annual report and financial statements 2017 · average chargeback rate 0.06% (2016: 0.06%). ... our...

Annual Report and Financial

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Annual Report and Financial Statements 2017

CONTENTS

Introduction Mi-Pay in Numbers Page 1

2017 Highlights

Value Proposition Page 4

What We Do Page 5

Our Market Page 6

Strategic Report Chairman’s Statement Page 8

CEO Review of Operations Page 9

Financial Review Page 12

Corporate Governance Principal Risks and Uncertainties Page 16

Board of Directors Page 17

Report of the Directors Page 18

Corporate Governance Statement Page 20

Directors’ Remuneration Report Page 22

Financials Statement of Directors’ Responsibilities Page 25

Independent Auditor’s Report Page 26

Consolidated Statement of Comprehensive Income Page 29

Consolidated Statement of Financial Position Page 30

Consolidated Statement of Cash Flows Page 31

Consolidated Statement of Changes in Equity Page 32

Notes to the Financial Statements Page 34

Parent Company Balance Sheet Page 57

Parent Company Statement of Changes in Equity Page 58

Notes to the Parent Company Financial Statements Page 60

Company Information Page 66

For further information, please visit www.Mi-Pay.com or contact:

Mi-Pay Group plc IFC Advisory Zeus Capital

Tel: +44 20 7112 2129 Tel: +44 20 3934 6630 Tel: +44 161 831 1512

Michael Dickerson, Chairman Graham Herring Nick Cowles

John Beale, CEO Tim Metcalfe Jamie Peel

1


>89%Transaction

success rate

0.06%Market leading

fraud prevention rates

64%Gross

margin

Proven ability to drive 3 to 5 times more revenue per transaction versus traditional payment companies and drive continual margin improvements through market leading technology.

OUR 2017 METRICS

MI-PAYIN NUMBERS

$600bnAccess to

global mobile payments market

$31bnGlobal online

payment fraud expected by 2020

$2tnExpected cyber

crime costs by 2019

Expertise and technical knowledge in delivering risk free digital payment solutions to mobile operators globally for over 10 years.

>£2bnPayment transaction data processed since

2003

>20Global MNO and

MVNO clients currently connected

DigitalMarket leading digital

channels, payment fraud management and secure wallet solutions

Proven capability to remove our clients’ cyber security and payment fraud risk whilst optimising their customers experience.

OUR MARKET

OUR SERVICES

2017HIGHLIGHTS

Transaction Value Processed £50m £65m £83m £94mIncreased growth from our largest client, new fraud management services and APAC services.

Transaction Services Gross Profit 36% 48% 60% 63% In-house fraud solution and new services to drive strong metrics.

Total administrative expenses £5.4m £3.1m £2.5m £2.6m Restructure and new technologies reducing cost.

2014 2015

Transaction growth focus

£94.0m of payment transaction value processed in 2017 from 6.7m processed transactions (2016: £83.4 million and 6.2 million respectively).

Re-contracted with our largest client for an incremental three years. Expect material growth in payment transaction value processed as our Client integrates a recently acquired customer base.

Delivered our first direct fraud management service with a new European Client.

New contract win in the Philippines to develop and deliver a new international payment service during 2018.

Developed voice activated top up services to drive next generation customer channels.


2

Key performance indicators

Continued strong metrics from our in-house cyber security, fraud and content management solutions driving the growth in Transaction Services gross margins:

●● Average chargeback rate 0.06% (2016: 0.06%).

●● Average payment success percentage 89.2% (2016: 87.9%).

●● Increased consumer data consumption drove average revenue per transaction to £14.09 (2016: £13.50).

●● Transaction Services gross margin increased to 63% (2016: 60%).

Financials

Total Revenue £3.1 million for the year (2016: £3.3 million).

– Transaction Services Revenue £2.7 million (2016: £2.6 million).

– Professional Services Revenue £0.4 million (2016: £0.7 million).

New contract terms with largest client reduced Transaction Services revenues by £0.2 million. Increased revenue growth expected in the medium term.

A £0.1 million increase in Transaction Services Gross Profits offset by Professional Services Gross Profit reduction of £0.2 million as total Gross profits reduced by £0.1 million.

Operating loss of £0.6 million (2016: £0.4 million).

Cash and cash equivalents as at 31 December 2017 £2.9 million (31 December 2016: £3.5 million).

Basic diluted loss per share 1.5 pence (2016: 1.1 pence).

Michael Dickerson to executive Chairman, John Beale to Chief Executive Officer.

£0.2 million reduction in annual general and administration costs.

£0.3 million reduction in liabilities with no cash outflow.

£0.3 million new cash inflow from placing.

Transaction Value Processed £50m £65m £83m £94mIncreased growth from our largest client, new fraud management services and APAC services.

Transaction Services Gross Profit 36% 48% 60% 63% In-house fraud solution and new services to drive strong metrics.

Total administrative expenses £5.4m £3.1m £2.5m £2.6m Restructure and new technologies reducing cost.

2016 2017 2018 Expectations

March 2018 restructure and placing impact improving financial performance


3

Value Proposition

We make it simple for our clients to integrate and operate multiple digital payment solutions for their customers quickly and securely across the globe.

A fully outsourced, fully managed secure payment services platform for instant top up and digital content services via multiple customer contact channels.

Digital promotional

marketing and businessintelligencecapability

Fully outsourced data encryption, tokenisation.

PCI Level 1. GDPR ready

Flexible, low cost of technologydevelopment

Fully managed digital channels

Datasecurity

Paymentsecurity

Futureproof

payments &technology

Increaserevenues

Retention & churnmanagement

Globalsolutions

Voice Activated PaymentsWeb & App

Social Media & SMSMobile Wallet

Call Centre and IVR

Connectionsto Global

OperatorsInfrastructure

In-house digitalcontent based

fraudmanagement

solution


4

What we do

Solutions successfully delivered in the UK, Europe and Asia Pacific primarily to Mobile Network Operators (MNOs) and Mobile Virtual Network Operators (MVNOs).

We are a recognised leader and pioneer in the cardholder-not-present payment solutions market with a specific expertise in assessing, managing and mitigating fraud risks whilst optimising the on-line payment journey.

Mi-Pay enables clients to transform their customers’ payment journey and move them from paper to digital, improving the overall customer experience and delivering more choice and flexibility for pre-paid customers.

Our core infrastructure enables our clients to monetise their instant top up, content services and bill payments over a variety of fully managed digital channels. Mi-Pay’s online payments solutions are enhanced by an integrated suite of risk management tools to provide the highest level of data security for our clients and their customers.

We deliver value to our customers through the provision of a fully managed customer payments experience. Our solution enables them to:

– increase client revenues;

– reduce customer churn;

– protect against fraud;

– secure customer data; and

– future proof their digital strategies.

Increase client revenuesWe only charge for successful transactions. Our success = increased client revenues. Multiple secure contact channels: Web, social media, on-device and interactive voice response (IVR), secure call centre and next generation voice activated services.Registered and unregistered services to drive increased customer loyalty for our clients.Ad-hoc, recurring and automatic reload services with real time integration to our clients’ billing platforms.Multiple digital payment methods.

Reduce churn Management of CRM and marketing programmes to enhance our clients’ customer retention and loyalty programmes. Drive the migration from traditional ‘ad-hoc and uncontrollable’ retail payment channels to recurring, registered ‘contract like’ relationships.White labelled, frictionless payment experience protecting our clients’ brand.Software developed to automatically manage clients’ promotional programmes.

Remove risk and deliver complete security Indemnification for our clients against fraudulent transactions. We take the risk.PCI:DSS Level 1 certified for over six years.GDPR ready.Secure card vault, wallet and tokenisation solutions.Continually developing secure infrastructure to align with the best global security standards.

Fully managed digital payment fraud solutionFuture proof our clients’ digital strategies.Continual delivery of new channels and payment solutions across our client base.Flexible payment and contact channel agnostic.Continued enhancement of ‘local’ payment solutions and on-device, secure technologies.


5

Our Market

Customer needsCustomers continue to move away from traditional ‘in store’ purchases towards the use of devices (mobile phones and tablets) which is driving exponential growth in mobile-commerce and digital content services – this drives our natural growth levels. The ever increasing mobile usage of data is more than compensating for the reduction in voice related usage, and we therefore see the average transaction values and the value of a pre-paid customer increasing. Data consumption is expected to quadruple globally from 2016–2020.

Payments solutionsThe new influx of ‘payment wallet’ solutions and alternative payment methods such as PayPal, Amazon Payments, Apple Pay and Android Pay are increasingly becoming the payment methods of choice as customers look for secure, ‘one-click’ payment solutions flexible on all devices. Our investments in this space are key to our future success providing simple, integrated order and payment journeys which support the payment method of choice for the customer – whilst removing the risk to the Mobile Operator. Our white labelled product suite and deep integration with Mobile Operator platforms, along with our payment agnostic approach to payment partners enables us to answer the market’s requirements.

GeographiesWhilst the European market is mature in terms of mobile ownership our opportunity lies in the customer migration to the on-line/on-device solutions. In addition, we continue to target long-term growth in the Asian market. Although traction remains slower than we had originally anticipated, with over 80% of mobile users in Asia Pacific being pre-paid customers versus 50% in Europe, the region is now larger than Europe in terms of mobile ownership at over 1.8bn users. Our proven ability to deliver risk free solutions puts us in a strong position to be a first mover in this market.

Operator needs – business intelligence, risk management and customer retentionThe European market is increasingly competitive and in 2015 we have seen a number of major integrations between global operators as they have addressed the need to manage falling margins and deliver a wider range of digital solutions to customers including data/voice/content/TV/music etc. Customer retention and delivery of new solutions is becoming crucial for success, with the on-line direct channel bringing certain benefits, namely the ability to market directly to customers, deliver on-demand data services and offer multiple ways to connect and order services. Our solutions enable direct marketing, retention programmes and access to business intelligence. Our experience in processing over £1.1 billion in payment transaction value makes us a leading expert in the pre-paid services market. Our ability to indemnify and de-risk both the customer and the operator creates value in our proposition.

Security & fraudWe have continued to see high profile personal data breaches in the digital commerce market which forced mobile operators and retailers to re-evaluate the importance of the protection of their customers’ data; an increasingly complicated and expensive exercise. Global cyber crime cost the industry over $1 billion in 2015 and global digital payment fraud exceeded $19 billion. The challenges and increasing compliance requirements become more challenging – increasing PCI accreditation requirements together with the European General Data Protection Regulation (GDPR), enforceable from 2018. Our core offering offers a fully segregated infrastructure which is compliant with all the global requirements and delivers in-house payment fraud management. As such, we believe our solution is valuable to operators and we believe this change in market dynamics will be beneficial for outsourced solutions like ours in the longer term.

5bnunique mobile

subscribers globally

77% global connections

are pre-payi. 50% Europe

ii. 82% Asia Pacific

$2tnexpected

cyber crime costs by

2020

Data usage tripled between 2015 – 2017 with

84% of phones now with

3G and 4G access to the internet

$31bnglobal on-line

payment fraud by 2020


6

Strategic Report The Directors present their Strategic Report for the year ended 31 December 2017


7

Chairman’s Statement

I am pleased to write my first Chairman statement following our restructure, announced on 1 March 2018. Firstly, I would like to thank Seamus Keating for his work as our Chairman since 2014 and his guidance through that period. I look forward to continue working closely with him as we deliver Mi-Pay to profitability and long-term growth.

Following a review of the Group, the Directors took the decision to restructure the Board which we feel will better support the business as it grows and improve the financial performance:

●● Taking the role as Executive Chairman and now based in Asia Pacific, I will assist the organisation in overseeing our commercial growth and directly manage our Asia Pacific opportunities.

●● John Beale has assumed the role as our Chief Executive Officer. With over 7 years of experience at Mi-Pay and located in Europe, John is well placed to directly support our European Clients and lead day to day Operations and employees.

●● Allen Atwell will remain a Non-Executive Director as our technology advisor and importantly continue as a technology consultant to the Group in an operational capacity, Allen will focus on our technology, product roadmap and research and development investments.

●● Seamus Keating and Edward Lascelles will remain as Non-Executive Directors and continue to provide their guidance and support to the Board.

The changes also deliver positive financial benefits to the Group. We will deliver cost savings of £0.2 million per annum and the issue of £0.5 million of new shares enabled us to covert £0.2 million of previously deferred Directors salaries, reducing our liabilities and raise £0.3 million of new capital which will enable us to continue to invest in our solutions and people.

I would like to thank the directors for supporting this process and increasing their investment in the Group through the conversion of their current liabilities and new placings. We believe this strengthens the focus of the Board, management team and the financial stability of the Group.

OutlookIn 2017, our ability to deliver new services in the form of a major contract win, new fraud management solutions and Asia-pacific solutions demonstrates the relevance on Mi-Pay in our market. We expect to drive future growth above historic run rate levels as we look forward:

●● Continued growth in our payments processed as consumers naturally migrate to our digital channels from the retail environment.

●● Material growth from the contract extension with our largest client as we become their core digital payment solution across all customer channels.

●● The delivery of our fraud management solution as a stand-alone service driving new revenue streams and profitability.

●● Recently delivered opportunities in Asia will enhance our local experience and relevance with potential longer term growth opportunities.

Whilst this investment has affected short-term revenues and profits, primarily due to new commercial terms with our largest client, we expect this to underpin long-term growth. 2018 is therefore about delivering on the core foundations built and opportunities won.

These targets, when combined with cost savings following our restructure will underpin our progress towards profitability and we retain healthy cash balances to continue to invest and develop our solution and our people.

On behalf of the Board, I would like to thank all our employees, clients, investors and partners who have enabled Mi-Pay to deliver on its core targets and continue to support our growth.

Michael Dickerson Executive Chairman 16 April 2018


8

CEO Review of Operations

We are focused on enabling our clients to digitally transform their customer interactions, improve customer experience and mitigate our clients’ risks. Our solutions directly resolve these challenges:1. Increasing consumer demand and availability of digital

content is driving an exponential increase in data consumption via the mobile device.

2. Our customers require new ways to manage margin and retain customers via digital payment channels. Our solutions and low cost of delivery provide a single solution for clients.

3. New customer contact services such as secure call centre payment solutions and voice activated payments with services such as Amazon Alexa require new solutions to address payments within these technologies.

4. High profile data security breaches have driven the protection of customer data to be strategically critical to our clients’ success and brand value.

5. E-commerce payment fraud is increasing with the proliferation of new payment solutions adding complexity to risk management.

6. In contrast, consumers now expect a quick, simple e-commerce experience with flexible payment solutions. 3rd party mobile friendly ‘wallet’ payment solutions such as PayPal, Amazon Payments and Apple Pay are increasingly the choice of consumers. Over time, this will become more complex as direct banking solutions and crypto-currencies enter the market.

We will continue to invest, build knowledge, experience and solutions to simplify these challenges for our customers.

We deliver two core revenue streams from our clients:●● Transaction Services Revenue is driven from the

processing of transactions on behalf of our clients. This is our core business and can deliver strong gross margins, which in turn creates recurring, annuity-based revenue in a naturally expanding market. This provides a solid, sustainable and growing source of revenue.

●● Professional Services Revenue relates to the development, delivery and hosting of our platform and client solutions. Critically, this revenue traditionally relates to the implementation of new services for clients, which in turn increases our long-term Transaction Services Revenues.

Underlying Payment Transaction Value Processed¹

£18.2m £32.0m £44.2m £64.0m £83.3m £94.0m

Total Revenue £2.8m £3.3m £2.7m £3.0m £3.3m £3.1m

Underlying Transaction Services Revenue¹ £0.8m £1.2m £1.7m £2.2m £2.5m £2.7m

Transaction Services Gross Profit Margin 40% 44% 36% 48% 60% 63%

1 Underlying Transaction Services Revenue excludes lost contract.

£0.0

£1.0

£1.5

£2.5

£3.5

£0.5

£2.0

£3.0

Milli

ons

2013 2014 2016 20172015Transaction Services RevenueTerminated Client Gross Profit

Professional Services2012


9

CEO Review of Operationscontinued

RevenueTotal revenue decreased by £0.2 million to £3.1 million (2016: £3.3 million) with the reduction driven by a £0.3 million reduction in our one time Professional Services Revenues as we focussed on driving Transaction Services growth. We are pleased however that our core Transaction Services Revenues increased by £0.1 million to £2.7 million despite being impacted by a reduction in the pricing to our largest client which reduced our revenue for July 2017 to December 2017 by £0.2 million. This protected our largest client and we expect to deliver material growth as our client integrates a recently acquired customer base which will offset our short-term reduction in revenues and further reduce our reliance in non-recurring Professional Services revenues.

We have also successfully delivered two new revenue streams in quarter four 2017. Growth remains slow in Asia, however a new payment service in the region that we hope to expand on in 2018 offers us the potential of further growth and following a successful trial of a direct fraud management solution we see this delivering a new revenue stream in 2018. Importantly both will help to diversify our revenues and margins and enable us to enhance our solutions for these new market areas through our learnings.

Underlying Revenue Trends●● Our largest client has grown to 28% of our revenue as

the processed volumes increased. We are pleased to have secured a further 3-year extension to this contract to deliver longer-term security and growth.

●● Our 10 largest clients equate to 84% of our revenues. We average over 6 years of contractual relationship with these clients.

●● During the year we delivered four new clients, including solutions in Romania, Asia Pacific, direct fraud management services within Europe and services into a new virtual mobile operator via an Energy provider as we look to grow our propositions outside of traditional UK based Mobile Top Up solutions. One client terminated due to the closure of their pre-pay services.

●● We continue to see consumers moving to device focussed and mobile wallet payment solutions and an increase in our customers appetite for more secure, compliant solutions as GDPR (General Data Protection Regulation) comes into force in 2018.

●● We saw our growth driven primarily from increasing volumes through mobile applications (Apps) and device-optimised websites with a continuing reduction in more traditional Interactive Voice Recognition (IVR). As we deliver all these channels we are well protected.

Key Performance Metrics & Operational InvestmentsOur major contracts indemnify our clients from fraudulent transactions and only charge for successfully completed ones, an offering more strategically aligned with our clients than that of the general payments market. As such, it is critical that we deliver world-class payment fraud management and payment transaction optimisation rates to both protect our gross profit margins but also deliver real business value to our clients and their customers. It is here that we target our investments. Our in house fraud service and our new European client will give us a further insight and knowledge in the management of payment fraud.

We continued to see high levels of transaction success rates at 89%, improved against 2016 (88%) and we delivered excellent performance in payment fraud management achieving 0.06% of transaction value which we see as market leading. This has enabled us to increase our Transaction Services gross margin to 63% (2016: 60%) despite the reduction in pricing with our largest client.

The Group also considers its revenues, gross profit margins and administration expenses as key performance metrics and these are reviewed in the Financial Review.

The addition of new fraud management services will enable us to increasingly diversify our revenue stream and risks.

Infrastructure Investments We continue to invest in the development of our solutions. We maintained our research and development expenditure at £0.6 million in 2017 and saw an increase of £0.1 million in general and administration costs as we invested more in the cyber security of our infrastructure. Our key areas of focus are:

●● Data Security. The security of the data we hold is critical to our success. We continue to invest in our infrastructure from a cyber-security perspective to protect the consumer data we hold. We remain


10

PCI/DSS 3.2 compliant, delivered enhanced data encryption capability during the year and are on target to be fully compliant with the incoming General Data Protection Regulation. We will look to introduce new call centre secure payment technologies in 2018 to complement our existing contact channels;

●● Payment Security. Our investment in payment fraud management solution continues to deliver excellent performance and we will develop new features such as machine learning capabilities and more flexible client portal solutions. The delivery of our first direct indemnified fraud service will deliver a wealth of experience, knowledge and business information to enable us to continue to develop our product;

●● On-Device Solutions. We continue to look at enhancing our on-device payment capability delivering enhanced device optimised web solutions for existing clients, continuing to offer the best on device payment solutions (PayPal/Amazon Payments etc...) and will continue to bring new payment solutions such as Apple Pay and bank led payment solutions to the Operator community;

●● Voice Services. We see voice activated services (for example Amazon Alexa) as a longer-term growth opportunity and the next ‘customer payment channel’ to sit alongside our existing customer contact channels. During the year, we delivered prototype solutions to for secure payments over voice activated services and will continue to invest in this in 2018; and

●● Data & Content. As data usage continues to grow exponentially we have enhanced our capability to work

with operators and content providers to manage real time data bundles and responsive top-ups alongside developing business intelligence solutions to enhance our clients abilities to manage their customers’ needs. In addition we expect new cloud based technologies will allow us to improve our cost base and management of data in the future.

These investments are primarily delivered by our own people enabling us to retain intellectual property and ensure the solution is applicable across all of our customers.

In 2017, we demonstrated our market relevance and that our solutions are of strategic importance to our clients. We now offer a full suite of fully managed digital customer channels and payment solutions and will continue to expand them – most importantly, we do so in a fully secure environment. We will look to build on this in 2018 and have clear targets to deliver new growth and improve efficiencies along side the financial improvements following the restructure. The knowledge and skills, hard work and dedication of our employees have built this capability and I look forward to working with them over the coming years to deliver further success. They are our most valuable resource and continue to create the platform and environment for success.

John Beale Chief Executive Officer 16 April 2018

CEO Review of Operationscontinued

% Payment Success Rate % Fraud Rate

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan11

Jan12

Jan13

Jan14

Jan15

Jan16

Jan17


11

Financial Review

We continue to deliver a growing annuity based revenue stream and deliver strong gross margins whilst controlling the risks and demonstrating an ability to scale whilst maintaining existing cost levels.

Trading results●● £3.1 million total revenue for the year ended

31 December 2017 (2016: £3.3 million).

●● £2.0 million Gross Profit (2016: £2.1 million).

●● £0.9 million research and development investment, £0.3 million tax recovery paid in July 2017.

●● £0.1 million of exceptional expenditure related to merger and acquisition activity.

●● £0.1 million new investment in cyber security.

●● £0.6 million Operating Loss (2016: £0.4 million).

●● 1.5p Loss per share (2016: 1.1p).

Assets and Liabilities●● £0.4 million deferred salary accrual

(2016: £0.3 million).

●● £0.2 million expected recovery for research and development.

●● £2.9 million Cash (2016: £3.5 million).

Restructuring in March 2018●● £0.2 million reduction in annual costs.

●● £0.3 million reduction in liabilities.

●● £0.3 million increase in cash.

Transaction Services performanceFinancial 2017 2016 2015

Payment transaction volume processed 6,668,732 6,180,119 5,225,148

Payment transaction value (£) 93,982,712 83,404,805 64,666,714

Average transaction value (£) 14.09 13.50 12.37

Transaction Services Revenue (£) 2,654,178 2,565,629 2,257,130

Transaction Services Gross Profit (£) 1,678,869 1,529,583 1,089,865

Gross Profit Margin % 63% 60% 48%

% of total revenue 87% 78% 75%

% revenue per transaction 2.8% 3.1% 3.5%

Payment transactions processed increased as we saw our largest client grow, further natural migration to our digital e-commerce channels across our client base and, in quarter four, began to process the new volumes from Asia Pacific and direct fraud management solution in Europe, which reviewed over £2 million payment transactions. We will see an increased benefit from these solutions over time.

We continue to see an increasing average transaction as more consumers look for larger data bundles and we look to increase the volume of digital bill pay transactions that drive a higher transaction value. This enables us to drive higher margins and better control our payment fraud risks.

Our Transaction Services revenues grew by £0.1 million to £2.7 million despite the impact of reduced pricing with our largest client, which reduced revenues and profits by £0.2 million. We do expect to see strong growth in the coming periods as we fully deliver our new contracts.

Our percentage revenues per transaction declined to 2.8% (2016: 3.1%), due to:

●● improved commercial contracts with our clients as they sign longer term, higher volume contracts;

●● increased bill pay transactions which deliver lower % fees per transaction but lower risk; and

●● reduced market pricing for payment processing which we pass onto our customers.

Crucially we continued to see growth in our gross profit margin as we continued to deliver strong payment optimisation and see low payment fraud levels but also were able to mitigate commercial pressures as we deliver improved relationships with our payment partners. We expect to see a longer-term decline in gross profit margin; however, this will be compensated by larger volume growth.


12

Financial Reviewcontinued

Professional Services performanceFinancial 2017 2016 2015

Professional Services Revenue (£) 395,922 713,037 757,044

Professional Services Gross Profit (£) 285,309 576,414 601,737

Gross Profit Margin % 72% 81% 79%

% total revenue 13% 22% 25%

Our professional services revenues declined by £0.3 million to £0.4 million (2016: £0.7 million) with gross profits reducing to £0.3 million (2016: £0.6 million). We continue to see less professional services revenue as we drive more growth through existing delivered channels and see larger relationships develop where there is limited upfront revenues; offset by longer-term annuity based growth. As a result, our reliance on this revenue stream has reduced from 25% of total revenues in 2015 to 13% in 2017.

Our total gross profits reduced to £2.0 million (2016: £2.1 million) but closed the period with a stronger underlying annuity based revenue stream and overall we maintained total gross margins at 64%. We expect these to be consistent across geographies, however, our revenue segments drive differing gross profit margins and as such, our revenue mix impacts our overall performance.

Operating LossWe invested in research and development at similar levels to 2016 and saw a £0.1 million increase in total administrative expenses due to increasing expenditure on our cyber security protection, which remains a critical feature of our solution. When combined with our £0.1 million reduction in gross profits our Operating Losses increased to £0.6 million (2016: £0.4 million).

During 2017, we invested £0.1 million in continuing to review merger and acquisition opportunities in what remains a fragmented payments market and will continue to keep these opportunities under review.

Cash flow, assets and liabilitiesFinancial 2017 2016 2015

Cash (including deposits) (£) 2,925,766 3,518,217 3,530,154

Total assets (£) 4,381,753 4,812,142 4,716,205

Total current liabilities (£) (4,359,813) (4,140,921) (3,539,741)

Non-current liabilities (£) (20) (32,915) (99,000)

Shareholders’ funds (£) 21,920 638,306 1,077,464

Loss per share (1.5)p (1.1)p (3.6)p

The Group ended the year with £2.9 million in cash and cash equivalents (2016: £3.5 million), noting that £2.3 million of this balance related to the operation of managing client payments. Within our cash balance:

●● Client related funds reduced by £0.1 million as we look to pay our clients more efficiently. We expect this trend to continue to ensure we remain market competitive.

●● Our cash outflow on operational activities was £0.5 million, of which:

– £0.3 million related to expenditure on our core business operation and working capital noting that the Board continued to defer salaries during the year equating to £0.1 million. All of these costs are accrued in the consolidated statement of financial position.

– £0.1 million related to capital expenditure and lease payments in respect of our core transactional infrastructure and technology investment. We do not capitalise development costs from our employees.

– £0.1 million of non-recurring expenditure related to professional fees incurred on merger and acquisition activity.


13

Financial Reviewcontinued

During the period, we recovered £0.3 million in Research and Development tax credits (2016: £0.3 million) directly attributable to the development costs of the group and we expect to recover in excess of £0.2 million in 2018. In the 6-month period to 31 December 2017 our cash outflow excluding client related cash was £0.1 million.

The Group had limited capital expenditure exposure at less than £0.1 million and does not meet the IAS 38 criteria to enable it to capitalise its internal development costs. The Group continues to service a finance lease related to the five-year licence arrangement for our core transaction-processing platform, effective from 28 June 2013 of which £0.03 million remained outstanding as at 31 December 2017. A 5-year extension of this agreement was agreed, commencing July 2018 on similar terms, ensuring continuity to the group in infrastructure and service levels.

Excluding the increase in client funds, there were no other material movements in working capital with the Group being protected from risk in this area as its debtor fees relating to its core Transaction Services Revenues are deducted at source before net payments are made to clients. Trade and other receivables and Trade and other payables both increased by £0.25 million due to the growth in cash processed related to our clients transactions. The Group has no external borrowings.

Impact of board restructureIn May 2017, the Non-Executive Directors ceased to accrue further deferred salaries and the Executive Directors ceased to defer 10% of their salaries from December 2017. The total accrued deferred salaries, as at 31 December 2017 was £0.4 million.

On 1 March 2018, we announced a Board restructure. It is expected that this will affect the Financial Statements in the coming periods:

●● £0.2 million annual reduction in administrative costs as the Non-Executive Directors will continue to be unpaid for services and Michael Dickerson transfers to Executive Chairman role on reduced remuneration;

●● No further deferal of Director salaries;

●● £0.3 million reduction in non-current liabilities as previously deferred salaries and bonuses converted to Ordinary shares as part of the placing. £0.1 million remain accrued and unpaid as deferred salaries due to Directors. There was no cash outflow or net impact on the statement of comprehensive income;

●● £0.3 million incremental cash for the Group through the placing. This will support ongoing working capital and investment in our fraud solution; and

●● New issue of share options at 13p (previously 41 pence) which will affect future charges to the statement of comprehensive income in relation to share based payments. Total share options issued of 3.75m equivalent to the quantum previously issued that were cancelled. These will have no cash impact on the Group.

As a result, we expect a reduction in our administrative costs and a strengthened balance sheet to support our long-term growth aspirations.

John Beale Chief Executive Officer, Company Secretary 16 April 2018


14

CORPORATE GOVERNANCE


15

Principal Risks and Uncertainties

There are a number of risks and uncertainties which could impact the Group’s long-term performance. The Board has a process to identify, manage and mitigate risks. Periodically the Board and Senior Management of the Company review those risks and devise actions to mitigate the risks of failing to meet business objectives.

High growth strategyMi-Pay’s strategy is to increase transaction volumes rapidly by implementing new products with existing clients, delivering new clients in existing markets and expanding into new geographical markets. It is possible that Mi-Pay will not grow transaction volumes as rapidly as expected. If this were to occur the revenues of the business may be reduced or delayed, and the Group may require additional funding to execute its strategy.

Customer concentration and market consolidationFour clients individually make up at least 10% of total revenue and in aggregate account for 67% of total revenue and should a major client terminate services, this will impact our financial performance. Whilst all of our clients are contracted and, in particular, we have long term relationships with them including a renewal of our largest client (28%), we are seeing an increasing level of consolidation within the European mobile operator community which may be a risk to our existing revenues as their customer bases are merged and they consolidate their digital payment solutions.

Fraud indemnificationOne of the key differentiators of Mi-Pay’s services is that it offers full indemnification against fraud to its clients.

Whilst Mi-Pay’s experience is that it has been able to mitigate fraud risk increasingly effectively, it is possible that fraudulent transactions will go undetected and that this will result in losses for the Group as well as potential reputational damage. Mi-Pay’s continual investment in its fraud management solution and team, combined with its wealth of experience, is targeted at mitigating risk.

Retention of key personnelMi-Pay has a relatively small management team, and as such the loss of any key individual or the inability to attract appropriate personnel could impact upon the performance of the Group. In early 2018 the Group has re-implemented a share option scheme which is designed to incentivise key management and removed any future deferral of salaries of Directors thereby reducing risks, but the retention of key management cannot be guaranteed.

Personal data securityMi-Pay controls, stores and processes customers personal and payment data on behalf of its clients. This data is perceived as increasingly valuable to fraudsters and if our security is compromised, this will result in reputational damage, potentially leading to the loss of clients and a material financial liability to recompense customers from any losses. Mi-Pay adheres to the PCI security framework which gives clear guidance on ‘best security practice’ and is audited annually by a qualified external expert. Mi-Pay has achieved Level 1 accreditation for over 6 consecutive years and holds cyber insurance to help mitigate potential financial liabilities.

Payment services regulationThe Group‘s solutions provides global payment solutions. Whilst the Group has obtained legal advice that its business in the UK does not involve the provision of a ‘payment service’ of the type covered by the Payment Services Regulations 2009, there is no guarantee that this will continue in the future as the nature and scope of geographical regulatory compliance changes over time.

Alternative payment solutionsNew payment solutions and technologies such as crypto-currencies, block chain and stored value services may impact the Mi-Pay business model and the cyber and payment fraud risks and deliver costs are fundamentally different to existing mainstream bank and card payment solutions. Whilst this is an opportunity for Mi-Pay to develop its digital payment solutions and deliver new revenue streams there remains a risk over time for this to erode Mi-Pay’s traditional revenue streams.

BrexitIt is probable that arrangements to access the single market will change – potentially resulting in higher tariffs and more regulation when trading with EU countries, increased administration and cost if running an overseas subsidiary and a higher volatility in exchange rates. 37% of Mi-Pay Group plc revenue is with European countries and this is now less predictable. Mi-Pay Group plc also targets increasing new revenues in European countries and maintaining growth in existing contracts which are now more uncertain due to the increased risk of regulation and tariffs. Mi-Pay Group plc runs it core operations from a European country increasing the cost and potential administration of this service.

By Order of the Board



16

Board of Directors

Michael Clay Dickerson Executive Chairman

Michael Dickerson joined Mi-Pay’s Board of Directors in 2008 and was the Executive Chairman of the Board from 2009 to 2014, assuming the role as CEO in October 2012. Michael is an experienced telecoms executive with a track-record of signing more than 200 large size deals with mobile operators worldwide. Furthermore, he is a serial entrepreneur and has successfully developed and sold a number of start-up companies within the ICT industry, such as Telefaction A/S, Xichlo Mobile FZE, Actimizer A/S MACH Comendo Telecom and Comendo Network. He has also chaired the board of several companies, among others – Comendo Group A/S listed on the Danish stock exchange. Michael returned to the role of Executive Chairman on 28 February 2018.

John Nicholas Beale Chief Executive Officer

John Beale has over 10 years of experience in the IT Managed Services and Telecoms sectors, working specifically in growing entrepreneurial businesses undergoing both organic and inorganic change. As an ACMA qualified accountant and graduate in Mathematics with Economics, John has held the position as CFO of Evoxus, Telinet and niu-solutions in VC backed, leveraged environments focusing specifically on understanding and delivering the corporate control and commercial understanding requirements of companies in high growth technology markets. John joined Mi-Pay in February 2011.

Allen William Atwell Non-Executive Director and Technology Consultant

Allen Atwell is an IT/Telecoms technologist with 30 years’ experience in both multi-nationals and private companies going public. Starting as a software engineer with Texas Instruments he then progressed to Telecom Engineering Manager Digital Equipment, R&D Director AT&T Bell Labs in Paris, Director Technology at SWIFT then Vice President EMEA Telecom Consulting with Oracle. With private companies, Allen held CTO positions with Trader Corp, MessageLabs and Digitalia Consulting. Allen joined Mi-Pay in December 2013.

Seamus Declan Keating Non-Executive Director

Seamus Keating has over 20 years’ experience in the global technology sector in both finance and operational roles and was a main board Director of Logica plc from 2002 until April 2012. He was Logica plc Chief Financial Officer from 2002 until 2010 when he became Chief Operating Officer and head of its Benelux operations. He also chaired the Group’s worldwide Financial Services practice. Having implemented a major restructuring plan in the Benelux region, he left Logica plc, ahead of its acquisition by CGI of Canada, to take up a portfolio career. Prior to his role at Logica, he worked for the Olivetti Group from 1989 until 1999 in senior finance roles in the UK and Italy. Seamus was Non-Executive Director and Chairman of the Audit Committee of Mouchel plc from November 2010 to September 2012. He is chairman of First Derivatives plc, a provider of software and consulting services to the global capital markets. He is a Non-Executive Director of Mediclinic International plc, an international healthcare business. He is also a Non-Executive Director of Callcredit Information Group. He is also a Non-Executive Director of BGL Group Ltd, one of the largest personal insurance groups in the UK. Seamus is a fellow of the Chartered Institute of Management Accountants.

Edward William Anthony Lascelles Non-Executive Director

Ed Lascelles began his career by advising quoted UK companies on IPOs, takeovers and other corporate transactions, first with Charterhouse Securities and then ING Barings. Companies ranged in value from £10 million to £1 billion, across the healthcare and technology sectors among others. In 2004, Ed joined Albion Capital (then part of Close Brothers Group). Albion Capital is an established manager of Venture Capital Trusts, typically investing £1-10 million in the technology, healthcare, travel & leisure and renewables sectors, amongst others. Ed became a partner in 2009 and is responsible for a number of Albion’s technology investments, including Mi-Pay.


17

Report of the Directors

The Directors present their report and the audited Financial Statements for the year ended 31 December 2017.

General informationMi-Pay Group plc (the ‘Company’) is a public limited company which is listed on the AIM market of the London Stock Exchange and is incorporated and domiciled in the UK. The Company’s registered number is 05550853.

The Group comprises of Mi-Pay Group plc and its wholly owned subsidiaries:

Mi-Pay Limited, incorporated and domiciled in the UK, registered number 04937836.

Mi-Pay (Ireland) Limited, incorporated and domiciled in Ireland.

Mi-Pay Inc, incorporated and domiciled in the Philippines.

Mi-Pay PTE Limited, incorporated and domiciled in Singapore.

The Directors who served during the year were as follows:

Non-Executive Directors●● Seamus Declan Keating. Appointed 29 April 2014.

●● Edward William Anthony Lascelles. Appointed 29 April 2014 (previously Director of Mi-Pay Limited).

●● Allen William Atwell. Appointed 29 April 2014. Also technology consultant to the Board.

●● Michael Stone. Appointed 27 October 2005. Resigned 15 May 2017.

Executive Directors●● Michael Clay Dickerson. Executive Chairman.

Appointed 29 April 2014 (previously Director of Mi-Pay Limited).

●● John Nicholas Beale. Chief Executive Officer. Appointed 29 April 2014 (previously Director of Mi-Pay Limited).

Research and developmentDuring the year ended 31 December 2017, the Group has invested £578,816 (2016: £594,972) in research and development activities, net of the research and development credit.

Results and dividendsThe Group loss and total comprehensive expense for the year after taxation amounted to £616,386 (2016: £439,158).

The Directors are unable to recommend the payment of a dividend for the year (2016: £nil).

Directors’ and officers’ liability insuranceQualifying indemnity insurance cover has been arranged in respect of the personal liabilities which may be incurred by Directors and officers of the Group during the course of their service with the Group. This insurance has been in place during the year and on the date of this report.

Substantial shareholdersAs at 31 December 2017, the following entities or persons, other than the Directors and their family interests, had an interest in 3% or more of the Company’s ordinary shares.

Shareholder Name Amount % Holding

Albion Ventures 14,463,008 34.77%Helium Special Situations Fund 7,424,764 17.85%Octopus Investments 7,022,723 16.88%Mr James Leek 1,604,802 3.86%Livingbridge 1,280,000 3.08%

The Directors’ interests are shown in the Directors’ Remuneration Report.

Share capitalChanges to the Company’s share capital during the year are set out in note 18 to the Financial Statements.

Corporate governanceThe Directors Statement on Corporate Governance is set out on pages 20 to 21 and forms part of this report.

DonationsThe Group made no political or charitable donations during the year.

Subsequent eventsOn 1 March 2018 Mi-Pay placed 4,141,048 new ordinary shares of 10p nominal value each (‘Placing Shares’) at a placing price of 12.5p per share (the “Placing Price”) (the ‘Placing’).


18

Report of the Directorscontinued

The Placing delivered:

1. Gross proceeds (before expenses) totaling £260,000, comprising of a £150,000 strategic investment by Huub Sparnaay (via his investment company No Blue Potato B.V), a £50,000 investment by Michael Dickerson and £60,000 investment by Helium Special Situations Fund Limited.

2. The conversion to Placing Shares of £257,631 deferred salaries previously accrued that had not been paid to Directors of Mi-Pay, which has the beneficial effect of reducing Mi-Pay’s liabilities. This included £200,000 of previously accrued emoluments due to Michael Dickerson, £25,131 due to Allen Atwell and £32,500 due to Albion Ventures.

The Placing Shares will rank pari passu with all of the Company’s existing ordinary shares of 10 pence each. Application has been made for admission of the Placing Shares to trading on AIM and dealings commenced on or around 6 March 2018.

Use of proceeds The new cash of £260,000 will be invested in the Company’s fraud management platform and used for general working capital, including to support (following a successful trial) a new long-term fraud services contract with Alphacomm B.V.

Total voting rights Following the issue of the Placing Shares, the number of Ordinary Shares in the Company in issue will increase to 45,734,277. There are no ordinary shares held in treasury. Therefore, in accordance with the FCA’s Disclosure and Transparency Rule 5.6.1, the Company confirms that following Admission, the total number of voting rights in the Company will be 45,734,277.

Share options On 1 March 2018 the Company issued options over a total of 3,750,000 Ordinary Shares (under the terms of the Company’s existing share option scheme), with an exercise price of 13 pence per share. Existing share options over 3,763,425 Ordinary Shares with an exercise price of 41 pence have been cancelled, or forgone.

AuditorsBDO LLP were appointed as auditors on 29 April 2014 and, having expressed their willingness to continue in office, will be proposed for reappointment at the Company’s forthcoming Annual General Meeting in accordance with Section 489 of the Companies Act 2006.

All of the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Company’s auditors for the purposes of their audit and to establish that the auditors are aware of that information. The Directors are not aware of any relevant audit information of which the auditors are unaware.

Annual General MeetingThe Company’s Annual General Meeting is scheduled to take place on 22 May 2018.




19

Corporate Governance Statement

The Board of Directors is accountable to the members of the Company for good corporate governance and acknowledge the importance of the UK Corporate Governance Code. Companies that have securities traded on the AIM are not required to comply with the full provisions of the UK Corporate Governance Code. Whilst the Company has not sought to comply with the full provisions of the Code, it is however committed to high standards of corporate governance and has policies and procedures in place to institute good governance insofar as it is practical and appropriate for an organisation of its size and nature. This statement sets out the corporate governance procedures that are in place.

We note that the AIM rules are due to be updated, which is proposed to take effect from 30 June 2018, to require a statement as to how we comply with a recognised corporate governance code. The Directors are in the process of reviewing the Group’s corporate governance procedures and disclosures in anticipation of the change to the rules.

Internal controlThe Board of Directors has overall responsibility for the system of internal control of Mi-Pay Group plc and to monitor and review its effectiveness. Mi-Pay Group plc has an established framework of internal controls to provide reasonable assurance against fraud, loss and material misstatement.

Control environmentThe Group’s control environment is the responsibility of the Directors and senior management, who consider it paramount to have a top-down approach to the control environment. They consider the control environment to be the foundation for all other components of internal control at Mi-Pay Group plc, providing both discipline and structure to the organisation. To assist an effective control environment the Group’s organisational structure has clear lines of responsibility with executive board members having clear, segregated responsibility within the organisation:

●● Executive Chairman – Commercial and Investor relations;

●● Chief Executive Officer –Sales, Finance, Human Resource, Legal and Contracts, Fraud and Security Compliance and operations; and

●● Non-Executive Director and Technology Consultant – Technology and product development.

Given the nature of activities that Mi-Pay Group plc undertakes, a rigid security approach is strongly emphasised, as is the importance of reporting any security issues promptly with clear segregation between Fraud, Security and Operations/delivery and clear segregation between sales/commercial and contracts approval. Clear segregated senior management roles exist within the Group for its key areas of risk – Sales, Finance, and Fraud management, Security, Operations and Development to underpin this focus.

During 2018 the Group will create a new senior finance role following the appointment of the current Chief Financial Officer to the role of Chief Executive Officer.

Financial reportingThe group has rigorous accounting and payment processing systems, ensuring that financial data is recorded, processed, summarised and reported accurately, with the ultimate aim of both the income statement and the statement of financial position being fairly presented. The Chief Executive Officer has in place a comprehensive budgeting system which is monitored, reviewed and approved by the Board with a regular rolling forecasting process. Consolidation procedures are undertaken on a monthly basis, incorporating the Singapore and the Philippines overseas entities to derive a consolidated group position, which is then reviewed against budget. Unexpected variances are then discussed with the finance team and investigated further if necessary. The Board reviews these statements monthly. The Group reports Financial Statements to its shareholders and the general public twice a year.

Risk assessmentThe Directors and senior management continuously assess the Group’s strategic, operational, financial and compliance risk. The internal controls in place at Mi-Pay Group plc are a response to the assessment of these business risks. Risks are assessed through the Directors’ and senior managements’ awareness of the environment in which Mi-Pay Group plc operates and their direct involvement with day-to-day operations. In particular, given the industry in which Mi-Pay Group plc operates, the Directors and senior management have assessed the Company’s exposure and vulnerabilities with respect to fraud risk. Processes, controls and other procedures needed to mitigate fraud risks have been implemented and are closely monitored. In addition, the Group is annually audited to achieve its PCI:DSS Level 1 compliance


20

Corporate Governance Statementcontinued

which requires continuous investment and review of security processes and controls. This provides the Directors with a detailed annual, segregated external assessment of the technological security risks and ensures that best practice remains in place within the Group. In 2017 a Data Protection Officer role, reporting directly into the Chief Executive Officer, was introduced to deliver compliance against the General Data Protection Regulation.

Monitoring systemThe Directors and senior management have the overall responsibility of monitoring the internal control systems in place at Mi-Pay Group plc. This involves assessing and evaluating these systems on an ongoing basis to ensure they are operating effectively and that procedures are consistently applied over an extended period of time. It is Group policy for updates, modifications and enhancements to be discussed and implemented where necessary in response to any highlighted deficiencies. This is supported and enhanced by the Group’s annual PCI:DSS Level 1 external audit that independently monitors the Group’s security and control environments. The Group works with industry experts to continually review and monitor the security and control risks within the Group.

The City Code on Takeovers and MergersMi-Pay Group plc is subject to the principles and rules of the UK City Code on Takeovers and Mergers.

The Board of DirectorsThe full Board of Directors meets a minimum of six times per year and exercises control, including the discussion and review of senior management current projects and their progress and performance. Nine Board meetings were held during 2017.

The Chairman, who undertakes his duties on a part-time basis, is primarily responsible for the running of the Board, oversee the commercial function and investor relations, with the Chief Executive Officer and Technology Consultant responsible for the day-to-day running of the Group and implementation of Group strategy.

All Directors are aware of their right to seek independent professional advice, at the Company’s expense, to assist them in fulfilling their duties. The Board are actively reviewing a suitable successor for the senior finance role following John Beale’s move to the role as Chief Executive Officer.

Board CommitteesThe Company’s Audit and Risk Committee is primarily responsible for monitoring the quality of internal controls, ensuring that the financial performance of the Company is properly measured and reported on and reviewing reports from the Company’s auditors relating to the Company’s accounting and internal controls, in all cases having due regard to the interests of Shareholders. The Audit and Risk committee also reviews the independence and the objectivity of the auditors as well as the latest Risk Assessment Grid prepared by the CFO and reviewed by the Board.

The Audit and Risk Committee, which will meet at least twice a year, comprises:

●● S Keating – Non-Executive Director and Chairman of the Audit and Risk Committee;

●● E Lascelles – Non-Executive Director and Chairman of the Remuneration committee; and

●● M Dickerson – Executive Chairman and Chairman of the Nominations Committee.

The Company’s Remuneration and Nominations Committee is responsible for reviewing the performance of the Executive Directors and determining their terms and conditions of service, to include their remuneration and the grant of options, having due regard to the interests of Shareholders. This Committee will also deal with Nomination related issues.

The Remuneration Committee, which will meet no less than twice a year, comprises:

●● E Lascelles – Non-Executive Director and Chairman of the Remuneration Committee; and

●● S Keating – Non-Executive Director.




21

Directors’ Remuneration Report

This report is non-mandatory for AIM quoted companies and has been produced on a voluntary basis. It includes and complies with the disclosure obligations of the AIM rules.

It is the Group’s policy that Executive Directors have service agreement contracts with an indefinite term, providing for a 12 months’ notice period by either party. In the event of early termination the Executive Directors’ contracts provide for compensation up to a maximum of basic salary for the notice period.

Non-Executive Directors are employed on letters of appointment for an initial period of three years, providing for a three months’ notice period by either party.

Remuneration CommitteeThe Remuneration Committee determines, on behalf of the Board, the Group’s policy for executive remuneration and the individual remuneration packages for Executive Directors. In setting the Group’s remuneration policy, the Remuneration Committee considers a number of factors, including the following:

●● Salaries and benefits available to Executive Directors of comparable companies;

●● The need to attract, retain and motivate executives of an appropriate calibre; and

●● The continued commitment of Executives to the Group’s success through appropriate incentive schemes.

The Remuneration Committee consists of the Chairman Ed Lascelles and one Non-Executive Director, Seamus Keating. The Committee normally meets at least twice a year.

Remuneration of Executive DirectorsThe remuneration packages of the Executive Directors comprise the following elements:

●● Basic annual salary: The base salary is reviewed annually at the beginning of each year. The Remuneration Committee takes into account several factors such as the level of responsibility and the skill, knowledge and experience of each individual. The base salary review process also takes into consideration the current position and development of the Group.

●● Discretionary performance related annual bonus: The Executive Directors are eligible to receive a bonus on top of their basic salary dependant on individual and Group performance at the discretion of the Remuneration Committee. No bonus was paid in 2017 as the Directors continue to focus on delivering positive cash flow.

●● Pensions: Executive Directors are also entitled to participate in the Company’s long-term incentive plan; a contribution of 4% of salary during each year of employment to a personal pension scheme.

●● Private medical insurance: The Executives are entitled to receive compensation for private medical insurance for them and their immediate family.

●● Share options: The Group operates two equity-settled share option schemes for Executive Directors as a combined reward and incentive for those who have made a major contribution to the Group and will continue to play a key role in helping the Group achieve its objectives in the future. Both equity-settled share option schemes are consistent with the objectives of the Group.

Remuneration policy for Non-Executive DirectorsRemuneration for Non-Executive Directors is set by the Chairman and Executive members of the Board. The Non-Executives are not entitled to receive any bonus or other benefits.


22

Directors’ Remuneration Reportcontinued

Directors’ remuneration (audited)The remuneration of the Board of Directors of Mi-Pay Group plc who served in the year to 31 December 2017 was:

Name of Director

Salary and fees

£Bonus

£Benefits

£

Pension contributions

£31/12/17

£31/12/16

£

Allen Atwell 140,000 – 6,683 5,600 152,283 152,185

John Beale 140,833 – 5,647 5,633 152,113 151,247

Michael Dickerson 140,417 157,500 4,188 – 302,105 158,306

Seamus Keating 12,500 – – – 12,500 50,000

Ed Lascelles1 3,750 – – – 3,750 15,000

Michael Stone 7,500 – – – 7,500 30,000

Total 445,000 157,500 16,518 11,233 630,251 556,738

1 Edward Lascelles’ Non-Executive fees were paid directly to Albion Capital, a limited liability partnership of which Edward is a member.

From September 2014 it was decided by the board to introduce a 10% reduction of Executive Directors salary and 100% of Non-Executive Directors salary/fees and to defer these amounts. It was decided by the board to pay deferred salary/fee amounts accumulated from September 2014 to January 2015 in February 2015, to specifically purchase shares as part of the 7,608,696 placing shares issued in March 2015.

From February 2015 to 31 March 2017, the board continued to impose the 10% deferral of Executive and 100% deferral of Non-Executive Directors salary/fees.

From 1 April 2017 the Non-Executive Directors waived their Entitlement to fees and Executive Directors continued to defer and accrue 10% of their salary.

As at 1 September 2017 Allen Atwell was reverted to full payment of salary and as of 1 December 2017 John Beale was reverted to full payment of salary.

On 1 December 2017 Michael Dickerson agreed to reduce his salary to £35,000 per annum from £150,000 per annum and the Company recognised a deferred payment of £157,500 in recognition of this. This amount was in addition to the £42,500 previously unpaid and deferred. The total amount deferred in respect of Michael Dickerson as at 31 December 2017 was £200,000. On 1 March 2018 this was converted into Ordinary Shares with no cash impact on the Company. At that date Michael Dickerson became Executive Chairman of the Group, with his salary remaining at £35,000 per annum.

During the year, deferred salary due to Seamus Keating of £108,333 was waived. This resulted in an equivalent credit to the consolidated statement of comprehensive income. The deferred amounts due to Directors is shown on page 55 and 56 in note 22 Related Party Transactions.


23

Directors’ Remuneration Reportcontinued

Directors’ shareholdings (audited)Directors’ interests in the shares of the Company, together with family interests at 31 December 2017 were:

Name of Director

Number of ordinary 10p shares

31/12/17 31/12/16

Allen Atwell1 135,872 135,872

John Beale1 135,729 135,729

Michael Dickerson2 570,553 570,553

Seamus Keating3 345,454 345,454

Ed Lascelles – –

Michael Stone4 122,258 122,258

Total 1,309,866 1,309,866

1 The ordinary 10p shares subscribed for by Allen Atwell and John Beale form part of the 1,428,027 placing shares issued as part of the acquisition on 29 April 2014 and also form part of the 7,608,696 placing shares issued on 9 March 2015. The ordinary 10p shares subscribed for by Allen Atwell and John Beale are held in the name of their respective wives.

2 The ordinary 10p shares subscribed for by Michael Dickerson form part of the 21,912,583 consideration shares issued as part of the acquisition on 29 April 2014, form part of the 1,428,027 placing shares issued as part of the acquisition on 29 April 2014 and also form part of the 7,608,696 placing shares issued on 9 March 2015. 45,091 of Michael Dickerson’s ordinary 10p shares are held through his investment company, Monsoon Associates Corporation.

3 The ordinary 10p shares subscribed for by Seamus Keating form part of the 1,428,027 placing shares issued as part of the acquisition on 29 April 2014 and also form part of the 7,608,696 placing shares issued on 9 March 2015.

4 The ordinary 10p shares subscribed for by M Stone form part of the 7,608,696 placing shares issued on 9 March 2015. 32,660 ordinary 10p shares are held in the name of M Stone’s wife.

On 1 March 2018 Michael Dickerson increased his number of shares to 2,570,553 and Allen Atwell increased his number of shares to 336,920 via a new placing of Ordinary Shares.

Directors’ interests in share optionsThe interests of the Directors at 31 December 2017 in share options of the ordinary shares of the Company were as follows:

Name of Director 01/01/16 Exercised Granted Lapsed 31/12/17Exercise

price £Grant

dateDate

exercisableExpiry

date

Allen Atwell 941,341 – – – – 0.41 29/04/14 28/10/15 28/04/24

John Beale 941,341 – – – – 0.41 29/04/14 28/10/15 28/04/24

Michael Dickerson 1,330,000 – – – – 0.41 29/04/14 28/10/15 28/04/24

Seamus Keating 550,743 – – – – 0.41 29/04/14 28/10/15 28/04/24

The market price of the Company’s shares at the end of the financial year was 12.5p and the range of prices during the year was between 10.00p and 18.50p.

On 1 March 2018 all Directors cancelled their existing share options. They were replaced with 750,000 options each for John Beale, Michael Dickerson and Seamus Keating and 250,000 for Allen Atwell with an exercise price of 13 pence per option.


Edward Lascelles Chairman of the Remuneration Committee 16 April 2018


24

Statement of Directors’ responsibilitiesin respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Strategic Report, the Directors’ Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have elected to prepare the Group Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The Directors have elected to prepare the Parent Company, Mi-Pay Group plc Financial Statements in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (‘FRS 101’).

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 the profit or loss of the Group for that period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.

In preparing these Financial Statements, the Directors are required to:

●● Select suitable accounting policies and then apply them consistently;

●● Make judgements and accounting estimates that are reasonable and prudent;

●● State whether the Group Financial Statements have been prepared in accordance with IFRSs as adopted by the European Union and the Parent Company Financial Statements have been prepared in accordance with FRS 101, subject to any material departures disclosed and explained in the Financial Statements; and

●● Prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are also responsible for ensuring that they meet their responsibilities under the AIM rules.

Website publicationThe Directors are responsible for ensuring the Annual Report and the Financial Statements are made available on a website. Financial Statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of Financial Statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the Financial Statements contained therein.

Financial Statements are published on the Group’s website in accordance with AIM rules for companies and legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions.

Going concernThe Group made a total comprehensive loss of £616,386 for the year ending 31 December 2017 (year ended 31 December 2016: Loss of £439,158). As at the year end the Group does however have healthy cash balances, with cash and cash equivalent balances totalling £2,925,766 and in addition expects to receive at least £230,000 during 2018 in relation to annual Research and Development tax reclaims, an annual recovery, paid in cash it expects to continue in future periods until profitable. In addition on 1 March 2018 the Group received an incremental £260,000 of new investment under a new placing of ordinary shares.

The Directors have prepared a cash flow forecast covering a period extending beyond 12 months from the date of approval of these Financial Statements with this plan demonstrating that the Group will be able to fully settle its liabilities over the period. The renewal and expected growth with our biggest client, new delivery of fraud service and new opportunities in Asia Pacific, combined with our continuing growth in transaction volumes in 2017 which we expect to continue will drive new revenue growth. When combined with the additional reduction in the operating cost base of the business due to the restructure this gives the Directors confidence that the Group will move to a monthly positive cash flow position without requiring further investment.

The Directors therefore are confident that sufficient funds are in place to support the going concern status of the Group and as such consider that it is appropriate to prepare the Group’s Financial Statements on a going concern basis.




25

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF Mi-Pay Group plc

OpinionWe have audited the Financial Statements of Mi-Pay Group plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2017 which comprise the Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Cash Flows, Consolidated Statement of Changes in Equity, Parent Company Balance Sheet, Parent Company Statement of Changes in Equity and notes to the Financial Statements, including a summary of significant accounting policies.

The financial reporting framework that has been applied in the preparation of the Group Financial Statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the Parent Company Financial Statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice).

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 December 2017 and of the Group’s loss for the year then ended;

●● the Group Financial Statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

●● the Parent Company Financial Statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

●● the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinionWe conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Statements section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the Financial Statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the

audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Use of our reportThis report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent 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 Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Conclusions relating to going concernWe have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

●● the Directors’ use of the going concern basis of accounting in the preparation of the Financial Statements is not appropriate; or

●● the Directors have not disclosed in the Financial Statements any identified material uncertainties that may cast significant doubt about the Group’s or the Parent Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the Financial Statements are authorised for issue.

Key audit mattersKey audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Financial Statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, 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, and we do not provide a separate opinion on these matters.

Transactional revenueThe Group’s revenue recognition policy is included within the accounting policies on page 36 and the components of revenue are set out in note 4.


26

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF Mi-Pay Group plc continuedTransactional revenues are recognised based on the total value of mobile phone top-up transactions processed and the commission rate per transaction agreed for the relevant period with the respective mobile network operators.

The value of processed transactions is captured from the underlying processing systems and the transactional commission revenues thereon are recorded in the accounting system through a series of control accounts that reflect amounts receivable from the acquirer banks and amounts payable to the mobile operators.

There is considered to be a risk in recording the transactions due to the volume of transactions that are processed through the accounting system by the finance function. The audit procedures on transactional revenues represented a significant part of our audit strategy in terms of the level of direction and supervision and allocation of resources.

How we addressed the Key Audit Matter in the auditFor a sample of contracts with mobile network operators, we recalculated the total commissions revenue for the financial year by multiplying the agreed commission rate, confirmed through inspection of the contract, and the total value of transactions processed, as obtained through the system-generated reports.

In order to test the integrity of the system-generated reports, we reconciled a sample of reported receipts from mobile network operators back to bank statements and third-party statements issued by the transaction acquirer banks.

We have also tested a sample of balances contained within the related balance sheet control accounts through agreeing them from the transaction reports to a combination of third party documentation and subsequent bank transactions.

Our application of materialityGroup Materiality: £45,000 (2016: £50,000).

Parent Company materiality: £44,000 (2016: £45,000).

Our Group Materiality, for both the current and prior year, has been based upon 1.5% of revenues. We consider revenue to be one of the principal considerations for stakeholders in assessing the performance of the Group, particularly as it approaches profitability.

The audit of Mi-Pay Limited, the trading subsidiary, was performed to a materiality calculated on the same basis as that of the group, while materiality for Mi-Pay Group plc, as the holding company, was net-asset based.

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the Financial Statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the Financial Statements as a whole.

Performance materiality was set at 75 per cent of the above materiality levels. In setting the level of performance materiality we considered a number of factors including the expected total value of known and likely misstatements based on past experience and other factors.

Where financial information from the two components was audited separately, component materiality levels were set for this purpose at a lower level, being £44,000.

We agreed with the audit committee that we would report to the committee all individual audit differences identified during the course of our audit in excess of £2,250 (2016: £2,000). We also agreed to report differences below these thresholds that, in our view, warranted reporting on qualitative grounds.

An overview of the scope of our auditThe scope of our group audit was established by obtaining an understanding of the Group, including its control environment, and assessing the risks of material misstatement.

Both components, Mi-Pay Group plc and Mi-Pay Limited, are considered significant components and are subject to a full-scope audits by BDO LLP.

Other informationThe Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the Financial Statements and our auditor’s report thereon. Our opinion on the Financial Statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.


27

In connection with our audit of the Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Financial Statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the Financial Statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006In our opinion, based on the work undertaken in the course of the audit:

●● the information given in the strategic report and the Directors’ report for the financial year for which the Financial Statements are prepared is consistent with the Financial Statements; and

●● the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exceptionIn the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

●● adequate accounting records have not been kept, or 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.

Responsibilities of DirectorsAs explained more fully in the Directors’ responsibilities statement set out on page 20, the Directors are responsible for the preparation of the Financial Statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error.

In preparing the Financial Statements, the Directors are responsible for assessing the Group’s and the 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 the Directors 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 for the audit of the Financial StatementsOur 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 an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a 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 the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial Statements.

A further description of our responsibilities for the audit of the Financial Statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Malcolm Thixton (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor Southampton, United Kingdom 16 April 2018

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF Mi-Pay Group plc continued


28

The notes on pages 34 to 56 form part of these Financial Statements.

Note

Year ended 31 Dec 2017

£


£

Payment Transaction Value Processed 93,982,712 83,404,805

Transaction Services Revenue 2,654,178 2,565,629Professional Services Revenue 395,922 713,037

Revenue 4 3,050,100 3,278,666Cost of sales (1,085,922) (1,172,669)Gross profit 4 1,964,178 2,105,997

Administrative expensesGeneral and administration (1,837,862) (1,699,551)Research and Development (578,816) (594,972)Depreciation (97,229) (132,564)Exceptional items 5 (71,758) (121,581)Total administrative expenses 6 (2,585,665) (2,548,668)

Operating loss (621,487) (442,671)

Finance income 8 198 3,492Finance expense 8 (25) (67)Loss before taxation (621,314) (439,246)

Taxation 9 (257) –Loss for the year from continuing operations (621,571) (439,246)

Other comprehensive expense for the yearExchange differences on translation of foreign operations 5,185 88

Total comprehensive expense for the year attributable to the owners of the parent

(616,386) (439,158)

Basic and diluted loss per ordinary share for continuing operations 10 (1.5)p (1.1)p

Consolidated Statement of Comprehensive IncomeFor the year ended 31 December 2017


29

Consolidated Statement of Financial PositionFor the year ended 31 December 2017


Note31 Dec 2017

£31 Dec 2016

£

ASSETSNon-current assetsProperty, plant and equipment 12 87,710 176,735Total non-current assets 87,710 176,735

Current assetsTrade and other receivables 14 1,138,277 897,190R&D credit receivable 230,000 220,000Cash and cash equivalents 2,925,766 3,518,217Total current assets 4,294,043 4,635,407

Total assets 4,381,753 4,812,142

LIABILITIESCurrent liabilitiesTrade and other payables 15 (4,326,813) (4,074,921)Obligations under finance lease 16 (33,000) (66,000)Total current liabilities (4,359,813) (4,140,921)

Non-current liabilitiesObligations under finance lease 16 (20) (32,915)Total non-current liabilities (20) (32,915)

Total liabilities (4,359,833) (4,173,836)

Net assets 21,920 638,306

Equity 18-20Share capital 4,159,324 4,159,324Share premium 1,403,923 1,403,923Share options reserve 624,729 624,729Reverse acquisition reserve 6,920,115 6,920,115Merger reserve 6,808,742 6,808,742Retained deficit (19,894,913) (19,278,527)

Total equity attributable to the equity shareholders of the parent 21,920 638,306

The Financial Statements on pages 29 to 56 were approved and authorised for issue by the Board of Directors on 16 April 2018 and were signed on its behalf by:

John Nicholas Beale Chief Executive Officer Company number: 05550853


30

Consolidated Statement of Cash FlowsFor the year ended 31 December 2017


Note


£


£

Cash flows from operating activitiesLoss before tax from continuing operations (621,314) (439,246)

Adjusted for:Depreciation 97,229 132,564 Exchange differences on translation of foreign operations 5,185 Finance income (198) (3,492)Finance expense 25 67 R&D credits (267,516) (308,710)(Increase)/decrease in trade and other receivables (241,087) (172,855)Increase in trade and other payables 281,892 601,180

Adjusted loss from operations after changes in working capital (745,784) (190,492)

Interest received 198 3,492 Interest paid (25) (67)Income taxes paid (257) – R&D credit (paid)/received 257,516 292,370

Net cash flows from operating activities (488,352) 105,303

Cash flows from investing activitiesPurchase of property, plant and equipment (38,204) (51,240)

Net cash flows from investing activities (38,204) (51,240)

Cash flows from financing activitiesFinance lease payments (65,895) (66,000)Net cash flows from financing activities (65,895) (66,000)

Net (decrease)/increase in cash and cash equivalents (592,451) (11,937)

Cash and cash equivalents at beginning of period 3,518,217 3,530,154

Cash and cash equivalents at end of period 2,925,766 3,518,217


31

For the year ended 31 December 2017

Share capital

£

Share premium

£

Share options reserve

£

Reverse acquisition reserve

£

Merger reserve

£

Retained deficit

£Total

£

At 1 January 2017 4,159,324 1,403,923 624,729 6,920,115 6,808,742 (19,278,527) 638,306

Loss for the year from continuing operations (621,571) (621,571)

Other comprehensive expense for the year – – – – – 5,185 5,185

At 31 December 2017 4,159,324 1,403,923 624,729 6,920,115 6,808,742 (19,894,913) 21,920


Share capital

£

Share premium

£


£


£

Merger reserve

£

Retained deficit

£Total

£

At 1 January 2016 4,159,324 1,403,923 624,729 6,920,115 6,808,742 (18,839,369) 1,077,464

Loss for the year from continuing operations – – – – – (439,246) (439,246)

Other comprehensive expense for the year – – – – – 88 88

At 31 December 2016 4,159,324 1,403,923 624,729 6,920,115 6,808,742 (19,278,527) 638,306

Consolidated Statement of Changes in EquityFor the year ended 31 December 2017



32


Share capital

£

Share premium

£


£


£

Merger reserve

£

Retained deficit

£Total

£

At 1 January 2017 4,159,324 1,403,923 624,729 6,920,115 6,808,742 (19,278,527) 638,306

Loss for the year from continuing operations (621,571) (621,571)

Other comprehensive expense for the year – – – – – 5,185 5,185

At 31 December 2017 4,159,324 1,403,923 624,729 6,920,115 6,808,742 (19,894,913) 21,920


Share capital

£

Share premium

£


£


£

Merger reserve

£

Retained deficit

£Total

£

At 1 January 2016 4,159,324 1,403,923 624,729 6,920,115 6,808,742 (18,839,369) 1,077,464

Loss for the year from continuing operations – – – – – (439,246) (439,246)

Other comprehensive expense for the year – – – – – 88 88

At 31 December 2016 4,159,324 1,403,923 624,729 6,920,115 6,808,742 (19,278,527) 638,306


33

Notes to the Financial Statements

1. Accounting policies

General informationMi-Pay Group plc listed on the AIM – London Stock Exchange on 29 April 2014, registered at Seal House, 56 London Road, Bagshot, Surrey GU19 5HL. Mi-Pay Group plc was incorporated in the United Kingdom under the Companies Act. The principal activity of the Group for the year continued to be specialising in delivering fully outsourced on-line and related payment solutions to digital e-commerce clients, primarily in the mobile sector, enabling them to monetise their on-line proposition risk free.

Basis of preparationThe Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), as adopted by the European Union, and with those parts of the Companies Act applicable to Groups preparing financial statements under IFRSs.

The accounting policies applied in the preparation of these Financial Statements are consistent with those used in the prior year.

Basis of consolidationWhere the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The Consolidated Financial Statements present the results of the Company and its subsidiaries (‘the Group’) as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.

New International Financial Reporting standards in the yearThe adoption of the new standards and amendments effective from 1 January 2017 have not impacted the classification or measurement of the Group’s assets and liabilities, nor has it resulted in any additional disclosures.

New International Financial Reporting standards and interpretations issued but not yet effectiveThe IASB have issued the following relevant standards which are not mandatory for the current period.

IFRS 9 (Financial Instruments) – IFRS 9 is effective for annual periods beginning on or after 1 January 2018. The standard introduces a new approach to how financial assets and liabilities are classified and an expected loss impairment model.

Loans to third parties are classified as financial assets held at amortised cost. The Group expect this classification to remain under IFRS 9 and no adjustments on transition are anticipated. The Group has assessed the impact of adopting IFRS 9 and the requirement to review historic, current and forward-looking information when assessing the level of credit losses that may be incurred. Provisions for credit losses are currently measured in accordance with an incurred loss model under IAS 39. The Group does not consider that this change in approach will have a significant impact on the carrying value of these loans.

IFRS 9 will be applied retrospectively in accordance with IAS 8, however, it does not mandate re-statement of prior periods on transition. The Group has decided not to re-state prior periods, therefore, the difference between cost and fair value determined under IFRS 9 will be included in opening retained earnings for 2018. The first set of interim accounts that will be prepared in accordance with IFRS 9 will be 30 June 2018 interims.

IFRS 15 (Revenue from Contracts with Customers) – IFRS 15 is effective for annual periods beginning on or after 1 January 2018. Revenues for the group is growing but the contracts with customers are not complex. Transactional revenues are recognised as commissions when the transactions complete and this is not expected to change under IFRS 15. Project revenues are already broken down to the deliverable components of the contract and then measured on a cost completion basis. Again adoption of IFRS 15 is not expected to materially impact reported revenues.


34

Notes to the Financial Statementscontinued

IFRS 16 (Leases) – IFRS 16 is effective for annual periods beginning on or after 1 January 2019. The standard establishes principles for the recognition, measurement, presentation and disclosure of leases and expands the use of the right-of-use asset and corresponding lease liability.

●● The Group has minimal exposure to operating leases with a contractual liability of £9,000 in 2018 with one lease on a recurring one-month termination and the other terminating in May 2018, which is likely to be renewed at an expected annual liability of £18,000

●● Instead of recognising an operating expense for its operating lease payments, the Group will instead recognise interest on its lease liabilities and amortisation on its right to use assets

The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the Group.

Research and Development Research and Development tax credits are included within and offset against the Research and Development line within administrative expenses.

During the year ended 31 December 2017, the Group has invested £846,332 (2016: £903,682) in Research and Development activities. When deducting the Research and Development credit of £267,516 (2016: £308,710) the net effect and total within the Research and Development line of the Consolidated Statement of Comprehensive Income is £578,816 (2016: £594,972).

Going concernThe Group made a total comprehensive loss of £616,386 for the year ending 31 December 2017 (year ended 31 December 2016: Loss of £439,158). As at the year end the Group does however have healthy cash balances, with cash and cash equivalent balances totalling £2,925,766 and in addition expects to receive at least £230,000 during 2018 in relation to annual Research and Development tax reclaims, an annual recovery, paid in cash it expects to continue in future periods until profitable. In addition, on 1 March 2018 the Group received an incremental £260,000 of new investment under a new placing of ordinary shares.

The Directors have prepared a cash flow forecast covering a period extending beyond 12 months from the date of approval of these Financial Statements with this plan demonstrating that the Group will be able to fully settle its liabilities over the period. The renewal and expected growth with our biggest client, new delivery of fraud service and new opportunities in Asia Pacific, combined with our continuing growth in transaction volumes in 2017 which we expect to continue, combined with the additional reduction in the operating cost base of the business due to the restructure gives the Directors confidence that the Group will move to a monthly positive cash flow position without requiring further investment.

The Directors therefore are confident that sufficient funds are in place to support the going concern status of the Group and as such consider that it is appropriate to prepare the Group’s Financial Statements on a going concern basis.

Use of estimatesThe preparation of the Financial Statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates. The areas involving higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 2, critical accounting estimates and judgements.

Property, plant and equipmentProperty, plant and equipment are initially recognised at cost and subsequently measured under the ‘cost model’ at cost less accumulated depreciation. Cost comprises the purchase price plus any directly attributable costs. If required, cost


35


will also include the estimated present value of any future avoidable costs such as dismantling and removing items, with the corresponding liability recognised within provisions.

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset. The gain or loss is recognised in the consolidated statement of comprehensive income.

Depreciation is provided to write off the cost less estimated residual value, in equal instalments over the estimated economic useful life as follows:

●● Fixtures and fittings The shorter of three years or the life of the building lease

●● Computer equipment 33% per annum straight-line

Depreciation of computer equipment held under a finance lease is depreciated over the shorter of the lease term and the estimated economic useful life:

●● Computer equipment Finance lease 5 years (lease term)

Revenue recognitionRevenue represents amounts chargeable for the transactional services and other related professional services rendered in the normal course of business and measured at their fair value of the consideration received and receivable during the year including recoverable expenses and excluding Value Added Tax and other related taxes.

Transactional revenues are predominantly derived from the management of transaction processing services for mobile operators, virtual network operators and pre-paid calling card companies around the world. Transactional revenues represent commissions earned on the successful completion of the processing of each individual transaction, and thus commissions are recognised in revenues at the point of the successful completion of the transaction.

Professional Services Revenues are derived from the provision of professional services, such as implementation, platform hosting services, development, training and consultancy. These are recognised on a percentage-of-completion basis.

When the below criteria are not met, revenue arising from the rendering of services is recognised only to the extent of the expenses recognised that are recoverable.

The amount of revenue can be measured reliably;

●● It is probable that the economic benefits will flow to the seller;

●● The stage of completion at the balance sheet date can be measured reliably; and

●● The costs incurred, or to be incurred, in respect of the transaction can be measured reliably.

Provisions – customer refundsA provision in respect of customer refunds is recognised when the Company has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle an obligation. Expected costs of customer refunds arise:

●● By way of chargebacks made by credit cards and debit card companies where the card holder disputes the charge taken;

●● As indemnity payments against contested direct debit payments;

●● As other customer refunds when a transaction is subsequently reversed because the transaction has failed to complete; and

●● Goodwill in nature where service has not been delivered to a suitable standard.

Any differences between provisions recognised and amounts actually paid are taken directly to the Consolidated Statement of Comprehensive Income.


36


The provision in respect of customer refunds is not material in 2017 or the prior year and is included within accruals.

Leased assetsWhere substantially all of the risks and rewards incident to ownership of a leased asset are transferred to the Company, the lease will be treated as a finance lease, with the asset treated as if it had been purchased outright. The asset is capitalised and a corresponding liability recognised at fair value or; if lower, the present value of the minimum lease payments. The asset is depreciated over the shorter of the useful life and the lease term (useful life if reasonably certain the Company will obtain ownership). Interest finance is charged to the Consolidated Statement of Comprehensive Income and calculated and applied to give a constant rate on the outstanding liability. Lease payments are analysed between capital and the interest finance charge and reduce the liability and accrued interest accordingly. The non-current and current portions of the liability are disclosed separately.

Where substantially all of the risks and rewards incident to ownership of a leased asset are not transferred to the Company, the lease will be treated as an operating lease. Rentals payable under operating leases are charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the term of the relevant lease except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Foreign currencyTransactions entered into by the Company other than the currency of the primary economic environment in which the Company operates (‘their functional currency’) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date.

On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the reporting date.

Employee benefitsAll employee benefit costs, notably holiday pay, bonuses and contributions to the Company defined contribution pension scheme are charged to the Consolidated Statement of Comprehensive Income on an accruals basis.

Research and Development Expenditure on Research and Development is recognised as an expense and charged to the Consolidated Statement of Comprehensive Income in the period in which it is incurred.

Development expenditure relating to specific projects intended for commercial exploitation is capitalised as an intangible fixed asset where the following conditions are met:

●● It is technically feasible to complete the intangible asset so that it will be available for use or sale;

●● It is the intention of the Company to complete the intangible asset and use or sell it,

●● The Company has the ability to use or sell the intangible asset;

●● The intangible asset will generate probable future economic benefits;

●● The technical, financial and other resources needed to complete the development and to use or sell the intangible asset are available to the Company; and

●● The expenditure attributable to the intangible asset during its development can be measured reliably.

The criteria required to capitalise Research and Development expenditure has not been met and as such all expenditure has been recognised in the Consolidated Statement of Comprehensive Income.


37


Current taxationCurrent tax is the amount of income taxes payable or recoverable in respect of taxable profit or loss for a period. Current tax contains the current period charge, the reversal of the under or over provision relating to the previous period and the deferred tax movement.

Current tax is recognised in the profit or loss, or in other comprehensive income/directly to equity if it relates to items that have been credited or charged to other comprehensive income/directly to equity.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the relevant taxation authorities, based on tax rates and laws that are enacted by the Statement of Financial Position date.

Deferred taxationDeferred tax is the tax attributable to temporary differences. Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the Consolidated Statement of Financial Position differs from the tax base used in the computation of taxable profit and thus creating a temporary difference.

Deferred tax assets are recognised only to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities can only be offset when a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority.

Cash and cash equivalentsCash and cash equivalents include cash in hand and deposits held at call with banks.

Financial instrumentsFinancial assets and financial liabilities are recognised in the Statement of Financial Position when the Company becomes party to the contractual provisions of the instrument.

Financial assets are de-recognised when the contractual rights to the cash flows from the financial asset expire or when the contractual rights to those assets are transferred.

Financial liabilities are de-recognised when the obligation specified in the contract is discharged, cancelled or expired.

Both financial assets and financial liabilities are initially recognised at fair value and thereafter at amortised cost.

The Company assesses at each year end date whether there is objective evidence that a financial asset or a group of financial assets is impaired.

Segmental reportingThe Group provides segmental reporting on a basis consistent with the provision of internal financial information used for decision making purposes by the Chief Operating Decision maker. The Group determines geographical information on the basis of the location of the client.


38


2. Critical accounting estimates and judgements

The preparation of the Consolidated Financial Statements requires the Company to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its estimates and judgements on historical experience and various other assumptions that it considers to be reasonable. Actual results may differ from these estimates under different assumptions or conditions.

Rendering of servicesWhen the outcome of a transaction or contract involving the rendering of services can be estimated reliably, the associated revenue is recognised by reference to the stage of completion of the transaction at the period end. Rendering of services includes revenues generated from the provision of professional services such as implementation, development, training and consultancy. The outcome of a transaction or contract can be estimated reliably when all the following conditions are satisfied:

●● The amount of revenue can be measured reliably;

●● It is probable that the economic benefits associated with the transaction or contract will flow to the Company;

●● The stage of completion of the transaction or contract at the period end can be measured reliably; and

●● The costs incurred for the transaction or contract and the costs to complete the transaction or contract can be measured reliably.

Determining whether the outcome of the transaction or contract can be estimated reliably requires management to exercise judgement, whilst calculation of the transaction or contract’s profit requires estimates of the total costs to completion. Judgements and cost estimates are continually reviewed and updated as determined by events or circumstances.

ProvisionsProvisions are periodically reviewed by the Directors to ensure that provisions reflect a current and best estimate as at the end of each reporting period. Consequently, Directors do exercise a level of judgement in determining current and best estimate provisions.

The provision in respect of customer refunds is not material in 2017 or the prior year and is included within accruals.


39


3. Financial instruments

General objectives, policies and processesThe Board has overall responsibility for the determination of the Mi-Pay Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Mi-Pay Group’s finance function. The Board receives monthly reports from the Chief Financial Officer through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Mi-Pay Group’s competitiveness and flexibility.

2017 £

2016 £

Financial assets (amortised cost)

Trade receivables less impairment 88,796 80,116

Client receivables 938,546 642,922

Other receivables and deposits 35,011 99,958

Cash and bank balances 2,925,766 3,518,217

3,988,119 4,341,213

2017 £

2016 £

Financial liabilities (amortised cost)

Trade payables 196,420 186,343

Client payables 3,283,629 3,095,022

Other payables and accruals 744,598 724,753

Obligations under finance lease 33,020 98,915

4,257,667 4,105,033

Financial liabilities in the prior year have been restated to include deferred saleries within ‘Other payables and accruals’.

The fair value of the Group’s financial assets and financial liabilities is not materially different to their carrying value as shown above and in the Statement of Financial Position.

Credit riskCredit risk is the risk of financial loss to the Group if a client or counterparty to a financial instrument fails to meet its contractual obligations. As the Group collects cash in advance by means of electronic transactions it enjoys minimal effect on credit risk.

The credit risk profile of the Group focuses on a select few clients only, with additional resource specifically allocated to manage this.

The carrying amount of financial assets recorded in the Financial Statements, net of any allowances for impairment, represents the Group’s maximum exposure to credit risk.


40


Ageing analysisThe ageing analysis of Mi-Pay Group’s trade receivables for the year ended 31 December is as follows:

2017 £

2016 £

Not overdue 45,199 34,451

Overdue:

– 1 month 30,214 1,258

– 2 months – 26,146

– 3 months + 13,383 26,931

Gross amount 88,796 88,786

No interest is due on the receivables balances stated above. At the end of each financial year, trade receivables that are individually impaired are those where the debtor is in significant financial difficulties and have defaulted on payments. These receivables are not secured by any collateral or credit enhancement.

Collective impairment allowances are determined based on estimated irrecoverable amount from the sale of services, determined by reference to past default experience.

Movements of the allowance for impairment losses:

2017 £

2016 £

Balance brought forward 8,670 –

(Credited)/debited to profit or loss during the year (8,670) 8,670

Balance carried forward – 8,670

Cash in bankA significant amount of cash is held on current accounts with the following institutions:

2017 £

2016 £

RBS Group – UK 1,525,276 3,251,113

RBS Group – Asia – 28,009

AIB – Ireland 1,122,954 40,732

Banka Transilvania – Romania 14,703 6,461

BDO Unibank – Philippines 22,059 11,677

HSBC – UK – 307

UOB – Singapore – 70,455

Other 240,774 109,463

Cash at bank 2,925,766 3,518,217


41


Liquidity riskLiquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s exposure to liquidity risk arises primarily from mismatches of the maturity of financial assets and liabilities.

The Group maintains a level of cash and cash equivalents deemed adequate by management to ensure as far as possible, that it will have sufficient liquidity to meets its liabilities when they fall due.

Below is a liquidity analysis for the Group’s financial liabilities:

2017 £

2016 £

Due within:

Less than 1 month 4,024,649 3,562,345

1-6 months 233,018 191,024

6-12 months – 33,000

1-3 years – 32,915

Total 4,257,667 3,819,284

Capital risk managementThe Company defines capital as the total equity of the Group. The Company’s capital is made up of share capital, share premium, retained deficit and other reserves totalling £21,920 at 31 December 2017 (31 December 2016: £638,306).

The Company funds its expenditures on commitments from existing cash and cash equivalent balances, primarily received from issuance of shareholders’ equity and borrowings. There are no externally imposed capital requirements.

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group ensures that the distributions to shareholders do not exceed working capital requirements.

Foreign exchange riskForeign exchange risk arises when individual Group entities enter into transactions denominated in a currency other than their functional currency. The Group’s policy is, where possible, to allow Group entities to settle liabilities denominated in their functional currency (primarily Euro or Pound Sterling) with the cash generated from their own operations in that currency. Where Group entities have liabilities denominated in a currency other than their functional currency (and have insufficient reserves of that currency to settle them), cash already denominated in that currency will, where possible, be transferred from elsewhere within the Group.

The Group earns revenue and incurs costs in local currencies and is able to manage foreign exchange risk by matching the currency in which revenue is generated and expenses are incurred.


42


The carrying amounts of the Group’s foreign currency denominated monetary assets and liabilities at the end of the year were as follows:

USD £

EUR £

AED £

RON £

SGD £

PHP £

Total £

31 December 2017Financial assets 30,765 1,216,415 – 14,659 64,912 20,674 1,347,425Financial liabilities – – – – – – –31 December 2016Financial assets 48,241 998,882 220 6,675 98,495 43,304 1,195,817 Financial liabilities – – – – – – –

The following table details the sensitivity analysis to possible changes in the relative values of foreign currencies to which the Group is exposed as at the end of the respective financial years, with all other variables held constant:

31 December 2017

Increase/(decrease)

£

31 December 2016

Increase/(decrease)

£

Effects on loss after taxation/equityCurrency 1: USD– strengthened by 10% 2,938 4,824– weakened by 10% (2,938) (4,824)Currency 2: EUR– strengthened by 10% 121,642 99,888– weakened by 10% (121,642) (99,888)Currency 3: AED– strengthened by 10% – 22– weakened by 10% – (22)Currency 4: RON– strengthened by 10% 1,466 668– weakened by 10% (1,466) (668)Currency 6: SGD– strengthened by 10% 6,491 9,850– weakened by 10% (6,491) (9,850)Currency 7: PHP– strengthened by 10% 2,067 4,330– weakened by 10% (2,067) (4,330)


43


4. Segmental analysis

The Chief Operating Decision maker has been identified as the Chief Executive Officer (CEO) of the Group. The Chief Operating Decision maker is responsible for regularly assessing the performance of the Group’s operating segments and performing the function of allocating resources. To assist the Chief Operating Decision maker in this process, internally generated reporting is prepared for each operating segment.

The Group has two operating segments that it reports on. These operating segments are:

●● Transaction Services Revenues: This segment generates revenue from the processing of payment transactions on behalf of clients and is Mi-Pay Group plc’s core business. For the majority of clients, Mi-Pay Group plc collects gross transaction top up values from acquirers less their acquirer fees, on behalf of client mobile operators. Mi-Pay Group plc generates net commission revenue through charging clients a commission percentage on transaction value as per each individual client contract, with operators then receiving the remainder.

●● Professional Services Revenues: This segment generates revenue from the development, delivery and hosting of our platform and client solutions.

The CEO assesses the performance of the operating segments based on revenue and gross profit. The CEO uses these measures to assess performance because they are quick to analyse and directly relevant to evaluating the results of each segment. The measure of assets and liabilities attributable to each segment is not regularly provided to the Chief Operating Decision maker of the Group, and as such, are not disclosed below.

Both segments are continuing operations and results are as follows:

Operating segments

2017 £

2016 £

Payment Transaction Value Processed 93,982,712 83,404,805

Transaction Services Revenue 2,654,178 2,565,629

Professional Services Revenue 395,922 713,037

Total revenue 3,050,100 3,278,666

Transaction services cost of sales 975,309 1,036,046

Professional services cost of sales 110,613 136,623

Total cost of sales 1,085,922 1,172,669

Transaction services gross profit 1,678,869 1,529,583

Professional services gross profit 285,309 576,414

Total gross profit 1,964,178 2,105,997

Transaction services gross profit % 63% 60%

Professional services gross profit % 72% 81%

Total gross profit % 64% 64%


44


Geographical informationAll material non-current assets owned by the Group are held in the United Kingdom.

In presenting the consolidated revenue information on a geographical basis, revenue is based on the geographical location of clients. The United Kingdom is the place of domicile of the Parent Company.

Revenue by location:

2017 £

2016 £

Transaction Services Revenue

United Kingdom 1,458,010 1,424,913

Ireland 849,672 735,420

Rest of Europe 238,593 265,463

Rest of the world 107,903 139,833

Professional Services Revenue

United Kingdom 338,680 530,190

Ireland 40,917

Europe 3,453 4,895

Rest of the world 12,872 177,952

Total 3,050,100 3,278,666

The proportion of turnover that is attributable outside the UK 41% 40%

Major clientsDuring the year, there were 4 (2016: 3) clients that individually made up at least 10% of total revenue. In aggregate, this accounted for 67% (individually 28%, 19%, 10% and 10%) (2016: 50% (individually 22%, 15% and 13%)) of total revenue.

5. Exceptional items

2017 £

2016 £

Exceptional items (71,758) (121,581)

Exceptional items are non-recurring expenditure related to specific professional fees incurred on merger and acquisition activity during 2017.


45


6. Operating loss

This is arrived at after charging/(crediting):

2017 £

2016 £

Expenses by nature

Total staff costs (see note 7) 1,754,833 1,634,502

Staff costs – operating and administration 873,414 676,613

Research and development (includes staff costs) 578,816 594,972

Depreciation of property, plant and equipment 97,229 132,564

Operating lease expense 32,722 37,454

Foreign exchange loss/(gain) 56,026 (47,505)

Exceptional items 71,758 121,581

Other administration expenses 872,700 1,032,989

Total administrative expenses 2,585,665 2,548,668

2017 £

2016 £

Fees payable to the Company’s auditors for the audit of the Group

The Parent Company Financial Statements 5,600 5,300

The audit of the Company’s subsidiaries 33,300 31,400

Total audit fees 38,900 36,700

Other fees

Tax compliance 8,695 8,335

Tax advisory – 600

Other 1,580 1,580

Total auditor’s remuneration 49,175 47,215

7. Staff costs

2017 £

2016 £

Staff costs (including Directors) comprise:

Wages and salaries 1,552,916 1,426,970

Defined contribution pension cost 35,087 54,054

Social security contributions and similar taxes 166,830 153,478

Total staff costs 1,754,833 1,634,502


46


2017 £

2016 £

Directors’ remuneration

Aggregate emoluments 619,018 547,038

Company pension contributions to money purchase pension scheme 11,233 17,200

630,251 564,238

Wages and salaries and aggregate emoluments include £157,500 accrued bonus in recognition for a reduction in salary. This was unpaid as at 31 December 2017 and was subsequently converted into Ordinary Shares, along with £42,500 of previously deferred salary on 1 March 2018, and net of the release of £108,333 of deferred salary previously accrued in relation to Seamus Keating with was forgone as at 31 December 2017.

There were 2 Directors (2016: 3) in the Group’s money purchase pension scheme during the year.

The highest paid Director received emoluments for the year ended 31 December 2017 of £302,105 (31 December 2016: £152,306) which includes the unpaid £157,500 bonus. Pension contributions in relation to the highest paid Director were £nil (2016: £6,000).

2017 £

2016 £

Staff numbers: Monthly average

United Kingdom 7 8

Europe 33 31

Other 1 1

Total staff numbers 41 40

8. Finance income and expense

2017 £

2016 £

Finance income

Interest received on bank deposits 198 3,492

Total finance income 198 3,492

2017 £

2016 £

Finance expense

Interest paid on bank/other borrowings 25 67

Total finance expense 25 67


47


9. Taxation

2017 £

2016 £

Current tax expense/(credit) – –

Foreign tax

Current tax on foreign income for the year 257 –

Total tax expense 257 –

The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to profit/(loss) for the year are as follows:

2017 £

2016 £

Loss before corporation tax (621,314) (439,246)

Expected tax charge based on the average rate of United Kingdom (119,603) (87,849)

corporation tax at the domestic rate of 20.00% (2016: 20.25%)

Expenses not deductible for tax purposes 9,309 16,080

Movement on fixed asset timing differences not recognised 21,624 16,265

Movement on other timing differences not recognised (37,264) 9,641

Movement on tax losses not recognised 46,240 8,154

R&D movements 79,951 37,709

Total tax expense/(credit) 257 0

●● There is an un-provided deferred tax asset in relation to the trading losses carried forward of £2,166,920 (2016: £2,307,364) because in the opinion of the Directors, there is insufficient evidence that the asset will be recovered in the foreseeable future.

●● There are gross unrecognised losses of £12,746,586 (2016: £12,651,904) and an unrecognised asset in respect of timing differences of £54,213 (2016: £48,139).

10. Loss per share

2017 2016

Loss for the year (621,314) (439,246)

Weighted-average shares outstanding 41,593,229 41,593,229

Basic EPS (pence) (1.5) (1.1)

Diluted EPS (pence) (1.5) (1.1)

The numerators shown above represent the total loss from continuing operations for the year.

As none of the share options in place at the Statement of Financial Position date or shares after the year end were dilutive, there was no difference between the weighted-average number of shares used to calculate basic and diluted net loss per share.


48


11. Dividends

No dividends have been declared or paid within the Group during the year ending 31 December 2017 (31 December 2016: nil).

12. Property, plant and equipment

Cost

Fixtures and fittings

£

Computer equipment

£Total

£

Balance at 1 January 2016 30,515 750,312 780,827

Additions 2,604 48,636 51,240

Balance at 31 December 2016 33,119 798,948 832,067


Additions 2,079 36,125 38,204

Disposals (30,000) (30,000)


Accumulated depreciation


£

Computer equipment

£Total

£


Depreciation charge for the year 2,384 130,180 132,564



Depreciation charge for the year 775 96,454 97,229


Net book value


£

Computer equipment

£Total

£

At 31 December 2014 5,612 304,669 310,281

At 31 December 2015 1,212 256,847 258,059

At 31 December 2016 1,432 175,303 176,735

At 31 December 2017 2,736 84,974 87,710

The depreciation charge for property, plant and equipment held under a finance lease for the year was £66,000. The net carrying amount of this property, plant and equipment is:

2017 £

2016 £

Computer equipment 33,000 99,000

Total held under finance lease 33,000 99,000


49


13. Subsidiaries

Mi-Pay Group plc owns the entire share capital of Mi-Pay Limited.

Mi-Pay Limited owns the entire share capital of three subsidiaries, two of which were active and one of which was dormant for the year ended 31 December 2017.

Interest

Name Country of incorporation Nature of business 2017 2016

Mi-Pay Limited Seal House, 56 London Road, Bagshot, Surrey GU19 5HL

Payment solutions 100% 100%

Mi-Pay PTE Ltd 6 Battery Rd, #10-01 Singapore 049909


Mi-Pay Inc Office/Suite 16 Regus PLT Centre 18th Floor Philamlife Tower 8767 Paseo De Roxas, Makati City, Metro Manila Philippines


Mi-Pay (Ireland) Ltd Suite 302-304, The Capel Building, Mary’s Abbey, Dublin 7

Dormant 100% 100%

14. Trade and other receivables

2017 £

2016 £

Trade receivables 88,796 88,786

Less: Provision for impairment – (8,670)

Trade receivables – net 88,796 80,116

Client receivables 938,546 642,922

Prepayments 75,924 74,194

Other receivables 35,011 99,958

Total trade and other receivables 1,138,277 897,190


50


15. Trade and other payables

2017 £

2016 £

Trade payables 196,420 186,343

Client payables 3,283,629 3,095,022

Accruals 263,450 367,167

Deferred income 27,866 15,408

Deferred salaries 413,417 285,749

Other payables – tax and social security payments 74,300 53,395

Other payables 67,731 71,837

Total trade and other payables 4,326,813 4,074,921

The prior year comparatives in respect of Trade and other payables have been re-analysed to seperately present deferred salaries, which were included in other payables – tax and social security payments in the prior year. This is considered to be a more accurate presentation.

16. Loans and borrowings (secured and held at amortised cost)

Carrying value 2017

£

Carrying value 2016

£

Current

Finance lease creditor 33,000 66,000

Non-Current

Finance lease creditor 20 32,915

Total loans and borrowings 33,020 98,915

The finance lease is secured against the funded asset.

Maturity of debt:

Finance leases

Finance leases 2017

£

Finance leases 2016

£

Not later than one year 33,000 66,000

Later than one year and not later than five years 20 32,915

Total finance leases 33,020 98,915

17. Pensions

The Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in an independently administered fund. The pension charge for the year ended 31 December 2017 amounted to £35,087 (31 December 2016: £54,054).


51


18. Share capital and premium

NoteNumber of

sharesShare capital

£Share premium

£

At 1 January 2016 41,593,229 4,159,324 1,403,923

At 31 December 2016 41,593,229 4,159,324 1,403,923

At 1 January 2017 41,593,229 4,159,324 1,403,923

At 31 December 2017 41,593,229 4,159,324 1,403,923

19. Capital and reserves

Share capitalShare capital represents the nominal value of share capital subscribed for.

Share premiumShare premium represents amounts subscribed for share capital in excess of nominal value less the related costs of share issues.

Share options reserveThis represents equity settled share options awarded to employees. The fair value of the share options at grant date is calculated using the Black-Scholes formula and charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the vesting period, with a corresponding increase in equity.

Reverse acquisition reserveOn 29 April 2014, the Parent Company Mi-Pay Group plc (formerly AimShell Acquisitions plc) acquired the entire £729,439 share capital of Mi-Pay Limited by way of a share for share exchange.

On 29 April 2014, Mi-Pay Group plc issued 30.04032277 shares for each of the ordinary £1 shares of Mi-Pay Limited. All of the Mi-Pay Limited shareholders exchanged their shares in Mi-Pay Group plc. Therefore, Mi-Pay Group plc issued 21,912,583 shares for all 729,439 shares of Mi-Pay Limited.

On 29 April 2014, the quoted share price of Mi-Pay Group plc was £0.4107 and therefore this valued the investment in Mi-Pay Limited at £9,000,000.

The legal subsidiary, Mi-Pay Limited, was treated as the accounting acquirer and the legal Parent Company, AimShell Acquisitions plc, was treated as the accounting subsidiary. The difference in the fair value of the shares deemed to have been issued by Mi-Pay Limited and the fair value of AimShell Acquisitions plc identifiable net assets represents a payment for a service of a stock exchange listing for its shares and has been charged to the Statement of Comprehensive Income, as a share based payment (£930,536).


52


The reverse acquisition reserve represents the balance that arose from the reverse takeover acquisition on 29 April 2014. The balance of £6,920,115 is made up as follows:

Account £

Mi-Pay Limited share capital 729,439

Mi-Pay Limited share premium 11,959,151

AimShell Acquisitions plc retained earnings 2,300,989

Investment (9,000,000)

Deemed share-based payment 930,536

Reverse acquisition reserve 6,920,115

Merger reserveThe merger reserve has been prepared in accordance with reverse takeover accounting principles and section 612 of the 2006 Companies Act.

The £6,808,742 merger reserve represents the excess of the fair value of the investment in Mi-Pay Limited of £9,000,000 less the nominal value of the shares issued as consideration for this of £2,191,258 (21,912,583 ordinary 10p shares).

Retained deficitThe retained deficit represents cumulative net gains and losses recognised in the Consolidated Statement of Comprehensive Income.

20. Share-based payments

The Company operates two equity-settled share-based remuneration (share options) schemes for employees: a United Kingdom tax authority approved EMI share options scheme and an unapproved share option scheme. The granting of options to employees in 2014 was decided upon by the Company and no legal or constructive obligation exists to grant further options in future years.

The only vesting condition for employees awarded share options to adhere to is that the individual remains an employee of the Company over the vesting period of 18 months from the date of the grant. The contractual life of the options is ten years and there are no cash settlement alternatives.

3,988,425 share options were awarded in total to seven individuals (Executive Directors/Non-Executive Directors/senior management) on 29 April 2014, with a vesting date of 28 October 2015. The fair value of an option at grant date was calculated to be 16.6 pence.

The key assumptions used in calculating the share-based payments charge are as follows:

●● The fair value of the options at grant date, based on the share price at grant date and adjusted for risk and volatility.

●● The likely vesting period based on the life of the options.


53


Three members of senior management, who collectively held 225,000 share options, left during the prior year and before the vesting date of 28 October 2015. Consequently, their built up share options reserve was reversed, with a corresponding credit to the Statement of Comprehensive Income totalling £29,913. None of the remaining share option holders have exercised their share options post the exercisable vesting date of 28 October 2015 and before 31 December 2016 year end, resulting in a share option reserve as at 31 December 2017 of £624,729.

At 31 December 2017 the outstanding share options are shown below:

Date of grantExercise price

(£)Number of

sharesDate from which

exercisable

Life of the options:

Expiry date

Approved EMI scheme 29/04/2014 0.41 1,219,506 28/10/2015 28/04/2024

Unapproved scheme 29/04/2014 0.41 2,543,919 28/10/2015 28/04/2024

Total Share Options 3,763,425

The movement in the number of share options in the year is set out below:

Weighted-average

exercise price (£)

31/12/17

No. Year ended

31/12/17

Weighted-average

exercise price (£)

31/12/16

No. Year ended

31/12/16

Brought forward at 1 January 0.41 3,763,425 0.41 3,763,425

Lapsed/surrendered during the year – – – –

Granted during the year – – – –

Carried forward at 31 December 0.41 3,763,425 0.41 3,763,425

Exercisable at 31 December 0.41 3,763,425 0.41 3,763,425

On 1 March 2018 3,750,000 new share options with an exercise price of 13 pence per share. All existing share options were cancelled. This may result in future share based payment charges to the Statement of Comprehensive Income.


54


21. Capital Commitments

Capital commitmentAt 31 December 2017 the Group had capital commitments as follows:

2017 2016

Contracted for but not provided in these Financial Statements 261,584 –

Commitments under operating leaseAt 31 December 2017 the Group had minimum lease payments under non-cancellable operating leases as follows:

2017 2016

Not later than 1 year 14,334 8,106

Later that 1 year and not later than 5 years 114,672 –

Later than 5 years 14,334 –

143,340 8,106

22. Related party transactions

Remuneration of key management personnelIt is considered that the statutory Directors are also the key management personnel of the Group. Details of their remuneration under IAS 24 is set out below:

2017 £

2016 £

Short-term employee benefits 619,018 547,038

Post-employment benefits 11,233 17,200

National insurance contributions 33,664 39,837

663,915 604,075


55


Deferred Directors’ RemunerationAs at 31 December 2017 the amounts deferred and owing to current and former Directors is as follows:

A Atwell: £45,000 (31 December 2016: £26,833)

J Beale: £49,667 (31 December 2016: £26,833)

M Dickerson: £200,000 (31 December 2016: £28,750)

S Keating: £nil (31 December 2016: £95,833)

E Lascelles: £32,500 (31 December 2016: £28,750)

M Stone: £65,000 (31 December 2016: £57,500)

G Breeze: £21,250 (31 December 2016: £21,250)

These amounts have been fully charged to administrative expenses in the Consolidated Statement of Comprehensive Income and accrued as trade and other payables in the consolidated statement of financial position.

On 1 March 2018 the deferred amounts deferred and owing to A Atwell, M Dickerson and E Lascelles were converted into new Ordinary Shares, reducing the amounts so owed by £277,500.

During the year, deferred salary due to Seamus Keating of £108,333 was waived. This resulted in an equivalent credit to the consolidated statement of comprehensive income.

23. Subsequent eventsOn 1 March 2018 Mi-Pay placed 4,141,048 new ordinary shares of 10p nominal value each (‘Placing Shares’) at a placing price of 12.5p per share (the “Placing Price”) (the ‘Placing’).



2. The conversion to Placing Shares of £257,631 deferred salaries previously accrued that had not been paid to Directors of Mi-Pay, which has the beneficial effect of reducing Mi-Pay’s liabilities. This included £200,000 of previously accrued emoluments due to Michael Dickerson, £25,131 due to Allen Atwell and £32,000 due to Albion Capital.

The Placing Shares rank pari passu with the Company’s existing ordinary shares of 10 pence each. The Placing Shares, were admitted to trading on AIM on 6 March 2018.


Total voting rights Following the issue of the Placing Shares, the number of Ordinary Shares in the Company in issue increased to 45,734,277. There are no ordinary shares held in treasury. Therefore, in accordance with the FCA’s Disclosure and Transparency Rule 5.6.1, the Company confirms that following Admission, the total number of voting rights in the Company will be 45,734,277.



56

Parent Company Balance SheetFor the year ended 31 December 2017

Note31/12/17

£31/12/16

£

Fixed assetsTangible assets 5 – 185 Investments in subsidiaries 6 2,191,258 2,191,258

2,191,258 2,191,443

Current assetsDebtors: due within one year 7 5,297,096 4,888,366 Cash at bank and in hand 282,524 677,456

5,579,620 5,565,822

Creditors: amounts falling due within one year 8 (629,832) (538,078)

Net current assets 4,949,788 5,027,744

Total assets less current liabilities 7,141,046 7,219,187

Creditors: amounts falling due after more than one year – –

Net assets 7,141,046 7,219,187

Capital and reserves 9-10Share capital 4,159,324 4,159,324 Share premium account 1,403,923 1,403,923 Share options reserve 624,729 624,729 Retained earnings 953,070 1,031,211

Shareholders’ funds 7,141,046 7,219,187

The Company’s loss for the year ended 31 December 2017 was £78,141 (2016 loss: £146,844).

The Financial Statements on pages 57 to 65 were approved and authorised for issue by the Board of Directors on 16 April 2017 and were signed on its behalf by:

John Nicholas Beale Chief Executive Officer

Company number: 05550853

Deferred Directors’ RemunerationAs at 31 December 2017 the amounts deferred and owing to current and former Directors is as follows:


J Beale: £49,667 (31 December 2016: £26,833)


S Keating: £nil (31 December 2016: £95,833)


M Stone: £65,000 (31 December 2016: £57,500)


These amounts have been fully charged to administrative expenses in the Consolidated Statement of Comprehensive Income and accrued as trade and other payables in the consolidated statement of financial position.

On 1 March 2018 the deferred amounts deferred and owing to A Atwell, M Dickerson and E Lascelles were converted into new Ordinary Shares, reducing the amounts so owed by £277,500.


23. Subsequent eventsOn 1 March 2018 Mi-Pay placed 4,141,048 new ordinary shares of 10p nominal value each (‘Placing Shares’) at a placing price of 12.5p per share (the “Placing Price”) (the ‘Placing’).



2. The conversion to Placing Shares of £257,631 deferred salaries previously accrued that had not been paid to Directors of Mi-Pay, which has the beneficial effect of reducing Mi-Pay’s liabilities. This included £200,000 of previously accrued emoluments due to Michael Dickerson, £25,131 due to Allen Atwell and £32,000 due to Albion Capital.

The Placing Shares rank pari passu with the Company’s existing ordinary shares of 10 pence each. The Placing Shares, were admitted to trading on AIM on 6 March 2018.


Total voting rights Following the issue of the Placing Shares, the number of Ordinary Shares in the Company in issue increased to 45,734,277. There are no ordinary shares held in treasury. Therefore, in accordance with the FCA’s Disclosure and Transparency Rule 5.6.1, the Company confirms that following Admission, the total number of voting rights in the Company will be 45,734,277.




57


Parent Company Statement of Changes in EquityFor the year ended 31 December 2017

Share capital

£

Share premium

£


£

Retained earnings

£Total

£

At 1 January 2017 4,159,324 1,403,923 624,729 1,031,211 7,219,187

Total comprehensive loss for the year – – – (78,141) (78,141)

At 31 December 2017 4,159,324 1,403,923 624,729 953,070 7,141,046


58


Parent Company Statement of Changes in EquityFor the year ended 31 December 2016

Share capital

£

Share premium

£


£

Retained earnings

£Total

£

At 1 January 2016 4,159,324 1,403,923 624,729 1,178,055 7,366,031

Total comprehensive loss for the year – – – (146,844) (146,844)

At 31 December 2016 4,159,324 1,403,923 624,729 1,031,211 7,219,187


59

Notes to the Parent Company Financial Statements

1. Accounting policies

Basis of preparationThe Parent Company Financial Statements have been prepared in accordance with Financial Reporting Standard 100 Application of Financial Reporting Requirements (‘FRS 100’) and Financial Reporting Standard 101 Reduced Disclosure Framework (‘FRS 101’).

The Financial Statements have been prepared on a historical cost basis.

Disclosure exemptions adoptedIn preparing these Financial Statements the Company has taken advantage of all disclosure exemptions conferred by FRS 101. Therefore these Financial Statements do not include:

●● Certain comparative information as otherwise required by EU endorsed IFRS;

●● Certain disclosures regarding the Company’s capital;

●● A statement of cash flows;

●● The effect of future accounting standards not yet adopted;

●● The disclosure of the remuneration of key management personnel; and

●● Disclosure of related party transactions with other wholly-owned members of Mi-Pay Group plc.

In addition, and in accordance with FRS 101, further disclosure exemptions have been adopted because equivalent disclosures are included in the Company’s Consolidated Financial Statements. These Financial Statements do not include certain disclosures in respect of:

●● Share based payments; and

●● Financial instruments (other than certain disclosures required as a result of recording financial instruments at fair value).

The following accounting policies have been applied consistently in dealing with items which are considered material to the Company’s Financial Statements.

Tangible assetsTangible assets are initially recognised at cost and subsequently measured under the ‘cost model’ at cost less accumulated depreciation. Cost comprises the purchase price plus any directly attributable costs. If required, cost will also include the estimated present value of any future unavoidable costs such as dismantling and removing items, with the corresponding liability recognised within provisions.

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset. The gain or loss is recognised in the Consolidated Statement of Comprehensive Income.

DepreciationDepreciation is provided at the following annual rates to write off each fixed tangible asset over its estimated useful life:

Computer equipment 33% Straight-line basis.

It is the policy of the Parent Company to time apportion depreciation in the first year for fixed tangible asset additions.

Investments in subsidiary undertakingsInvestments in subsidiary undertakings where the parent has control are stated at cost less any provisions for impairment. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.


60

Notes to the Parent Company Financial StatementscontinuedFinancial instrumentsFinancial assets and financial liabilities are recognised in the Statement of Financial Position when the Company becomes party to the contractual provisions of the instrument.

Financial assets are de-recognised when the contractual rights to the cash flows from the financial assets expire or when the contractual rights to those assets are transferred.

Financial liabilities are de-recognised when the obligation specified in the contract is discharged, cancelled or expired.

Both financial assets and financial liabilities are initially recognised at fair value and thereafter at amortised cost.

The Company assesses at each year end date whether there is objective evidence that a financial asset or a group of financial assets is impaired.

Share-based paymentThe Company issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of the grant. The fair value determined at the grant date of the equity-settled share-based payment is expensed on a straight-line basis over the vesting period. At each reporting date, the Company revises its estimate of the number of share options expected to vest as a result of the effect of non-market vesting conditions. The impact of the revision of the original estimate, if any, is recognised in the Consolidated Statement of Comprehensive Income with a corresponding adjustment to equity so that the cumulative amount recognised in equity over the vesting period is based on the number of share options that eventually vest.

Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

TaxationThe current UK Corporation Tax charge is based on the profit or loss for the year, plus any under/over provision relating to the previous year and takes into account taxation deferred. UK Corporation Tax is measured at amounts expected to be paid using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the statement of financial position differs from its tax base, except for differences arising on:

●● The initial recognition of goodwill;

●● The initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

●● Investments in subsidiaries and jointly controlled entities where the Company is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the differences can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).


61

Notes to the Parent Company Financial Statementscontinued2. Critical accounting estimates and judgements

The Company makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are discussed below.

The Company holds a significant investment in its subsidiary, Mi-Pay Limited, of £2,191,258 (2016: £2,191,258), and a receivables balance with this subsidiary of £5,286,798 (2016: £4,878,573). In assessing the carrying value of this asset for impairment, the Directors have exercised judgement in estimating its recoverable amount, including the projected future cash flows and discount rate applied.

In assessing the value in use of the subsidiary, Management have considered the potential impact of possible changes in the main assumptions used, and have calculated that a 28% shortfall in projected growth in future cash flows would cause the carrying value to exceed the recoverable amount.

3. Auditor remuneration

Fees paid to the Company’s auditor, BDO LLP, and its associates for services other than the statutory audit of the Company are not disclosed in Mi-Pay Group plc’s own accounts since the consolidated accounts of Mi-Pay Group plc are required to disclose non-audit fees on a consolidated basis.

4. Staff costs

Staff costs are entirely related to the remuneration of the 6 Directors (2016: 6) and are included in note 7 of the Group accounts.


62

Notes to the Parent Company Financial Statementscontinued5. Tangible assets

Computer equipment

£Total

£

Cost

Balance at 1 January and 31 December 2017 950 950

Accumulated depreciation

Balance at 1 January 2017 765 765

Depreciation charge for the year 185 185

Balance at 31 December 2017 950 950

Net book value

At 31 December 2017 – –

At 31 December 2016 185 185

6. Investment in subsidiary undertakings

Total £

Net carrying amount at 1 January 2017 and 31 December 2017

At 31 December 2017, the Company has an investment in the following subsidiary undertakings as follows:

Name of company Country of incorporationProportion of voting rights and ordinary share capital held Nature of business

Mi-Pay Limited Seal House, 56 London Road, Bagshot, Surrey GU19 5HL

100% Payment solutions

Mi-Pay PTE Ltd 6 Battery Rd, #10-01 Singapore 049909


Mi-Pay Inc Office/Suite 16 Regus PLT Centre 18th Floor Philamlife Tower 8767 Paseo De Roxas, Makati City, Metro Manila Philippines


Mi-Pay (Ireland) Ltd Suite 302-304, The Capel Building, Mary’s Abbey, Dublin 7

100% Dormant

Mi-Pay Middle East FZE-LLC, a dormant subsidiary of Mi-Pay Limited as disclosed in the 2015 Financial Statements, was liquidated during the year and does not appear as a subsidiary for the year ended 31 December 2017.

Mi-Pay Group plc owns the entire issued share capital of Mi-Pay Limited.

Mi-Pay Limited owns the entire issued share capital of three subsidiaries, two of which were active and one of which was dormant, for the year ended 31 December 2017.


63

Notes to the Parent Company Financial Statementscontinued7. Debtors

2017 £

2016 £

Amounts due from Group undertakings 5,286,798 4,878,573

Prepayments 10,298 9,793

Total 5,297,096 4,888,366

8. Creditors: amounts falling due within one year

2017 £

2016 £

Trade creditors 77,839 57,083

Other taxation and social security 426,181 321,286

Accruals and deferred income 125,812 159,709

Total 629,832 538,078

9. Share capital

Authorised Authorised

2017 Number

2017 £

2016 Number

2016 £

Ordinary shares of 10p each 41,593,229 4,159,324 41,593,229 4,159,324

Allotted, called up and fully paid Allotted, called up and fully paid

2017 Number

2017 £

2016 Number

2016 £

Ordinary shares of 10p each 41,593,229 4,159,324 41,593,229 4,159,324

No shares have been issued in the year (2016: nil).

Details of the Company’s share option schemes can be found in note 20 to the Group accounts on page 53.

10. Capital and reserves

Share capitalShare capital represents the nominal value of share capital subscribed for.

Share premiumShare premium represents amounts subscribed for share capital in excess of nominal value less the related costs of share issues.


64

Share options reserveThis represents equity settled share options awarded to employees. The fair value of the share options at grant date is calculated using the Black-Scholes formula and charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the vesting period, with a corresponding increase in equity.

Retained earningsThe retained earnings represent cumulative net gains and losses recognised in the Consolidated Statement of Comprehensive Income.

11. Related Party Transactions

Deferred Directors’ RemunerationFrom September 2014 it was decided by the Board to introduce a 10% reduction of Executive Directors salary and 100% of Non-Executive Directors salary/fees and to defer these amounts. It was decided by the Board to pay deferred salary/fee amounts accumulated from September 2014 to January 2015 in February 2015, to specifically purchase shares as part of the 7,608,696 placing shares issued in March 2015. From February 2015 to the year end 31 December 2016, the Board continued to impose the 10% deferral of Executive and 100% deferral of Non-Executive Directors salary/fees. As at 31 December 2017 the amounts deferred and owing to current and former Directors is as follows:


J Beale: £49,667 (31 December 2016: £26,833)


S Keating: £Nil (31 December 2016: £95,833)


M Stone: £65,000 (31 December 2016: £57,500)


These amounts have been fully charged to administrative expenses in the Consolidated Statement of Comprehensive Income and accrued as trade and other payables in the Consolidated Statement of Financial Position.

On 1 March 2018 the deferred amounts due to A Atwell, M Dickerson and E Lascelles were converted into new Ordinary Shares reduced the amounts due by £277,500.


Notes to the Parent Company Financial Statementscontinued


65


66

Company Information

Directors Seamus Declan Keating (Non-Executive Director) Edward William Anthony Lascelles (Non-Executive Director) Michael Clay Dickerson (Executive Chairman) John Nicholas Beale (Chief Executive Officer) Allen William Atwell (Non-Executive Director and Technology Consultant)

Company Secretary John Nicholas Beale

Registered office Seal House 56 London Road Bagshot Surrey GU19 5HL

Company number 5550853

Nominated adviser and broker Zeus Capital Limited 10 Old Burlington Street London W1S 3AG

Financial PR IFC Advisory 15 Bishopsgate London EC2N 3AR

Solicitors Pinsent Masons 30 Crown Place Earl Street London EC2A 4ES

Registrars Link Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU

Auditors BDO LLP Arcadia House Maritime Walk Ocean Village Southampton SO14 3TL


CONTENTS

Introduction Mi-Pay in Numbers Page 1

2017 Highlights Page 2

Value Proposition Page 4

What We Do Page 5

Our Market Page 6

Strategic Report Chairman’s Statement Page 8

CEO Review of Operations Page 9

Financial Review Page 12

Corporate Governance Principal Risks and Uncertainties Page 16

Board of Directors Page 17

Report of the Directors Page 18

Corporate Governance Statement Page 20

Directors’ Remuneration Report Page 22

Financials Statement of Directors’ Responsibilities Page 25

Independent Auditor’s Report Page 26

Consolidated Statement of Comprehensive Income Page 29

Consolidated Statement of Financial Position Page 30

Consolidated Statement of Cash Flows Page 31

Consolidated Statement of Changes in Equity Page 32

Notes to the Financial Statements Page 34

Parent Company Balance Sheet Page 57

Parent Company Statement of Changes in Equity Page 58

Notes to the Parent Company Financial Statements Page 60

Company Information Page 66

For further information, please visit www.Mi-Pay.com or contact:

Mi-Pay Group plc IFC Advisory Zeus Capital

Tel: +44 20 7112 2129 Tel: +44 20 3934 6630 Tel: +44 161 831 1512

Michael Dickerson, Chairman Graham Herring Nick Cowles

John Beale, CEO Tim Metcalfe Jamie Peel

Annual Report and Financial

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