0 million). Total cash stands at US$2.6 million (2018: US$13.4 million), which includes ring-fenced funds held as protection against our player liability as required under USA and Isle of Man gambling legislation. An amount of US$875,000 was held during the year as bonds and deposits with regulatory authorities. Approach to Risk and Corporate Governance As part of the adoption of the Quoted Companies Alliance Corporate Governance code, the Board completed an assessment of the risks inherent in the business and defined and adopted a statement of risk appetite, being the amount and type of risk, it is prepared to seek, accept or tolerate in pursuit of value. This being: - “The Group’s general risk appetite is a moderate, balanced one that allows it to maintain appropriate growth, profitability and scalability, whilst ensuring full regulatory compliance.” The Group’s primary risk drivers include: - www.webisholdingsplc.com AIM Stock Code: WEB Strategic Reputational Credit Operational Market Liquidity, Capital and Funding Regulatory and Compliance Conduct Our risk appetite has been classified under an “impact” matrix defined as Zero, Low, Medium and High. Appropriate steps are underway to ensure the prudential control monitoring of risks to the Group and the Audit, Risk and Compliance Committee will oversee this essential requirement. Further details of the Corporate Governance Statement will be found on pages 9 to 12 of this report. The Board refined incorporated the risk and compliance framework. the Group’s business plan which Performance by Sector WatchandWager Business-to-Consumer www.watchandwager.com/mobile During the year, we reviewed this sector and whilst our platform is important to the operation, we have refined our marketing investment to more accurately target our core audience, mainly horse players and potential sports players. Whilst the website and mobile product continue to perform well, quite simply the marketing investment required to compete with the large brands in the USA is not commercially feasible. As a result, we have adjusted our strategy in this area, with a reduced marketing spend, and some reductions in data feeds and other products, that after researching our key clients do not rely upon. This streamlining of our costs has actually worked well, and player numbers during the period were up by 16%, whilst costs have reduced. This is commented upon more in post year developments. That said, we continue to provide the best possible service to our clients in this area. We offer some unique opportunities for clients to bet especially in the very large amount of international content that we are licensed to provide, and also our competitive rewards program that we offer. We also have an excellent array of licenses in USA states we can take bets from, and we consider this critical to our future. We are confident that this service will continue to increase our client base and overall turnover, but under a reduced operational cost. We also know that our database has a value in the expanding world of USA regulated sports betting. Business-to-Business This sector is the provision of pari-mutuel (pool) wagering to high-roller clients, many of whom specialise in algorithmic or computer assisted trading on a wide range of global racetracks. 3 Webis Holdings plc Chairman’s Statement continued Business-to-Business continued Licenses The amounts wagered for the full year were significantly reduced by the previously reported cessation of wagering from a large syndicate group/agent for almost the entire year reported. Subsequent to that all contractual relations with this group have been terminated by WatchandWager. This impacted turnover into primarily the Hong Kong Jockey Club and the French PMU. This had the anticipated impact previously reported of around US$800,000 in reduced gross margin during the period, which is the principal reason for the losses reported. However, this does mean that the risk factor of a reliance on one particular group/agent is no longer. In addition, the reduction in business has in no manner impacted our world- wide licenses and content that we have worked hard upon and continue to be in good standing with. In fact, the opposite is the case with many regulators and content providers continuing to be in favour of us possessing a broader range of clients. Our network of other players continued to grow both in terms of turnover and player sign-ups. By not paying third-party fees, we benefit from a much better margin than those through agents, and we are able to work proactively and directly with them. That said and as previously notified, the entire sector remains volatile, being subject to changes in player or aggregator activities, as well as changes in the policies of key content providers and regulators. To that end whilst we will continue to service this sector, it is not our principal focus at this time. The management team have been busy during the period reported and subsequently, renewing our key strategic licenses and we can confirm the recent renewal of our core multi-jurisdictional license for wagering with the North Dakota Racing Commission for 2020. In addition, as previously announced, we have renewed our strategically important license in California for a period of two more years (to be reheard in 2021). At the same time, we have renewed or are in the process of renewing other key licenses in New York, Kentucky, Washington, Colorado and Minnesota. We are very confident all of these licenses will be in place in advance of the start of 2020, as we are in good status with the relevant State regulators. The Board considers these licences and future applications, alongside our physical presence at Cal Expo, to be the principal assets of the Group, and this is commented more in subsequent events below. Subsequent Events (post period reported) Trading Trading has been much improved in the new financial year from June 1st, 2019 to time of writing. We have seen growth in all three divisions we operate, and our strategy of controlling costs, particularly in the areas of data provision, marketing and some staff costs has been and will continue to be effective. As a result, we are much closer to a breakeven situation at EBITDA level which is our initial task, with the ultimate need to return to profitability. A further update will be Interim delivered announcement which will be delivered in February 2020. to shareholders at our 2019/20 Cal Expo Cal Expo Cal Expo had a good racing season during the period, running 47 race meets between November 2018 and May 2019. Most importantly, our excellent health and safety record remains and, unlike other Californian tracks, with no equine fatalities relating to racing activities incurred during the meeting. Equine safety, and the safety of all our participants and customers remains of the upmost priority. These were tested during the severe wildfires experienced in Northern California during the period, and as a result we cancelled racing on two occasions to ensure the safety of all participants. Given these circumstances, it was very encouraging that both horse numbers, and all sources handle, were up on the previous 2017/18 meeting, and this shows an encouraging trend for the new season. We were also assisted by the new in California, which International Racing Bill approved Management heavily in Sacramento, and commenced in January 2019. As predicted, this added circa US$100,000 of extra revenue to our operations, and we expect this to continue to improve. lobbied for The Board considers our licensed operations at Cal Expo to be one of the key assets of the Group and central to our growth in the USA. www.webisholdingsplc.com AIM Stock Code: WEB As previously reported, the Board is currently working with the Board of the state-run Cal Expo Exposition of Fairs on a license renewal up to 2025, with the possibility of extending even further beyond that. This is a very significant move forward as we believe the racetrack can operate in an increasing profitable manner, but even more importantly will continue to give the Group an important licensed presence in what will become by far the largest State for sports betting and other forms of gaming in the USA. Welfare issues On a less positive note, many shareholders will be aware of the larger number of equine fatalities at a track in Santa Anita, California. Whilst our operations are not impacted in any way, the Board are very aware of the effect this has and can continue to have on public opinion, particularly through organizations such as PETA (Protection of Ethical Treatment for Animals). That said, we are very pleased with the swift remedial action approved by the California Horseracing Board in particular. As stated above Cal Expo maintains an excellent welfare record, and the protection of our horses and participants is our upmost priority. 4 Webis Holdings plc Chairman’s Statement continued USA regulated sports betting and other gaming Corporate Governance It is now only eighteen months since the Supreme Court’s positive judgement on USA Sports betting in May 2018, and the Board is very encouraged by the significant progress that has been made in many first starter States, especially New Jersey, which is now creating significant revenues, and most importantly meaningful duties and tax back to the State. Also, encouragingly, the two best performing properties in New Jersey are both racetracks – namely Meadowlands and Monmouth Park, confirming our opinion that horseracing players will also bet on sports at far higher levels than casino or slot machine players. When sports betting is legalised in California, we plan to adopt a very similar model to that enjoyed at Meadowlands. Developments by State Clearly progress has been fastest on the East Coast, although we do feel we were best to stay out of these markets, where we have few licenses and less traction. That said it has been interesting to note the progress in the currently legalised states, and also the huge interest from the large USA gaming and media companies in the sector, not to mention the European operators, and software companies. This is further commented upon under strategic opportunities. California Our physical presence in California and accompanying licenses remains our biggest asset and opportunity, but the situation is complicated given the diverse interests in the State. We are very encouraged by progress in the State Capitol in Sacramento, located less than five miles from Cal Expo racetrack, and where the ultimate decisions will be made. We welcome the draft Dodd/Gray AB10 Bill and are actively participating in efforts to move this forward in the Capitol. Most significant is the current language that will only allow active land-based participants in California to apply for licences, namely Racetracks, Native American Casinos, and possibly Card Clubs. This effectively means the large USA and international gaming operations and software suppliers outside California will literally need to buy themselves into the State at large premiums. Whilst almost impossible to predict the progress of State legislature particularly in California, at present, we reasonably expect Sports betting to be legalized for those with a physical presence in the State by 2021, with a possible go-live date in 2022. We will update shareholders as and when more progress is made. Other State opportunities With California being a long-term goal, we are also focusing on other States, and additional opportunities to operate other forms of gaming, both land-based and on-line, with a view to generate short term profitability. At present, opportunities exist in North Dakota, Arizona and a few other key States, plus some international opportunities. We will update shareholders in due course. One of the Group Board’s primary responsibilities is to ensure the provision of effective corporate governance. To this end, the Board undertook a full review of every aspect of governance in light of the Quoted Companies Alliance Corporate Governance Code for Small and Mid-Size Quoted Companies (2018) and I am pleased to report that the Group is fully compliant in all aspects. Strategic opportunities and Outlook USA regulated gaming is seen as the hottest subject at present in global gaming, and something of a gold rush both in the USA and, indeed, internationally. Non-USA and certain European companies are experiencing severe regulatory issues, as well as margin problems, and appear almost desperate to be a part of the developments in the USA. As a result, it should come as no surprise that WatchandWager continues to be courted by large corporations, and indeed smaller operations with a view to software deals, strategic alliances, mergers or even outright acquisition opportunities. Principally led by our Managing Director, the Board assesses each opportunity on a case-by-case basis. It should be noted in the majority of instances, the Board takes the view that “they need us more than we need them” and we continue to protect our USA licensed presence as a core asset. We are very aware of the increased consolidation in the industry and the economies of scale of strategic partnerships and will keep shareholders aware of any meaningful strategic developments with the Group, most likely in the USA, but possibly with international partnerships. I also believe it is important to re-confirm the support of our principal shareholder for our USA operations, strategy and expansion plans. As a Board, we also believe we have the ability to raise further capital to support our operations both short term and indeed for future funding of our USA strategy. Finally, I would like to thank all our shareholders, customers for their continued loyally, and our staff for their continued hard work. Denham Eke Non-executive Chairman 27 November 2019 www.webisholdingsplc.com AIM Stock Code: WEB 5 Webis Holdings plc The Board of Directors Denham Eke, aged 68 Non-executive Chairman career Denham Eke began his in stockbroking before moving into corporate planning for a major UK insurance broker. He is a director of many years’ standing of both public and private companies involved in the mining, leisure, manufacturing and financial services sectors. Denham Eke was appointed Non-executive Chairman in April 2003. Ed Comins, aged 50 Managing Director the Tote Ed Comins has 22 years’ experience in the betting and gaming industry with Coral, and Ladbroke Casinos, GameAccount. At the Tote he had overall responsibility for developing Totepool’s pari- mutuel business as General Manager of Tote Direct and Development Director for Totepool. He was Commercial Director for GameAccount, a provider of online skill games, where he managed betting partner relationships with key sportsbooks. Ed Comins joined the Board in May 2010. Nigel Caine, aged 49 Non-executive Director of Chartered Nigel Caine is the Chief Financial Officer for Burnbrae Group Limited. He is a Fellow of the Certified Association Accountants and a Member of both the Chartered Institute of Securities and Investments and the Institute of Chartered Secretaries and Administrators. He also holds an MBA from the University of Wales. Nigel began his career in audit and transaction services with KPMG and Deloitte. Before joining Burnbrae Group Limited in 2014, Nigel was the Chief Financial Officer for Speymill Deutsche Immobilien Company Plc. Nigel Caine joined the Board in June 2015. Sir James Mellon, aged 90 Non-executive Director Sir James Mellon is a former diplomat who began his career with the Department of Agriculture for Scotland before moving on to several varied roles including Head of Trade Relations and Export Dept (TRED); FCO; UK Ambassador to Denmark; Director-General for Trade and Investment, United States; and Consul-General, New York. He has many years of corporate experience having been a director of both public and private companies. Sir James Mellon joined the Board in January 2012. www.webisholdingsplc.com AIM Stock Code: WEB 6 Webis Holdings plc Directors’ Report The Directors present their annual report and the audited consolidated financial statements for the year ended 31 May 2019. Principal activities The Group operates: • • a pari-mutuel service to individual and business customers; and a racetrack under a licence issued in California, USA. Business review The Group operates on a worldwide basis and provides online and offline facilities in respect of a wide variety of pari-mutuel events. A more detailed review of the business, its results and future developments is in the Chairman’s Statement on pages 3 to 5. Proposed dividend The Directors do not propose the payment of a dividend (2018: US$Nil). Policy and practice on payment of creditors It is the policy of the Group to agree appropriate terms and conditions for its transactions with suppliers by means of standard written terms to individually negotiated contracts. Directors’ interests Denham Eke 1 Ed Comins Nigel Caine Sir James Mellon The Group seeks to ensure that payments are always made in accordance with these terms and conditions. At the year-end there were 19 days (2018: 12 days) of purchases in trade creditors. Financial risks Details relating to financial risk management are shown in note 20 to the financial statements. Directors and Directors’ interests The Directors who held office during the year and to date were as follows: Denham Eke Non-executive Chairman Ed Comins Managing Director Nigel Caine Non-executive Director Sir James Mellon Non-executive Director The Director retiring by rotation is Denham Eke who, being eligible, offers himself for re-election. The Directors who held office at the end of the year had the following interests in the ordinary shares of the Company and options to purchase such shares arising from incentive schemes: Ordinary shares Options Interest at end of year 2019 Interest at start of year 2018 Interest at end of year 2019 Interest at start of year 2018 — — — — — — — — — — 14,000,000 14,000,000 — — — — 1 Denham Eke is Managing Director of Burnbrae Limited which holds 248,204,442 ordinary shares representing 63.10% of the issued capital of the Company. Further details of the options issued to the executive Directors are contained in the Report of the Remuneration Committee on pages 15 and 16. www.webisholdingsplc.com AIM Stock Code: WEB 7 Webis Holdings plc Directors’ Report continued Substantial interests On 28 July 2019, the following interests in 3% or more of the Company’s ordinary share capital had been reported: Burnbrae Limited BBHISL Nominees Ltd Annual General Meeting Shareholders will be asked to approve at the Annual General Meeting certain resolutions as special business. Some of these resolutions have become routine business at the Annual General Meetings of most public companies, including your Company, and relate to the renewal of the authority for the Directors to allot relevant securities and the renewal of the powers for the Directors to allot equity securities for cash. Employees The Group is committed to a policy of equal opportunity in matters training and career development of employees, and is opposed to any form of less favourable treatment afforded on the grounds of disability, sex, race or religion. to employment, relating Number of ordinary shares % 63.10 248,204,442 4.17 16,400,000 Political and charitable contributions The Group made no political contributions during the year. As part of the obligations of the pari-mutuel business in the United States, the Group made charitable contributions of US$39,807 during the year (2018: US$40,711). Auditors KPMG Audit LLC, being eligible, have expressed their willingness to continue in office in accordance with Section 12(2) of the Isle of Man Companies Act 1982. On behalf of the Board The Group recognises the importance of ensuring employees are kept informed of the Group’s performance, activities and future plans. Ed Comins Managing Director 27 November 2019 www.webisholdingsplc.com AIM Stock Code: WEB 8 Webis Holdings plc Corporate Governance Statement Corporate Governance Report The Webis Holdings Board (the “Board”) is committed to best practice in corporate governance throughout Webis Holdings plc and all subsidiary companies (together the “Group”). The Directors have agreed to comply with the provisions of the Quoted Companies Alliance (“QCA”) Corporate Governance Code for Small and Mid-Size Quoted Companies (2018) to the extent which is appropriate to its nature and scale of operations. This report illustrates how the Group complies with those principles. QCA Principle 1: Establish a strategy and business model which promotes long-term value for shareholders The strategy and business operations of the Group are set out in the Chairman’s Statement on pages 3 to 5. The Group’s strategy and business model and amendments thereto, are developed by the Managing Director and his senior management team and approved by the Board. The management is responsible for implementing the strategy and managing the business at an operational level. the Managing Director, led by team, The Group’s overall strategic objective is to develop a profitable, sustainable advance deposit wagering (“ADW”) platform that benefits from a wide and diverse client base, both business and retail. The Group operates through two principal operating subsidiaries: WatchandWager.com Ltd and WatchandWager.com LLC. WatchandWager.com Ltd is regulated in the Isle of Man and operates a totalisator wagering hub through its United States Tote supplier, which enables it to conduct its ADW business by passing wagers directly into global racetrack betting pools in real time. its operational base WatchandWager.com LLC has in Lexington, Kentucky, with its head office in Larkspur, California, and provides pari-mutuel, or pool-betting, wagering services through a number of distribution channels to a global client base. The company holds United States pari-mutuel licences for its ADW business in the US, issued by North Dakota, California, Maryland and Colorado. The business provides wagering opportunities predominantly on horse and greyhound racing and has contracted with a significant number of prestigious racetrack partners within the United States, Hong Kong, France, Canada, United Kingdom, Ireland, and Australia amongst others. It provides wagering facilities website, watchandwager.com, as well as offering a business-to- business wagering product and a telephone call centre. customers through its to WatchandWager.com LLC also operates Cal Expo Harness Racetrack in Sacramento, California, under a licence issued by the California Horse Racing Board. This ‘bricks and mortar’ presence in the largest state economy in the US continues to provide leverage for our related global pari-mutuel operations. The Group also plans to develop an attractive US-based sportsbook offering following the recent Supreme Court ruling which paves the way to legalizing wagering on sports in the United States, subject to individual State legislation. Whilst the ruling will not have an immediate impact on revenue levels until individual State legislation is in place, the Group considers this market to be a significant growth area for our US operations. Significantly, California’s draft Sports Betting www.webisholdingsplc.com AIM Stock Code: WEB Bill specifies that only land-based racetracks and casinos will be eligible for license applications. In the United States, WatchandWager.com LLC holds ADW licenses not only for California, but also for North Dakota (providing regulated access to a total of 28 states), together with individual State licenses for New York, Kentucky, Colorado, Minnesota and Washington. The Group operates in an inherently high risk and heavily regulated sector and this is reflected in the principal risks and uncertainties. In executing the Group’s strategy and operational plans, management will typically confront a range of day-to-day challenges associated with these key risks and uncertainties and will seek to deploy the identified mitigation steps to manage these risks as they manifest themselves. QCA Principle 2: Seek shareholder needs and expectations to understand and meet The Group via the Managing Director seeks to maintain a regular dialogue with both existing and potential new shareholders in order to communicate the Group’s strategy and progress and to understand the needs and expectations of shareholders. Beyond the Annual General Meeting, the Managing Director and, where appropriate, other members of the senior management team or Board will meet with investors and analysts to provide them with updates on the Group’s business and to obtain feedback regarding the market’s expectations of the Group. The Group’s investor relations activities encompass dialogue with both institutional and private investors. From time to time, the Company attends private investor events, providing an opportunity for those investors to meet with representatives from the Group in a more informal setting. QCA Principle 3: Take into account wider stakeholder and social responsibilities and their implications for long- term success The Group is aware of its corporate social responsibilities and the need to maintain effective working relationships across a range of stakeholder groups. These include the Group’s employees, clients, partners, suppliers, regulatory authorities and horseracing colleagues involved in the Group’s track facility at Cal Expo. The Group’s operations and working methodologies take account of the need to balance the needs of all of these stakeholder groups while maintaining focus on the Board’s primary responsibility to promote the success of the Group for the benefit of its members as a whole. The Group endeavours to take account of feedback received from stakeholders, making amendments to working arrangements and operational plans where appropriate and where such amendments are consistent with the Group’s longer-term strategy. The Group takes due account of any impact that its activities may have on the environment and seeks to minimise this impact wherever possible. Through the various procedures and systems it operates, the Group ensures full compliance with health and safety and environmental legislation relevant to its activities. 9 Webis Holdings plc Corporate Governance Statement continued QCA Principle 4: Embed effective risk management, considering both opportunities and threats, throughout the organisation The Board is responsible for the systems of risk management and internal control and for reviewing their effectiveness. The internal controls are designed to manage rather than eliminate risk and provide reasonable but not absolute assurance against material misstatement or loss. Through the activities of the Group Audit, Risk and Compliance Committee, the effectiveness of these internal controls is reviewed annually. A comprehensive budgeting process is completed once a year and is reviewed and approved by the Board. The Group’s results, compared with the budget, are reported to the Board on a monthly basis. The Group maintains appropriate insurance cover in respect of actions taken against the Directors because of their roles, as well as against material loss or claims against the Group. The insured values and type of cover are comprehensively reviewed on a periodic basis. The senior management team meets at least monthly to consider new risks and opportunities presented to the Group, making recommendations to the Board and/or Group Audit, Risk and Compliance Committee as appropriate. QCA Principle 5: Maintain functioning, balanced team led by the chair the board as a well- The Group’s Board currently comprises three Non-executive Directors and one Executive Director. All of the Directors are subject to election by shareholders at the first Annual General Meeting after their appointment to the Board and will continue to seek re-election at least once every three years. The Board is responsible to the shareholders for the proper management of the Group and meets at least four times a year to set the overall direction and strategy of the Group, to review operational and financial performance and to advise on management appointments. All key operational decisions are subject to Board approval. Sir James Mellon, one of the Non-executive Directors is considered to be independent, although the Board intends to appoint at least one further independent Director at an appropriate time. The other two Non-executive Directors are not considered independent given their connection to the Company’s controlling shareholder. The QCA Code suggests that a board should have at least two independent Non- executive Directors. The Board considers that the current composition and structure of the Board of Directors have been appropriate to maintain effective oversight of the Group’s activities to date. However, the Board is aware that further oversight through independent Non-executive Directors could be beneficial to the governance environment. This process is under review and is pending the further development of the sportsbook opportunity in the US in order to be able to determine the exact need and requirements. Non-executive Directors receive their fees in the form of a basic cash emolument. The Executive Director receives a basic cash salary and also holds options over the Group’s shares. The number and terms are set out on page 16. The option grant concerned is not deemed to be significant for the individual Executive Director. The current remuneration structure for the Board’s Executive and Non-executive Directors is deemed to be proportionate. QCA Principle 6: Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities The Board considers that all of the Executive and Non- executive Directors are of sufficient competence and calibre to add strength and objectivity to its activities and bring considerable experience in the operational and financial development of gambling and horseracing companies. The Directors’ biographies are set out on page 6. The Board regularly reviews the composition of the Board to ensure that it has the necessary breadth and depth of skills to support the ongoing development of the Group. Whilst there is no Finance Director on the Board, the overview of the finance function is the responsibility of Nigel Caine, aided by a non-Board Financial Controller. The Chairman, in conjunction with the Company Secretary, ensures that the Directors’ knowledge is kept up to date on key issues and developments pertaining to the Group, its operational environment and to the Directors’ responsibilities as members of the Board. During the course of the year, Directors received updates from the Company Secretary and various external advisers on a number of corporate governance matters. Directors’ service contracts or appointment letters make provision for a Director to seek personal advice in furtherance of his or her duties and responsibilities, normally via the Company Secretary. QCA Principle 7: Evaluate board performance based on clear and relevant objectives, seeking continuous improvement Internal evaluation of the Board, the Committees and individual Directors is undertaken on an annual basis in the form of peer appraisal and discussions to determine their effectiveness and performance as well as the Directors' continued independence. The results and recommendations that come out of the appraisals for the directors shall identify the key corporate and financial targets that are relevant to each Director and their personal targets in terms of career development and training. Progress against previous targets is also assessed where relevant. www.webisholdingsplc.com AIM Stock Code: WEB 10 Webis Holdings plc Corporate Governance Statement continued QCA Principle 8: Promote a corporate culture that is based on ethical values and behaviours The Board seeks to maintain the highest standards of integrity and probity in the conduct of the Group’s operations. These values are enshrined in the written policies and working practices adopted by all employees in the Group. An open the Group, with regular culture communications to staff regarding progress and staff feedback regularly sought. The Executive Management regularly monitors the Group’s cultural environment and seeks to address any concerns that may arise, escalating these to Board level as necessary. is encouraged within The Group is committed to providing a safe environment for its staff and all other parties for which the Group has a legal or moral responsibility in this area. The Group’s health and safety policies and procedures are enshrined in the Group’s documented quality systems, which encompass all aspects of the Group’s day-to-day operations. QCA Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision- making by the board The Role of the Board The Board is collectively responsible for the long-term success of the organisation. Its principal function is to determine the strategy and policies of the Group within an effective control framework which enables risk to be assessed and managed. The Board ensures that the necessary financial and human resources are in place for the Group to meet its objectives and that business and management performances are reviewed. Furthermore, the Board ensures that the Group operates within its constitution, relevant legislation and regulation and that proper accounting records and effective systems of business control are established, maintained, documented and audited. There are at least four formal Board meetings each year. All Board members have the benefit, at the Group’s expense, of liability insurance in respect of their responsibilities as Directors and have access to independent legal or other professional advice if required. The Board has a formal schedule of matters which are reserved for its consideration and it has established three committees to consider specific issues in greater detail, being the Group Audit, Risk and Compliance, Remuneration and Nomination Committees. The Terms of Reference for each of these Committees are published on the Group’s website. The Chairman The Chairman is responsible for leading the Board, ensuring its effectiveness in all aspects of its role, promoting a culture of openness of debate and communicating with the Group’s members on behalf of the Board. The Chairman sets the direction of the Board and promotes a culture of openness and debate by facilitating the effective contribution of Non- executive Directors and ensuring constructive relations between Executive and Non-executive Directors. The Chairman also ensures that Directors receive accurate, timely and clear information. In doing so, this fosters a positive corporate governance culture throughout the Group. www.webisholdingsplc.com AIM Stock Code: WEB The Managing Director The Managing Director is responsible for managing the Group’s business and operations within the parameters set by the Board. Non-executive Directors The Non-executive Directors are responsible for bringing independent judgement to the discussions held by the Board, using their breadth of experience and understanding of the business. Their key responsibilities are to constructively challenge and contribute to strategic proposals, and to monitor resources, and standards of conduct, performance, compliance and control, whilst providing support to executive management in developing the Group. The Board has established a Group Audit, Risk and a Remuneration Compliance Committee Committee and a Nominations Committee with formally delegated duties and responsibilities. Sir James Mellon chairs both the ARCC and the Remuneration Committee. (“ARCC”), Group Audit, Risk and Compliance Committee The Group Audit, Risk and Compliance Committee (the “ARCC”) meets at least two times each year and comprises two Non-executive Directors, currently Sir James Mellon (Chairman) and Denham Eke. The external auditors attend by invitation. Its role is to be responsible for reviewing the integrity of the financial statements and the balance of information disclosed in the accompanying Directors’ Report, to review the effectiveness of internal controls and risk management systems and recommend to the Board (for approval by the members) the appointment or re-appointment of the external auditor. The ARCC reviews and monitors the external auditor’s objectivity, competence, effectiveness and independence, ensuring that if it or its associates are invited to undertake non-audit work it will not compromise auditor objectivity and independence. Further information can be found within the Group Audit, Risk and Compliance Report contained within this Annual Report. Remuneration Committee The Remuneration Committee meets at least twice a year and comprises of two Non-executive Directors. It is chaired by Sir the James Mellon and is responsible remuneration of the Company Secretary and other members of the management. Committee members do not take part in discussions concerning their own remuneration. the Executive Director, for determining Further information can be found within the Remuneration Report contained within this Annual Report. Nomination Committee The Nomination Committee is comprised of the whole Board. It is chaired by the Chairman of the Board and is responsible for making recommendations to the Board on matters relating to the composition of the Board, including Executive and Non- executive Director succession planning, the appointment of new Directors and the election and re-election of Directors. The Nomination Committee only meets as matters arise. 11 Webis Holdings plc QCA Principle 10: Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders The Group places a high priority on regular communications with its various stakeholder groups and aims to ensure that all communications concerning the Group’s activities are clear, fair and accurate. The Group’s website is regularly updated, and users can register to be alerted when announcements or details of presentations and events are posted onto the website. Notices of General Meetings of the Company can be found here: http://www.webisholdingsplc.com/latest-news/. The results of voting on all resolutions in general meetings are posted to the Group’s website, including any actions to be taken as a result of resolutions for which votes against have been received from at least 20 per cent of independent shareholders. Approval This report was approved by the Board of Directors on 27 November 2019 and signed on its behalf by: Denham Eke Non-executive Chairman 27 November 2019 Corporate Governance Statement continued Appointments to the Board The principal purpose of the Nomination Committee is to undertake the assessment of the balance of skills, experience, independence and knowledge on the Board against the requirements of the business, with a view to determining whether any shortages exist. Having completed the assessment, the Committee makes recommendations to the Board accordingly. Appointments to the Board are made on merit, with due regard to the benefits of diversity. Within this context, the paramount objective is the selection of the best candidate, irrespective of background, and it is the view of the Board that establishing quotas or targets for the diversity of the Board is not appropriate. All Director appointments must be approved by the Company’s Nominated Adviser, as required under the AIM Rules, before they are appointed to the Board. Prior to appointment, Non-executive Directors are required to demonstrate that they are able to allocate sufficient time to undertake their duties. Re-election The Group’s Rules require that all Directors are submitted for election at the AGM following their first appointment to the Board. Thereafter all directors will submit themselves for re- election at least once every three years, irrespective of performance. Board and committee attendance The number of formal scheduled Board and committee meetings held and attended by Directors during the year was as follows: - Board Audit Remuneration Nomination Denham Eke Sir James Mellon Ed Comins Nigel Caine 8/8 2/2 2/2 8/8 2/2 2/2 8/8 8/8 - - - - - - - - www.webisholdingsplc.com AIM Stock Code: WEB 12 Webis Holdings plc Audit, Risk and Compliance Committee Report The Directors have agreed to comply with the provisions of (“QCA”) Corporate the Quoted Companies Alliance Governance Code for Small and Mid-Size Quoted Companies (2018) to the extent which is appropriate to its nature and scale of operations. This report illustrates how the Group complies with those principles in relation to its Group Audit, Risk and Compliance Committee (the “Committee”). Membership The Committee comprises of two Non-executive Directors and the members are Sir James Mellon (Chairman) and Denham Eke. The composition of the Committee has been reviewed during the year and the Board is satisfied that the Committee members have recent relevant financial experience and the expertise to resource and fulfil its responsibilities effectively, including those relating to risk and controls. Meetings The Committee meets two times a year, including the review of the interim and full year results. Other Directors and representatives from the external auditors attend by invitation. Duties The Committee carries out the duties below for the Company and the Group as a whole, as appropriate: ▪ Monitors the integrity of the financial statements of the Company, including annual and half-yearly reports, interim management statements, and any other formal financial performance, announcement to issues and reviewing significant judgements which they contain. financial reporting relating ▪ Reviews and challenges the consistency the information presented within the financial statements, compliance legal requirements, with stock exchange or other accounting policies and the methods used to account for significant or unusual transactions. ▪ Keeps under review the effectiveness of the Group’s internal controls and risk management systems. ▪ Reviews the Group’s arrangements for its employees to raise, in confidence, possible wrongdoing in financial reporting or other matters, the procedures for detecting fraud, prevention of bribery and adequacy and effectiveness of the Group’s anti-money laundering systems and control. ▪ KPMG Audit LLC was appointed as auditor in 2002 and the Committee oversees the relationship with them including regular meetings to discuss their remit and review the findings and any issues with the annual audit. It also reviews their terms of appointment, meets them once a year independent of management and considers and makes recommendations to the Board, to be put to the Company for approval at the Annual General Meeting, in relation to the appointment, re-appointment and removal of the Company’s external auditor. There are no contractual restrictions in place in respect of the auditor choice. The Committee is governed by a Terms of Reference and a copy of this is available on www.webisholdingsplc.com - the Company’s website. ▪ www.webisholdingsplc.com AIM Stock Code: WEB 2019 Annual Report During the year the Committee held two meetings and can confirm that it has received sufficient, reliable and timely information from management and the external auditors to enable it to fulfil its responsibilities. The Committee has satisfied there are no relationships between the auditor and the Group which could adversely affect the auditor’s independence and objectivity and regular meetings have been held with them at both the planning stage prior to the audit and after the audit at the reporting stage. itself that All internal control and risk issues that have been brought to the attention of the Committee by the external auditors have been considered and the committee confirms that it is satisfied that management has addressed the issues or has plans to do so. The Group has a number of policies and procedures in place as part of its internal controls and these are subject to continuous review and as a minimum are reviewed by the Committee on an annual basis. The Committee has reviewed and discussed together with management and the external auditor the Company’s financial statements for the year ended 31 May 2019 and reports from the external auditor on the planning for and outcome of their reviews and audit. The key accounting issues and judgements considered relating to the Group’s financial statements and disclosures were as follows: ▪ Revenue recognition – the Committee considered the conditions of revenue recognition, including that of being recognised on an accrual basis. The Committee agreed that the current method of revenue recognition is appropriate for the market that the Group operates within and that revenue satisfied the necessary criteria to be recognised. Disclosures are included in note 1; ▪ Going concern – the Committee reviewed the going concern position of the Group, taking into account the 12- month cash flow forecasts and the continued support of the principal shareholder. The Committee is satisfied that preparing the financial statements on a going concern basis is appropriate. Disclosures are included in note 1; ▪ Cash balances – the Committee reviewed the cash position to ensure that it is able to meet its ongoing requirements and also has sufficient cash reserves to cover the relevant player liabilities. The Committee is satisfied that there are sufficient cash balances to meet its ongoing expenses and cover the player balances in full if required. Disclosures are included in note 12; and ▪ Reviewed changes to impairment model due to adoption of IFRS 9 effective 1 June 2018. Denham Eke Non-executive Chairman 27 November 2019 13 Webis Holdings plc Statement of Directors’ Responsibilities in Respect of the Annual Report and the Financial Statements The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. Under the AIM Rules of the London Stock Exchange they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the EU (IFRSs as adopted by the EU), as applicable to an Isle of Man company and applicable law and have elected to prepare the parent Company financial statements on the same basis. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable, • • relevant and reliable; state whether they have been prepared in accordance with IFRSs as adopted by the EU; assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and • use the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations or have no realistic alternative but to do so. for keeping adequate The Directors are accounting records that are sufficient to show and explain the Parent Company’s transactions and disclose with reasonable responsible accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Acts 1931-2004. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Directors’ Report that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the Isle of Man governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Signed on behalf of the Board. Denham Eke Non-executive Chairman 27 November 2019 www.webisholdingsplc.com AIM Stock Code: WEB 14 Webis Holdings plc Report of the Remuneration Committee Directors’ Remuneration Report As an Isle of Man registered company there is no requirement to produce a Directors’ Remuneration Report. However, the Board follows best practice and therefore has prepared such a report. The Directors have agreed to comply with the provisions of (“QCA”) Corporate the Quoted Companies Alliance Governance Code for Small and Mid-Size Quoted Companies (2018) to the extent which is appropriate to its nature and scale of operations. This report illustrates how the Group complies with those principles in relation to Directors’ remuneration. The Level and Components of Executive Director Remuneration The Group’s Remuneration Policy reflects the Group’s business strategy and objectives as well as sustained and long-term value creation for shareholders. In addition, the policy aims to be fair and provide equality of opportunity, ensuring that: - ▪ ▪ ▪ ▪ the Group is able to attract, develop and retain high- performing and motivated employees in the competitive local and wider US markets; employees are offered a competitive remuneration package to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contribution to the success of the Group; it reflects our culture and values; and there is full transparency of the Group’s Remuneration Policy. In line with the Board’s approach, which reflects that adopted the Group’s within other comparable organisations, Remuneration Policy provides for the reward of the Executive Director through salary and other benefits. Executive Director’s Emoluments The remuneration for the Executive Director reflects their to responsibilities. participate in an annual bonus scheme when is considered appropriate, private healthcare and share option incentives. It comprises basic salary, eligibility this Annual bonus scheme payments are not pensionable and are not contracted. As with staff generally, whose salaries are subject to annual reviews, the basic salary payable to the Executive Director is reviewed each year with reference to jobs carrying similar responsibilities in comparable e-gaming organisations, market Emoluments — salaries, bonuses and taxable benefits — fees www.webisholdingsplc.com AIM Stock Code: WEB conditions generally and local employment competition in view of the Group’s geographical position. It is anticipated that an annual bonus scheme will operate when Group profitability and cash flow allow. Bonuses for the executive director are calculated with reference to the profit before tax as disclosed in the audited accounts of the Group, together with an assessment by the Committee of the director’s performance against agreed personal targets. Bonus payments are not pensionable. The Committee believes that share ownership by executives strengthens the link between their personal interests and those of shareholders. Options are granted to executives periodically at the discretion of the Remuneration Committee. The grant of share options is not subject to fixed performance criteria. This is deemed to be appropriate as it allows the Committee to consider the performance of the Group and the contribution of the individual executives and, as with annual bonus payments, illustrates the relative importance placed on performance-related remuneration. The Group does not intend to contribute to the personal pension plans of Directors in the forthcoming year. Executive Directors’ Contractual Terms The service contract of the Executive Director provides for a notice period of six months. Non-executive Directors’ Remuneration Non-executive Directors do not receive any benefits other than their fees and travelling expenses for which they are reimbursed. The level of fees payable to Non-executive Directors is assessed using benchmarks from a group of comparable e-gaming organisations. The Procedure for Determining Remuneration The Remuneration Committee, comprising two Non-executive Directors, is responsible for setting the remuneration of the Executive Director and is chaired by Sir James Mellon. in discussions Committee members do not concerning their own remuneration. The basic Non-executive Director fee is set by the Group Chairman. The Chairman of the Committee reports at the Board meeting following a Committee meeting. take part It is the view of the Committee that Directors’ remuneration awarded across the Group for the year has been in accordance with the Group’s stated Remuneration Policy and, on behalf of the Committee I recommend that you endorse this Group report. An analysis of Directors’ emoluments is as follows: 2019 US$000 2018 US$000 348 67 415 350 69 419 15 Webis Holdings plc Report of the Remuneration Committee continued Directors’ Emoluments Basic salary US$000 Fees US$000 Bonus US$000 Termination payments US$000 Benefits US$000 2019 Total US$000 2018 Total US$000 310 — — — 310 — 26 21 20 67 — — — — — — — — — — 38 — — — 38 348 350 26 21 20 27 22 20 415 419 Executive Ed Comins Non-executive Denham Eke* Nigel Caine* Sir James Mellon Aggregate emoluments * Paid to Burnbrae Limited. Details of the options outstanding at 31 May 2019 are as follows: Name of director Ed Comins 2016 Share Option Plan 31 May 2018 Granted / (lapsed) in year 31 May 2019 Exercise price Date from which exercisable Expiry date 14,000,000 14,000,000 — — 14,000,000 14,000,000 1p 3 March 2019 3 March 2026 The market price of the shares at 31 May 2019 was 1.55p. The range during the year was 4.85p to 1.30p. Approval The report was approved by the Board of Directors and signed on behalf of the Board. Denham Eke Non-executive Chairman 27 November 2019 www.webisholdingsplc.com AIM Stock Code: WEB 16 Webis Holdings plc Independent Auditor’s Report, to the members of Webis Holdings plc 1 Our opinion is unmodified We have audited the financial statements of Webis Holdings PLC (“the Company”) or (“the Group”) for the year ended 31 May 2019 which comprise the Consolidated Statement of Comprehensive Income, Consolidated and Parent Company Statements of Financial Position, Consolidated and Parent Company Statements of Changes in Equity, Consolidated Statement of Cash Flows and the related notes, including the accounting policies in note 1. In our opinion: • • • the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 May 2019 and of the Group’s loss for the year then ended; the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU); the financial statements have been prepared in accordance with the requirements of the Companies Acts 1931-2004. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion 2 Material uncertainty related to going concern Going concern Disclosure quality Our procedures included: The financial statements explain how the Directors formed their judgement that it is appropriate to adopt the going concern basis of preparation for the Group and Parent Company. judgement is based on an That evaluation of the inherent risks to the Group’s and Company’s business model and how those risks might affect the Group’s and Company’s financial to continue resources or ability operations over a period of at least a year from the date of approval of the financial statements. that The risk for our audit was whether or not subjectivities in the going concern assessment were such they amounted to a material uncertainty that may have cast significant doubt about the ability to continue as a going concern. The material uncertainty was identified and disclosed in the financial statements. statements We draw attention to note 1.1 to the which financial describes that the Group incurred a net loss of US$930,000 for the year (2018: profit of US$103,000). Based on forecasts prepared by the Directors, the Group will sustain losses to November 2020 and is dependent on continued financial support from Galloway Limited in order to continue its operations and implement the strategies outlined in note 1.1. The Group’s and Parent Company’s to continue as a going ability concern is dependent on Galloway Limited, a related party, not seeking repayment of the amounts payable to it which at the reporting date to US$850,000 and amounted providing financial additional support if required. However, there is no certainty that such support will continue. These events and conditions, along with the other matters explained in note 1.1, constitute a material uncertainty that may cast significant doubt on the Group and the Parent Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. www.webisholdingsplc.com AIM Stock Code: WEB Funding assessment: the - We compared the available cash balance with the projected expenditure. We also the assessed projected expenditure by comparing it against the actual expenditures in the current year which have been agreed to invoices and agreements. reasonableness of Key dependency assessment: - We inspected the letter of financial support from a related party, Galloway Limited, confirming that it does not intend to call the loan payable for 12 months after the signing of financial statements and will if provide additional required in order to ensure the continuation of the Group’s existing operations. financial support these - Further, we have enquired of Management in respect of the ability of Galloway Limited to provide financial support. Sensitivity analysis: - We performed stress testing by assessing the effect of a reasonable increase in projected expenditure and a decrease in the projected revenue on the Group’s net assets. Assessing transparency: - We assessed the completeness and accuracy of the matters covered in the going concern disclosure by comparing the financial statements disclosures the relevant against guidance. requirements of the in 17 Webis Holdings plc Independent Auditor’s Report, to the members of Webis Holdings plc continued 3 Other key audit matters: our assessment of risks of material misstatement Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, we do not provide a separate opinion on these matters. Going concern is a significant key audit matter and is described in section 2 of our report. In arriving at our audit opinion above, the other key audit matters, in decreasing order of audit significance, were as follows (the only change from 2018 being the change in the key audit matter over going concern to an emphasis of a material uncertainty related to going concern): Key audit matter Revenue recognition Consolidated Comprehensive US$47,259,000 (2018: US$54,466,000) Statement Income: of Turnover Refer to note 1.2 (Accounting Policy for Turnover) and note 2 (Segmental analysis) The risk Revenue occurrence Our response recognition- Our procedures included: The Group enters into high volumes of revenue-generating transactions each day. Given the complexity of the relied upon, we systems identified the occurrence of revenue as a significant risk. Outsourcing controls: - We considered the control environment of the service organisation by obtaining the latest System and Organisation Controls (SOC) reports upon whose system infrastructure and applications are relied on by the Group, and in assessing the design and operating effectiveness of their controls. - We the assessed objectivity, competence and the nature of work performed by the Independent Service Auditor who provides the SOC reports. Tests of detail: - We agreed total revenues recorded by the Group to the reports extracted from the third-party service organisation’s system. Expectation vs Outcome - We re-performed the calculation of the total pay-out for a sample of racetracks based on the rates specified within the signed agreements and compared our expectation to the amount recorded by the Group. - www.webisholdingsplc.com AIM Stock Code: WEB 18 Webis Holdings plc Independent Auditor’s Report, to the members of Webis Holdings plc continued Key audit matter The risk Our response Cash balances (Group and Parent Company) Consolidated Statement of Financial Position: Cash US$2,594,000 (2018: US$13,392,000) Parent Company Statement of Financial Position: Cash US$1,416,000 (2018: US$2,961,000) Refer to note 1.2 (Accounting Policy for Cash and cash equivalents) and note 12 (Note disclosure for Cash and cash equivalents) High value, non-subjective Our procedures included: The cash balances comprise 53% of the Group’s Total Assets (by value) and 76% of the Company’s Total Assets (by value). We do not consider these cash balances to be subject to significant level of judgment because they are liquid assets. However, due to their materiality in the context of the financial they are statements as a whole, considered to be one of the areas which had the greatest effect on our overall audit strategy and allocation of resources in planning and completing our audit. Control design: - Documented and assessed the processes in place in reconciling bank balances. Tests of detail: - Agreed the bank balances to the independently obtained bank confirmations. - Inspected the credit rating of the banks to assess their ability to meet contractual obligations. 4 Our application of materiality and an overview of the scope of our audit Materiality for the Group financial statements as a whole was set at US$40,000, determined with reference to a benchmark of the Group’s net gaming revenue, of which it represents 0.9%. We consider net gaming revenue to be the most appropriate benchmark as it provides a more stable measure year on year than Group profit before tax. In the prior year, Group materiality was set at US$220,000, determined with reference to a benchmark of gross gaming revenue, of which it represented 0.4%. The benchmark used for materiality was changed as a result of a reassessment of the benchmark which is most relevant to users of the accounts. Materiality for the Parent Company financial statements as a whole was set at US$18,000 (2018: US$76,000), determined with reference to a benchmark of Parent Company’s total assets, of which it represents 1% (2018: 2.5%). We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding US$2,000 (2018: US$11,000) for the Group financial statements and US$900 (2018: US$4,000) for the Parent Company financial statements, in addition to other identified misstatements that warranted reporting on qualitative grounds. All of the Group’s subsidiaries were subjected to full scope audit by the Group audit team and in accordance with the Group’s materiality, or a lower level of materiality based on their individual financial statements. 5 We have nothing to report on the other information in the Annual Report The Directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information. www.webisholdingsplc.com AIM Stock Code: WEB 19 Webis Holdings plc Independent Auditor’s Report, to the members of Webis Holdings plc continued 6 We have nothing to report on the other matters on which we are required to report by exception Under the Companies Act 1931-2004, we are required to report to you if, in our opinion: • proper books of account have not been kept by the Parent Company and proper returns adequate for our audit have not been received from branches not visited by us; or the Parent Company financial statements are not in agreement with the accounting records and returns; or certain disclosures of Directors’ remuneration specified by law are not made; or • • • we have not received all the information and explanations we require for our audit. We have nothing to report in these respects. 7 Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page 14, the Directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities. 8 The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the company’s members, as a body, in accordance with Section 15 of the Companies Act 1982. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. KPMG Audit LLC Chartered Accountants Heritage Court 41 Athol Street Douglas Isle of Man IM99 1HN 27 November 2019 www.webisholdingsplc.com AIM Stock Code: WEB 20 Webis Holdings plc Consolidated Statement of Comprehensive Income For the year ended 31 May 2019 Amounts wagered Turnover Cost of sales Betting duty paid Gross profit Operating costs Note 2019 US$000 2018 US$000 136,353 461,154 2 47,259 54,466 (42,625) (48,027) (146) (884) 4,488 5,555 (5,277) (5,562) Impairment loss on trade receivables 20 Re-organisational and other costs Other (losses)/gains Other income Operating (loss)/profit Finance costs (Loss)/profit before income tax Income tax expense (Loss)/profit for the year Other comprehensive income: Items that may be subsequently reclassified to profit or loss: Currency translation differences on disposal of foreign subsidiaries Other comprehensive income for the year Total comprehensive income for the year Basic earnings per share for (loss)/profit attributable to the equity holders of the Company during the year (cents) Diluted earnings per share for (loss)/profit attributable to the equity holders of the Company during the year (cents) The notes on pages 25 to 46 form part of these financial statements. www.webisholdingsplc.com AIM Stock Code: WEB 3 4 6 7 7 (67) (54) (166) 187 (889) (41) (930) — (930) — — — (86) 132 104 143 (40) 103 — 103 — — (930) 103 (0.24) 0.03 (0.23) 0.03 21 Webis Holdings plc Statements of Financial Position As at 31 May 2019 Non-current assets Intangible assets Property, equipment and motor vehicles Investments Bonds and deposits Total non-current assets Current assets Bonds and deposits Trade and other receivables Cash and cash equivalents Total current assets Total assets Equity Called up share capital Share option reserve Retained losses Total equity Current liabilities Trade and other payables Total current liabilities Non-current liabilities Loans Total non-current liabilities Total liabilities Total equity and liabilities Note 31.05.19 Group US$000 31.05.19 Company US$000 31.05.18 Group US$000 31.05.18 Company US$000 8 9 10 11 11 13 12 16 16 14 15 104 26 — 101 231 882 1,191 2,594 4,667 4,898 6,334 42 7 10 3 — 20 — 427 1,416 1,843 1,863 166 60 — 101 327 2,846 2,300 13,392 18,538 18,865 13 19 8 — 40 — 57 2,961 3,018 3,058 6,334 6,334 6,334 42 4 4 (5,224) (5,412) (4,294) (5,282) 1,152 964 2,044 1,056 2,896 2,896 850 850 3,746 4,898 49 49 850 850 899 1,863 16,321 16,321 500 500 16,821 18,865 1,502 1,502 500 500 2,002 3,058 The notes on pages 25 to 46 form part of these financial statements The financial statements were approved by the Board of Directors on 27 November 2019 Denham Eke Ed Comins Non-executive Chairman Managing Director www.webisholdingsplc.com AIM Stock Code: WEB 22 Webis Holdings plc Statements of Changes in Equity For the year ended 31 May 2019 Group Called up share capital US$000 Share option reserve US$000 Retained earnings US$000 Total equity US$000 Balance as at 31 May 2017 6,334 2 (4,397) 1,939 Total comprehensive income for the year: Profit for the year Transactions with owners: Share-based payment expense Balance as at 31 May 2018 Total comprehensive income for the year: Loss for the year Transactions with owners: Share-based payment expense (note 16) Balance as at 31 May 2019 — — 6,334 — — 6,334 — 2 4 — 38 42 103 103 — 2 (4,294) 2,044 (930) (930) — (5,224) 38 1,152 Company Called up share capital US$000 Share option reserve US$000 Retained earnings US$000 Total equity US$000 Balance as at 31 May 2017 6,334 2 (5,374) 962 Total comprehensive income for the year: Profit for the year Transactions with owners: Share-based payment expense Balance as at 31 May 2018 Total comprehensive income for the year: Loss for the year Transactions with owners: Share-based payment expense (note 16) Balance as at 31 May 2019 — — 6,334 — — 6,334 — 2 4 — 38 42 92 — 92 2 (5,282) 1,056 (130) (130) — (5,412) 38 964 The notes on pages 25 to 46 form part of these financial statements. www.webisholdingsplc.com AIM Stock Code: WEB 23 Webis Holdings plc Consolidated Statement of Cash Flows For the year ended 31 May 2019 Cash flows from operating activities (Loss) / profit before income tax Adjustments for: - Depreciation of property, equipment and motor vehicles - Amortisation of intangible assets - Finance costs - Share based payment expense - Other foreign exchange movements Changes in working capital: - Decrease in receivables - Decrease in payables Cash flows from operations Bonds and deposits placed in the course of operations Net cash used in operating activities Cash flows from investing activities Purchase of intangible assets Purchase of property, equipment and motor vehicles Net cash used in investing activities Cash flows from financing activities Interest paid Loans received Net cash generated from / (used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Exchange (losses) / gains on cash and cash equivalents Cash and cash equivalents at end of year The notes on pages 25 to 46 form part of these financial statements. Note 2019 US$000 2018 US$000 9 8 4 16 (930) 103 34 80 41 38 74 70 40 2 363 (691) 1,109 771 (13,425) (2,563) (12,690) (2,194) 11 1,964 19 (10,726) (2,175) 8 9 4 15 (18) — (18) (41) 350 309 (130) (24) (154) (40) — (40) (10,435) (2,369) 13,392 15,072 (363) 689 2,594 13,392 www.webisholdingsplc.com AIM Stock Code: WEB 24 Webis Holdings plc Notes to the Financial Statements For the year ended 31 May 2019 1 Reporting entity (the “Company”) 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 Webis Holdings plc consolidated financial statements as at and for the year ended 31 May 2019 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. There has been no material impact on the Group financial statements of new standards/interpretations that have come into effect during the current reporting period. 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 consider the only critical judgement area to be the valuation of share options. The Directors believe the models and assumptions used to calculate the fair value of the share-based payments, outlined in note 16, 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 Group and Parent Company financial statements have been prepared on a going concern basis. The Group incurred a net loss of US$930,000 for the year (2018: profit of US$103,000) and as at 31 May 2019. Based on forecasts prepared by the Directors, the Group will sustain losses to November 2020 and is dependent on continued financial support from Galloway Limited in order to continue its operations and implement the strategies outlined below. The reported turnover declined by US$7,207,000 during the year following a decrease in wagering activities and the cessation of wagering services to a large syndicate, with an anticipated annual impact of approximately US$800,000 in reduced gross margin. The Directors recognise that there is a risk involved in the sustainability of the business operations and have identified that these circumstances in combination represent a material uncertainty that casts significant doubt upon the Group’s ability to continue as a going concern, without shareholder support. The Directors are pursuing strategies that include: • • • • broadening the Group’s client base and expanding its business to customer base continuing to renew and acquire further US state regulated gaming licenses and continuing to develop and expand the Cal Expo racetrack operation including the extension of the lease to a longer lease term taking advantage of the anticipated regulatory change in the State of California’s adoption of sports betting legislation which will further open up opportunities for the Group reducing operational costs as a key priority for the Group in achieving its goal of profitability and maintaining adequate liquidity in order to continue its operations. The Directors continue to assess all strategic options in this regard, albeit that the ultimate success of strategies adopted is difficult to predict as they require additional cash, including bonds to be placed with the relevant authorities. The Directors have prepared cash flow forecasts for a period of 12 months from the date of approval of these financial statements which indicate that, taking account of reasonably possible downsides, the Group is projected to have sufficient funds through funding from its related entity, to meet its liabilities as they fall due for that period. 25 www.webisholdingsplc.com AIM Stock Code: WEB Webis Holdings plc Notes to the Financial Statements continued 1.1 Basis of preparation continued Going concern continued Those forecasts are also dependent on Galloway Limited not seeking repayment of the amounts currently due by the Group, which at 31 May 2019 amounted to US$850,000, and providing additional financial support if required in order to ensure the continuation of the Group’s existing operations. Galloway Limited has indicated its intention to continue to make available such funds as are needed by the company, and that it does not intend to seek repayment of the amounts due at the balance sheet date, for the period covered by the forecasts. As with any company placing reliance on other parties for financial support, the Directors acknowledge that there can be no certainty that this support will continue although, at the date of approval of these financial statements, they have no reason to believe that it will not do so. The willingness of Galloway Limited to continue to provide this support is reliant on the strategies highlighted above which are subject to uncertainty. Based on these indications, the Directors believe that it remains appropriate to prepare the financial statements on a going concern basis. However, these circumstances represent a material uncertainty that may cast significant doubt on the Company’s ability to continue as a going concern and, therefore, to continue realising its assets and discharging its liabilities in the normal course of business. The financial statements do not include any adjustments that would result from the basis of preparation being inappropriate. 1.2 Changes in significant accounting policies During the current year the Group adopted all the new and revised IFRSs that are relevant to its operation and are effective for accounting periods beginning on 1 June 2019. This adoption did not have a material effect on the accounting policies of the Group. The changes to the significant accounting policies are described below: IFRS 9 Transition Classification and measurement on adoption The Group adopted IFRS 9 Financial Instruments for the first time on 1 June 2018. For the Group, there is no financial impact on adopting IFRS 9 for changes in the measurement basis for financial assets and liabilities and consequently no adjustment to opening retained earnings at 1 June 2018. There has however been a change to classification terminology, outlined below for the company’s main financial instruments: Financial instrument New Classification under IFRS 9 Cash and cash equivalents Trade receivables Loans and advances Amortised cost Amortised cost Amortised cost Bonds and Deposits Amortised cost Equity instruments FV on day 1, no remeasurements Original Classification under IAS 39 Loans and receivables Loans and receivables Loans and receivables Loans and receivables/ Loans and receivables FV on day 1, no remeasurements Measurement model Amortised cost Amortised cost Amortised cost Amortised cost FVTPL Impairment on adoption The Group has determined that the impact of adopting IFRS 9’s ECL model is an immaterial transitional impact on the Group’s opening retained earnings at 1 June 2018. The accounting policies set out above have been applied consistently to all periods presented in these financial statements in accordance with IFRS. Impairment of financial assets IFRS 9 introduces an expected loss accounting model for credit losses that differs significantly from the incurred loss model under IAS 39 and results in earlier recognition of credit losses. The new impairment model applies to financial assets measured at amortised cost and contract assets. Financial assets at amortised cost include trade receivables, cash and cash equivalents, bonds and deposits. www.webisholdingsplc.com AIM Stock Code: WEB 26 Webis Holdings plc Notes to the Financial Statements continued 1.2 Changes in significant accounting policies continued IFRS 9 Transition continued Impairment of financial assets continued Performing financial assets Stage 1 From initial recognition of a financial asset to the date on which an asset has experienced a significant increase in credit risk relative to its initial recognition, a stage 1 loss allowance is recognised equal to the credit losses expected to result from its default occurring over the earlier of the next 12 months or its maturity date (‘12-month ECL’). Stage 2 Following a significant increase in credit risk relative to the initial recognition of the financial asset, a stage 2 loss allowance is recognised equal to the credit losses expected from all possible default events over the remaining lifetime of the asset (‘Lifetime ECL’). The assessment of whether there has been a significant increase in credit risk requires considerable judgment, based on the lifetime probability of default (‘PD’). Stage 1 and 2 allowances are held against performing loans; the main difference between stage 1 and stage 2 allowances is the time horizon. Stage 1 allowances are estimated using the PD with a maximum period of 12 months, while stage 2 allowances are estimated using the PD over the remaining lifetime of the asset. Impaired financial assets Stage 3 When a financial asset is considered to be credit-impaired, the allowance for credit losses (‘ACL’) continues to represent lifetime expected credit losses, however, interest income is calculated based on the amortised cost of the asset, net of the loss allowance, rather than its gross carrying amount. Application of the new impairment model The Group applies IFRS 9’s new ECL model to two main types of financial assets that are measured at amortised cost: Trade receivables, to which the simplified approach (provision matrix) prescribed by IFRS 9 is applied. This approach requires the recognition of a Lifetime ECL allowance on day one. Other financial assets at amortised cost, to which the general three stage model (described above) is applied, whereby a 12- month ECL is recognised initially and the balance is monitored for significant increases in credit risk which triggers the recognition of a Lifetime ECL allowance. CLs are a probability-weighted estimate of credit losses. ECLs for financial assets that are not credit-impaired at the reporting date are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due in accordance with the contract and the cash flows that the company expects to receive). ECLs for financial assets that are credit-impaired at the reporting date are measured as the difference between the gross carrying amount and the present value of estimated future cash flows. ECLs are discounted at the effective interest rate of the financial asset which is 0% for all financial assets at amortised cost. The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. The measurement of ECLs considers information about past events and current conditions, as well as supportable information about future events and economic conditions. The Group has revised its impairment methodology for estimating the ECLs, taking into account forward-looking information in determining the appropriate level of allowance. In addition, it has identified indicators and set up procedures for monitoring for significant increases in credit risk. As a result of the adoption of IFRS 9, the Group has adopted the consequential amendments to IAS 1 Presentation of Financial Statements, which requires impairment of financial assets to be presented in a separate line item in the Statement of Comprehensive Income. Previously, the Group’s approach was to include impairment of trade receivables in operating costs. There were no impairment losses recorded that required reclassification in the Statement of Comprehensive Income for the year ended 31 May 2018. IFRS 15 Transition – Revenue from contracts with customers The Group generates revenue primarily from the provision of wagering services and the hosting of races on which guests are entitled to participate in the related wagering services. Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it discharges services to a customer. Revenue has been disaggregated by geographical locations which are consistent with the operating segments (note 2). Hosting fees are recognised when the customers participate in the Group’s pari-mutuel pools and the race audio visual signals are transmitted. www.webisholdingsplc.com AIM Stock Code: WEB 27 Webis Holdings plc Notes to the Financial Statements continued 1.2 Changes in significant accounting policies continued IFRS 15 Transition – Revenue from contracts with customers continued Wagering revenue from the Group’s activities as the race host is recognised when a race on which wagers are placed is completed. The wagering commission from the Group’s commingling of its wagering pools with a host’s pool is recognised when the race on which those wagers are placed is completed. The Group acts as a principal when it allows customers to place wagers in the races it hosts and as an agent when it allows customers to place wagers in other entities’ races. Transactions fees are recognised when the Group facilitates customers’ deposit transactions into their betting accounts. There were no restatements in the retained earnings on adoption of IFRS 15 as the resultant amounts, timing and pattern of recognition of revenue did not change. 1.3 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 the Group. 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 the 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 are presented in the income statement within ‘Finance income’ or ‘Finance costs’. All other foreign exchange gains and losses are presented in the income statement within ‘Other (losses)/gains’. (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. www.webisholdingsplc.com AIM Stock Code: WEB 28 Webis Holdings plc Notes to the Financial Statements continued 1.3 Summary of significant accounting policies continued Segmental reporting Segmental reporting is based on the business areas in accordance with the Group’s internal reporting structure, which allows the individual operating segments to be identified by the disparate nature of the principal activity they undertake. The Group determines and presents segments based on the information that internally is provided to the Board and 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 Board and 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. 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 reporting date in the countries where the Group operates and generates 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 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 tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting 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. 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. www.webisholdingsplc.com AIM Stock Code: WEB 29 Webis Holdings plc Notes to the Financial Statements continued 1.3 Summary of significant accounting policies continued Intangible assets — goodwill continued 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 gains/(losses) – net’ in the income statement. Share-based payment expense 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 www.webisholdingsplc.com AIM Stock Code: WEB 30 Webis Holdings plc Notes to the Financial Statements continued 1.3 Summary of significant accounting policies continued Share-based payment expense continued • 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. 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, bonds and deposits, 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. Bonds and deposits Bonds and deposits are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Borrowings Interest-bearing 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. 31 www.webisholdingsplc.com AIM Stock Code: WEB Webis Holdings plc Notes to the Financial Statements continued 1.3 Summary of significant accounting policies continued 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 accrual’s 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. Standards and interpretations in issue not yet adopted A number of new standards, amendments to standards and interpretations are not yet effective for the year, and have not been applied in preparing these consolidated financial statements: New/revised International Accounting Standards / International Financial Reporting Standards (“IAS/IFRS”) IFRS 16 Leases Amendments Effective date (accounting periods commencing on or after) 1 January 2019 Amendments to reference to Conceptual Framework in IFRS Standards Annual improvements to IFRS Standards 2015-2017 Cycle (issued on 12 December 2017) Amendments to IFRS 9 Financial Instruments: Prepayment Features with Negative Compensation (issued on 12 October 2017) 1 January 2020 Not yet endorsed Not yet endorsed IFRS 16 provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is less than 12 months, or the underlying asset is of an immaterial value. The Group’s assessment of the potential impact resulting from the implementation of IFRS 16 is currently in progress. The actual impact of adopting the standard on 1 June 2019 will be known when the Group presents its first financial statements after the date of initial application. www.webisholdingsplc.com AIM Stock Code: WEB 32 Webis Holdings plc Notes to the Financial Statements continued 2 Operating Segments A. Basis for segmentation The Group has the below two operating segments, which are its reportable segments. The segments offer different services in relation to various forms of pari-mutuel racing, which are managed separately due to the nature of their activities. Reportable segments and operations provided Racetrack operations – hosting of races through the management and operation of a racetrack facility, enabling patrons to attend and wager on horse racing, as well as utilise simulcast facilities. ADW operations – provision of online ADW services to enable customers to wager into global racetrack betting pools. The Group’s Board of Directors review the internal management reports of the operating segment on a monthly basis. Information about reportable segments B. Information relating to the reportable segments is set out below. Segment revenue along with segment profit / (loss) before tax are used to measure performance as management considers this information to be a relevant indicator for evaluating the performance of the segments. External revenues Segment revenue Segment loss before tax Interest expense Depreciation and amortisation Other material non-cash items: - Impairment losses on trade receivables Segment assets Segment liabilities External revenues Segment revenue Segment (loss)/profit before tax Interest expense Depreciation and amortisation Segment assets Segment liabilities www.webisholdingsplc.com AIM Stock Code: WEB Reportable segments Racetrack 2019 US$000 44,753 44,753 (97) – (8) – 423 181 ADW 2019 US$000 All other segments 2019 US$000 2,506 2,506 (708) – (106) (67) 2,612 2,666 – – (125) (41) – – 1,863 899 Reportable segments Racetrack 2018 US$000 ADW 2018 US$000 All other segments 2018 US$000 50,173 50,173 (359) – (41) 327 191 4,293 4,293 477 – (103) 15,480 14,628 – – (15) (40) – 3,058 2,002 Total 2019 US$000 47,259 47,259 (930) (41) (114) (67) 4,898 3,746 Total 2018 US$000 54,466 54,466 103 (40) (144) 18,865 16,821 33 Webis Holdings plc Notes to the Financial Statements continued 2 Operating Segments continued C. Reconciliations of information on reportable segments to the amounts reported in the financial statements i. Revenues Total revenue for reportable segments Consolidated revenue ii. (Loss) / profit before tax Total (loss) / profit before tax for reportable segments Loss before tax for other segments Consolidated (loss) / profit before tax iii. Assets Total assets for reportable segments Assets for other segments Consolidated total assets iv. Liabilities Total liabilities for reportable segments Liabilities for other segments Consolidated total liabilities v. Other material items Interest expense Depreciation and amortisation Impairment losses on trade receivables D. Geographic information 2019 US$000 2018 US$000 47,259 47,259 54,466 54,466 (805) (125) (930) 3,035 1,863 4,898 2,847 899 3,746 (41) (114) (67) 118 (15) 103 15,807 3,058 18,865 14,819 2,002 16,821 (40) (144) – The below table analyses the geographic location of the customer base of the operating segments. Turnover Racetrack operations ADW operations www.webisholdingsplc.com AIM Stock Code: WEB 2019 US$000 2018 US$000 North America 44,753 50,173 North America 1,541 British Isles Asia Pacific 692 273 1,323 23 2,947 47,259 54,466 34 Webis Holdings plc Notes to the Financial Statements continued 3 Operating (loss)/profit Operating (loss)/profit is stated after charging: Auditors’ remuneration — audit Depreciation of property, equipment and motor vehicles Amortisation of intangible assets Exchange losses / (gains) Operating lease rentals — other than plant, equipment and Harness Racetrack Operating lease rentals — Harness Racetrack Directors’ fees 4 Finance costs Loan interest payable Finance costs 5 Staff numbers and cost Average number of employees – Pari-mutuel and Racetrack Operations The aggregate payroll costs of these persons were as follows: Pari-mutuel and Racetrack Operations Wages and salaries Social security costs 6 Income tax expense 2019 US$000 2018 US$000 81 34 80 64 74 70 166 (132) 30 74 67 29 89 69 2019 US$000 2018 US$000 (41) (41) (40) (40) 2019 2018 55 59 2019 US$000 2018 US$000 1,711 121 1,832 1,866 132 1,998 (a) Current and Deferred Tax Expenses The current and deferred tax expenses for the year were US$Nil (2018: US$Nil). Despite having made losses, no deferred tax was recognised as there is no reasonable expectation that the Group will recover the resultant deferred tax assets. www.webisholdingsplc.com AIM Stock Code: WEB 35 Webis Holdings plc Notes to the Financial Statements continued 6 Income tax expense continued (b) Tax Rate Reconciliation (Loss)/profit before tax Tax charge at IOM standard rate (0%) Adjusted for: Tax credit for US tax losses (at 15%) Add back deferred tax losses not recognised Tax charge for the year 2019 US$000 2018 US$000 (930) – (166) 166 – 103 – (97) 97 – The maximum deferred tax asset that could be recognised at year end is approximately US$810,000 (2018: US$644,000). The Group has not recognised any asset as it is not reasonably known when the Group will recover such deferred tax assets. 7 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 in the current period has not been reflected in the calculation of the diluted loss per share, as the effect would have been anti-dilutive. (Loss)/profit for the year Weighted average number of ordinary shares in issue Dilutive element of share options if exercised (note 16) Diluted number of ordinary shares Basic earnings per share (cents) Diluted earnings per share (cents) 2019 US$000 (930) No. 2018 US$000 103 No. 393,338,310 393,338,310 14,000,000 14,000,000 407,338,310 407,338,310 (0.24) (0.23) 0.03 0.03 The earnings applied are the same for both basic and diluted earnings calculations per share as there are no dilutive effects to be applied. www.webisholdingsplc.com AIM Stock Code: WEB 36 Webis Holdings plc Notes to the Financial Statements continued 8 Intangible assets Goodwill Software & development costs Total Group US$000 Group US$000 Company US$000 Group US$000 Company US$000 Cost Balance at 1 June 2017 Additions during the year Currency translation differences Balance at 31 May 2018 Balance at 1 June 2018 Additions during the year Balance at 31 May 2019 Amortisation and Impairment Balance at 1 June 2017 Amortisation for the year Balance at 31 May 2018 Balance at 1 June 2018 Amortisation for the year Balance at 31 May 2019 Carrying amounts At 1 June 2017 At 31 May 2018 At 31 May 2019 177 1,354 – – 177 177 – 177 177 – 177 177 – 177 – – – 130 1 1,485 1,485 18 1,503 1,249 70 1,319 1,319 80 1,399 105 166 104 50 14 – 64 64 – 64 50 1 51 51 6 57 – 13 7 1,531 130 1 1,662 1,662 18 1,680 1,426 70 1,496 1,496 80 1,576 105 166 104 50 14 – 64 64 – 64 50 1 51 51 6 57 – 13 7 The goodwill balance brought forward relates to the historical acquisition of subsidiary businesses. The goodwill balances were fully impaired during the year ended 31 May 2015. 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). www.webisholdingsplc.com AIM Stock Code: WEB 37 Webis Holdings plc Notes to the Financial Statements continued 9 Property, equipment and motor vehicles Group Cost Balance at 1 June 2017 Additions during the year Currency translation differences Balance at 31 May 2018 Balance at 1 June 2018 Balance at 31 May 2019 Depreciation Balance at 1 June 2017 Charge for the year Balance at 31 May 2018 Balance at 1 June 2018 Charge for the year Balance at 31 May 2019 Carrying amounts At 1 June 2017 At 31 May 2018 At 31 May 2019 Company Cost Balance at 1 June 2017 Additions Balance at 31 May 2018 Balance at 1 June 2018 Balance at 31 May 2019 www.webisholdingsplc.com AIM Stock Code: WEB Computer Equipment US$000 Fixtures, Fittings & Track Equipment US$000 Motor Vehicles US$000 Total US$000 579 24 1 604 604 604 546 21 567 567 19 586 33 37 18 580 – – 580 580 580 525 45 570 570 7 577 55 10 3 51 – – 51 51 51 30 8 38 38 8 46 21 13 5 1,210 24 1 1,235 1,235 1,235 1,101 74 1,175 1,175 34 1,209 109 60 26 Computer Equipment US$000 Fixtures & Fittings US$000 Total US$000 419 10 429 429 429 139 – 139 139 139 558 10 568 568 568 38 Webis Holdings plc Notes to the Financial Statements continued 9 Property, equipment and motor vehicles continued Company Depreciation Balance at 1 June 2017 Charge for the year Balance at 31 May 2018 Balance at 1 June 2018 Charge for the year Balance at 31 May 2019 Carrying amounts At 1 June 2017 At 31 May 2018 At 31 May 2019 10 Investments Computer Equipment US$000 Fixtures & Fittings US$000 Total US$000 403 7 410 410 9 419 16 19 10 139 – 139 139 – 139 – – – 542 7 549 549 9 558 16 19 10 Investments in subsidiaries are held at cost. Details of investments at 31 May 2019 are as follows: Subsidiaries Country of incorporation WatchandWager.com Limited Isle of Man Activity Holding (%) Operation of interactive wagering totaliser hub WatchandWager.com LLC United States of America Operation of interactive wagering totaliser hub and harness racetrack Technical Facilities & Services Limited Isle of Man betinternet.com (IOM) Limited B.E. Global Services Limited Isle of Man Isle of Man Dormant Dormant Dormant 100 100 100 100 100 11 Bonds and deposits Group Company 2019 US$000 2018 US$000 2019 US$000 2018 US$000 Bonds and deposits which expire within one year Bonds and deposits which expire within one to two years Bonds and deposits which expire within two to five years 882 – 101 983 2,846 – 101 2,947 – – – – – – – – 39 www.webisholdingsplc.com AIM Stock Code: WEB Webis Holdings plc Notes to the Financial Statements continued 11 Bonds and deposits continued Cash bonds of US$875,000 have been paid as security deposits in relation to various US State ADW licences (2018: US$925,000). These cash bonds are held in trust accounts used exclusively for cash collateral, with financial institutions which have been screened for their financial strength and capitalization ratio. The financial institutions have a credit rating of A- Excellent from AM Best credit rating agency. Therefore, these bonds are considered to be fully recoverable. A rent deposit of US$100,000 is held by California Exposition & State Fair and is for a term of 5 years (2018: US$100,000). This is held by an entity of the Californian state government and is therefore considered fully recoverable. Rent and other security deposits total US$8,227 (2018: US$10,123). These deposits are repayable upon completion of the relevant lease term, under the terms of legally binding agreements. Under the terms of the licencing agreement with the Hong Kong Jockey Club the Company is no longer required to hold a retention amount (2018: US$1,911,461 / HK$15,000,000). 12 Cash and cash equivalents Cash and cash equivalents – company and other funds Cash and cash equivalents – protected player funds Total cash and cash equivalents Group Company 2019 US$000 2018 US$000 2019 US$000 2018 US$000 1,363 1,231 2,594 11,962 1,430 13,392 185 1,231 1,416 1,531 1,430 2,961 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. 13 Trade and other receivables Trade receivables Amounts due from Group undertakings Other receivables and prepayments Group Company 2019 US$000 2018 US$000 2019 US$000 2018 US$000 770 – 421 1,635 – 665 1,191 2,300 – 393 34 427 – – 57 57 Included within trade receivables are impairment losses of US$67,000 (see note 20), (2018: US$Nil). Amounts due from Group undertakings are unsecured, interest free and repayable on demand. 14 Trade and other payables Group Company 2019 US$000 2018 US$000 2019 US$000 2018 US$000 Trade payables 2,619 15,757 Amounts due to Group undertakings Taxes and national insurance Accruals and other payables – 17 260 – 16 548 2,896 16,321 12 – 2 35 49 14 1,451 2 35 1,502 Amounts due to Group undertakings are unsecured, interest free and repayable on demand. Included within trade payables are amounts due to customers of US$2,194,293 (2018: US$15,656,146). 40 www.webisholdingsplc.com AIM Stock Code: WEB Webis Holdings plc Notes to the Financial Statements continued 15 Loans Group Company 2019 US$000 2018 US$000 2019 US$000 2018 US$000 Loan – Galloway Ltd 850 500 850 500 A loan of US$500,000 was received from Galloway Ltd in February 2017, to provide financing for cash-backed bonding agreements. The loan is for a term of five years, attracts fixed interest at 7.75% per annum and is secured over the unencumbered assets of the company (see note 19). The loan was issued at a market rate with no issue costs and the interest is settled on a quarterly basis. At year end there are two month’s outstanding interest of US$6,476 (2018: US$6,476), which is recorded in other payables. A further loan of US$350,000 was received from Galloway Ltd in May 2019, to provide additional financing for cash-backed bonding agreements. The loan is for a term of five years, attracts fixed interest at 7.00% per annum and is secured over the unencumbered assets of the company (see note 19). The loan was issued at a market rate with no issue costs and the interest is settled on a quarterly basis. At year end there is one month’s outstanding interest of US$2,081 (2018: US$Nil), which is recorded in other payables. 16 Share capital Allotted, issued and fully paid No. 2019 US$000 2018 US$000 At beginning and close of year: ordinary shares of 1p each 393,338,310 6,334 6,334 At 31 May: ordinary shares of 1p each 393,338,310 6,334 6,334 The authorised share capital of the Company is US$9,619,000 divided into 600,000,000 ordinary shares of £0.01 each (2018: 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 2019 were as follows: At 31 May 2018 – 1p ordinary shares Options granted Options lapsed Options exercised At 31 May 2019 – 1p ordinary shares No. 14,000,000 – – – 14,000,000 During 2016 the Group established an equity-settled share-based option program. The fair value of options granted is recognised as an expense, with a corresponding increase in equity. The fair value is measured at grant date using a Black-Scholes model and is spread over the vesting period. The amount recognised in equity is adjusted to reflect the actual number of share options which are expected to vest. By taking into consideration the volatility of the shares over the 3 years prior to granting, the volatility of the options is calculated at 75%, with a risk-free interest rate of 0.86%. The options were issued on 3 March 2016 to Ed Comins, Managing Director of the Group. The fair value of each option on the grant date was estimated as being £0.0022. The share options vested on 3 March 2019 after Ed Comins had remained in the employment of the Group for 3 years from when the options were granted. The options are able to be exercised from 3 March 2019 and expire on 2 March 2026. The weighted average exercise price of all options is £0.01. The charge for share options recorded in profit and loss for the year was US$37,989 (2018: US$1,721), with the corresponding amount reflected in the share option reserve in the Statement of Financial Position and Statement of Changes in Equity. Since the grant date, the total charge in relation to the share options was US$42,126. www.webisholdingsplc.com AIM Stock Code: WEB 41 Webis Holdings plc Notes to the Financial Statements continued 17 Capital commitments As at 31 May 2019, the Group had no known capital commitments (2018: US$Nil). 18 Operating lease commitments At 31 May 2019, the Group was committed to future minimum lease payments of: Payments due within one year Payments due between one to five years Payments due beyond five years 2019 US$000 2018 US$000 108 186 – 108 294 – The Group has recognised in the income statement operating lease payments of US$104,000 (2018: US$118,000). The Group leases office and racetrack facilities. The office facilities lease expires in May 2021, with an option to renew prior to the expiry date, for a period yet to be determined, customarily with the lease rate increasing 2% annually. The racetrack facilities lease expires in May 2022, with an option to renew before the expiry date, for a period and rate to be determined at renewal. 19 Related party transactions Identity of related parties The Group has a related party relationship with its subsidiaries (see note 10), and with its Directors and executive officers and with Burnbrae Ltd (significant 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 US$45,484 (2018: US$52,858) and Directors’ fees of US$46,898 (2018: US$48,413) were charged in the year by Burnbrae Limited, of which Denham Eke and Nigel Caine are common Directors. The Group also had a loan of US$850,000 (2018: US$500,000) from Galloway Ltd, a company related to Burnbrae Limited by common ownership and Directors (note 15). Transactions with key management personnel The total amounts for Directors’ remuneration were as follows: Emoluments — salaries, bonuses and taxable benefits 2019 US$000 2018 US$000 348 67 415 350 69 419 — fees Directors’ Emoluments Executive Ed Comins Non-executive Denham Eke* Nigel Caine* Sir James Mellon Aggregate emoluments Basic salary US$000 Fees US$000 Bonus US$000 Termination payments US$000 Benefits US$000 2019 Total US$000 2018 Total US$000 310 — — — 310 — 26 21 20 67 — — — — — — — — — — 38 — — — 38 348 350 26 21 20 27 22 20 415 419 * Paid to Burnbrae Limited. 14,000,000 share options were issued to Ed Comins (see note 16) during 2016. www.webisholdingsplc.com AIM Stock Code: WEB 42 Webis Holdings plc Notes to the Financial Statements continued 20 Financial risk management Capital structure The Group’s capital structure is as follows: Cash and cash equivalents Loans and similar liabilities Net funds Shareholders’ equity Capital employed 2019 US$000 2018 US$000 2,594 13,392 (850) (500) 1,744 12,892 (1,152) (2,044) 592 10,848 The Group’s policy is to maintain as strong a capital base as possible, insofar as can be sustained due to the fluctuations in the net results of the Group and the inherent effect this has on the capital structure. 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 and foreign exchange risks. Liquidity risk 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 where applicable to ensure that Isle of Man Gambling Supervision Commission player protection principles are met. Other customer balances are covered by cash funds held within the Group and by receivables due from ADW racetrack settlement partners. The Directors anticipate that the business will generate sufficient cash flow in the forthcoming period, to meet its immediate financial obligations. The following are the contractual maturities of financial liabilities: 2019 Financial liabilities Carrying amount US$000 Contractual cash flow US$000 6 months or less US$000 Up to 1 year US$000 1–5 years US$000 Trade payables (2,619) (2,619) (2,619) Other payables and loans (865) (15) (15) (3,484) (2,634) (2,634) – – – – (850) (850) www.webisholdingsplc.com AIM Stock Code: WEB 43 Webis Holdings plc Notes to the Financial Statements continued 20 Financial risk management continued Liquidity risk continued 2018 Financial liabilities Trade payables Other payables and loans Carrying amount US$000 Contractual cash flow US$000 6 months or less US$000 Up to 1 year US$000 1–5 years US$000 (15,757) (15,757) (15,757) (756) (256) (256) (16,513) (16,013) (16,013) – – – – (500) (500) 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. Impairment losses on financial assets recognised in profit or loss were as follows: Non-credit impaired trade receivables Credit impaired trade receivables Total impairment losses 2019 US$000 2018 US$000 5 62 67 — — — The Group’s exposure to credit risk is influenced by the characteristics of the individual racetracks and the settling agents operating on behalf of these tracks. The racetracks themselves are influenced by many factors, including the product they offer, supporting sources of revenue they might generate, such as offering simulcast, slots or sports wagering facilities, current economic conditions, ownership structure and so on, all of which can affect their liquidity. The Group limits its exposure to credit risk by regular settling and verification of balances due to and from settling agents, with standard terms of one month. While there is on occasion debt that is slower to be settled, historical settlements for the last four years show that of the current trade receivable balance, greater than 99% would be expected to be received. In addition, more than 80% of the current Group customers have transacted with the Group for four years or more and none of these customers balances have been specifically impaired in that period. The following table provides information about exposure to credit risk and expected credit losses for trade receivables as at 31 May 2019: Current (not past due) 1-30 days past due 31-60 days past due 61-90 days past due More than 90 days past due More than 90 days past due Weighted Average Loss Rate (%) 0.25% 0.50% 1.00% 2.50% 5.00% 100.00% Gross Carrying Amount US$000 385 294 55 28 13 62 837 Loss Allowance US$000 (1) (1) (1) (1) (1) (62) (67) Net Carrying Amount US$000 384 293 54 27 12 — 770 Credit Impaired No No No No No Yes The Group uses an allowance matrix to measure the ECLs of trade receivables from racetracks and their settling agents, which comprise a moderate number of balances, ranging from small to large. The Group has reviewed its historical losses over the past four years as well as considering current economic conditions in estimating the loss rates and calculating the corresponding loss allowance. www.webisholdingsplc.com AIM Stock Code: WEB 44 Webis Holdings plc Notes to the Financial Statements continued 20 Financial risk management continued Credit risk continued Classes of financial assets — carrying amounts Cash and cash equivalents Bonds and deposits Trade and other receivables 2019 US$000 2018 US$000 2,594 983 1,051 4,628 13,392 2,947 2,133 18,472 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 receivables in any business segment: Pari-mutuel 2019 US$000 2018 US$000 1,051 1,051 2,133 2,133 Of the above receivables, US$770,000 (2018: US$1,635,000) relates to amounts owed from 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. The banks have external credit ratings of at least Baa3 from Moody’s. 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 as the Group and Parent Company do not have floating rate loans payable. Foreign currency risks The Group operates internationally and is subject to transactional foreign currency exposures, primarily with respect to Pounds Sterling, Hong Kong Dollars and Euros. 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 reporting date the Group had the following exposure: 2019 Current assets Current liabilities Short-term exposure www.webisholdingsplc.com AIM Stock Code: WEB USD US$000 GBP US$000 EUR US$000 HKD US$000 Total US$000 3,128 (1,911) 1,217 289 (196) 93 427 (84) 343 683 4,527 (688) (2,879) (5) 1,648 45 Webis Holdings plc Notes to the Financial Statements continued 20 Financial risk management continued Foreign currency risks continued 2018 Current assets Current liabilities Short-term exposure USD US$000 GBP US$000 EUR US$000 HKD US$000 Total US$000 2,744 (2,013) 731 225 11,214 4,186 18,369 (281) (10,027) (3.984) (16,305) (56) 1,187 202 2,064 The following table illustrates the sensitivity of the net result for the year and equity with regards to the Group’s financial assets and financial liabilities and the US Dollar–Sterling exchange rate, US Dollar–Euro exchange rate and US Dollar–Hong Kong Dollar exchange rate. A 5% weakening of the US Dollar against the following currencies at 31 May 2019 would have increased/(decreased) equity and profit and loss by the amounts shown below: 2019 Current assets Current liabilities Net assets 2018 Current assets Current liabilities Net assets GBP US$000 EUR US$000 HKD US$000 Total US$000 15 (10) 5 21 (4) 17 34 (34) – 70 (48) 22 GBP US$000 EUR US$000 HKD US$000 Total US$000 11 (14) (3) 561 (501) 60 209 (199) 10 781 (714) 67 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. 21 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%. 22 Subsequent events To the knowledge of the Directors, there have been no material events since the end of the reporting period that require disclosure in the accounts. www.webisholdingsplc.com AIM Stock Code: WEB 46 Webis Holdings plc Notice of Meeting NOTICE IS HEREBY GIVEN that the Annual General Meeting of Webis Holdings plc (the “Company”) will be held at The Claremont Hotel, 18/19 Loch Promenade, Douglas, Isle of Man, on 23 December 2019 at 11 am for the purpose of transacting the following business: Ordinary Business 1 To receive and adopt the report of the Directors and the accounts for the year ended 31 May 2019. 2 To re-elect as a director Denham Eke who retires by rotation and, being eligible, offers himself for re-election in accordance with the Company’s Articles of Association. 3 To reappoint KPMG Audit LLC as auditors and to authorise the Directors to determine their remuneration. Special Business To consider and, if thought fit, to pass the following resolutions: As an Ordinary Resolution 4 That the authority granted by special resolution to the Directors of the Company to allot relevant securities up to an amount equal to but not exceeding the authorised but unissued share capital of the Company for the time being which was passed at the Annual General Meeting of the Company held on 9 December 2002 be renewed pursuant to the power provided by Article 6(C) of the Company’s Articles of Association, that such renewal of authority be for that power generally and unconditionally and in all respects in the same terms as originally granted, and that such authority shall expire at the conclusion of the next Annual General Meeting of the Company after the date of passing of this resolution unless renewed, varied or revoked by the Company in General Meeting. the exercise of As a Special Resolution 5 The Directors of the Company be and they are hereby empowered pursuant to Article 8 of the Articles of Association of the Company (the “Articles”) to allot equity securities (as defined in Article 7(H) of the Articles) pursuant to the authority conferred on the Directors to allot relevant securities by Resolution 4 above as if Article 7(A) of the Articles did not apply to such allotment PROVIDED THAT this power shall be limited to: (i) the allotment of equity securities in connection with a rights issue in favour of ordinary shareholders where the equity securities are issued proportionally (or as nearly as may be) to the respective number of ordinary shares held by such shareholders (but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with issues arising under the requirements of any regulatory body or any stock exchange in any territory or the fixing of exchange rates applicable to any such equity securities where such equity securities are to be issued to shareholders in more than one territory, or legal or practical problems respect of overseas shareholders, fractional entitlements or otherwise howsoever); laws of any territory or the in (ii) the allotment of equity securities to holders of any options under any share option scheme of the www.webisholdingsplc.com AIM Stock Code: WEB Company for the time being in force, on the exercise by them of any such options; and (iii) the allotment (otherwise than pursuant to paragraphs (i) or (ii) above) of equity securities up to a maximum aggregate nominal value equal to 50% of the issued ordinary share capital of the Company for the time being. The power hereby conferred shall expire at the conclusion of the next Annual General Meeting of the Company after the date of passing of this resolution unless such power shall be renewed in accordance with and subject to the provisions of the said Article 8, save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities pursuant to such offer or agreement as if the power conferred hereby had not expired. As Ordinary Resolutions 6 That in accordance with Article 12 of the Company’s Articles of Association and with Section 13 of the Companies Act 1992 the Company be generally and unconditionally authorised to make market purchases (as defined by Section 13(2) of the Companies Act 1992) of ordinary shares of 1 pence each in its capital, provided that: (a) the maximum number of shares that may be acquired is 39,333,831; (b) the minimum price that may be paid for the shares is 1 pence; (c) the maximum price that may be paid is, for a share the Company contracts to purchase on any day, a sum equal to 105% of the average of the upper and lower quotations on the Daily Official List of the London Stock Exchange for the ordinary shares of the Company on the five business days immediately preceding that day; and (d) the authority conferred by this resolution shall expire at the conclusion of the next Annual General Meeting of the Company after the date of the passing of this resolution unless renewed, varied or revoked by the Company in General Meeting, but not so as to prejudice the completion of a purchase contracted before that date. 7 That the Report of the Remuneration Committee be received and adopted. By order of the Board Nigel Caine Company Secretary 27 November 2019 Registered Office: Viking House Nelson Street, Douglas Isle of Man, IM1 2AH 47 Webis Holdings plc Notes 1. Members are entitled to appoint a proxy to exercise all or any of their rights to attend and vote on their behalf at the meeting. A proxy need not be a shareholder of the Company. A shareholder may appoint more than one proxy in relation to the Annual General Meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. To appoint more than one proxy you may photocopy the proxy form accompanying this notice. Please indicate the proxy holder’s name and the number of shares in relation to which they are authorised to act as your proxy (which, in aggregate, should not exceed the number of shares held by you). Please also indicate if the proxy instruction is one of multiple instructions being given. All forms must be signed and should be returned together in the same envelope. 2. To be valid, the form of proxy and the power of attorney or other authority (if any) under which it is signed - or a notarially certified or office copy of such power or authority - must be lodged at the offices of the Company’s registrars, Link Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU by hand, or sent by post, so as to be received not less than 48 hours before the time fixed for the holding of the meeting or any adjournment thereof (as the case may be). 3. The completion and return of a form of proxy will not preclude a member from attending in person at the meeting and voting should he wish to do so. 4. In the case of a corporation, the form of proxy must be executed under its common seal or the hand of an officer or attorney duly authorised. 5. A member may appoint a proxy of his or her own choice. If the name of the member’s choice is not entered in the space provided on the form of proxy, the return of the form of proxy duly signed will authorise the chairman of the meeting to act as that member’s proxy. 6. To abstain from voting on a resolution, select the relevant ‘withheld’ box. A vote withheld is not a vote in law and will not be counted in the calculation of votes for or against the resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the meeting. 7. Pursuant to regulation 22 of the Uncertificated Securities Regulations 2005, the Company has specified that only those members entered on the register of members at close of business on 21 December 2019 shall be entitled to attend and vote at the meeting. Changes to the register after close of business on 21 December 2019 shall be disregarded in determining the rights of any person to attend and vote at the meeting. 8. Where a corporation is to be represented at the meeting by a personal representative, such corporation must deposit a certified copy of the resolution of its Directors or other governing body authorising the appointment of the representative at the Company’s registered office: Viking House, Nelson Street, Douglas, Isle of Man, IM1 2AH not later than 48 hours before the time appointed for the holding of the meeting. www.webisholdingsplc.com AIM Stock Code: WEB 48 Webis Holdings plc Nominated Adviser and Broker Beaumont Cornish Limited 10th Floor 30 Crown Place London EC2A 4EB Legal Advisors Long & Humphrey The Old Courthouse Athol Street Douglas Isle of Man IM1 1LD UK Registrar Link Asset Services The Registry, 34 Beckenham Road Beckenham Kent BR3 4TU Corporate Website www.webisholdingsplc.com Twitter @WebisHoldings Company Information Directors Denham Eke Non-Executive Chairman Ed Comins Managing Director Nigel Caine Non-Executive Director Sir James Mellon Non-Executive Director Company Secretary Nigel Caine Registered Office Viking House Nelson Street Douglas, Isle of Man IM1 2AH Bankers NedBank Private Wealth Ltd St Mary’s Court 20 Hill Street Douglas Isle of Man IM1 1EU Auditors KPMG Audit LLC Chartered Accountants Heritage Court 41 Athol Street Douglas, Isle of Man IM99 1HN www.webisholdingsplc.com AIM Stock Code: WEB 49 Webis Holdings plc Webis Holdings plc Viking House, Nelson Street Douglas, Isle of Man IM1 2AH, British Isles Email: ir@webisholdingsplc.com Website: www.webisholdingsplc.com www.webisholdingsplc.com AIM Stock Code: WEB 50
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