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Blue Star Capital Plc

Blue Star Capital Main portfolio companies making solid progress

Blue Star Capital plc (LON:BLU), the investing company with a focus on esports, technology and its applications within media and gaming, today announced its final results for the year ended 30 September 2019.

Highlights:

·     The value of our key investments has grown marginally from £5m to £5.1m.

·    The Company incurred a loss for the period of £684,964 compared to a profit for the previous period of £1,471,319. The main factor behind this difference is the significant uplift achieved in SatoshiPay valuation in the prior year and the write off of the historic investment in DTL. The operating expenses of the Company remain under strict control and were lower in the current year. The cash position of the Company at 30 September 2019 was £120,828 compared with £31,416 in the previous period.

·     Post year end the Company placed 900m shares at 0.1p raising £900,000 before expenses and invested an equivalent amount in a portfolio of six esport businesses. 

The Annual Report and notice of Annual General Meeting (“AGM”) will be posted to shareholders shortly and will be available to view on the Company’s website http://www.bluestarcapital.co.uk

Attention is drawn by the independent auditor to note 1 of the financial statements (included below), which indicates that the Company is reliant on future fund raisings to continue its activities as budgeted. Since the financial year-end, the Company has raised £900,000 before expenses and subsequently made investments in six esport companies.

The AGM will be held at the offices of Cairn Financial Advisers LLP, Cheyne House, Crown Court, 62-63 Cheapside, London, EC2V 6AX on 31 March 2020 at 12 p.m.

Tony Fabrizi Chief Executive Officer of Blue Star Capital plc, commented:

“The last year was one of consolidation with our main portfolio companies making solid progress in developing their businesses. Post year end, we have invested in a portfolio of esports businesses which offer significant potential and both SatoshiPay and Sthaler have more recently announced key strategic developments which offer great hope for the future. Overall, we are pleased with recent progress and the Board views the future with confidence.”

Chairman’s Statement

2019 has been a year of consolidation as the Company came to terms with the disappointment and costs associated with the termination of the proposed reverse take-over of SatoshiPay in January 2019. An unfortunate consequence of the transaction terminating was that, as the Company had incurred significant transaction fees, it was forced to raise equity on two separate occasions to fund ongoing operations. Despite these setbacks, the Company’s portfolio has continued to develop with both SatoshiPay and Sthaler making good progress and post year end the Company invested in a portfolio of six esports businesses which offer significant potential.

Finally, the legacy investment in Disruptive Tech Limited (“DTL”) which was acquired in 2007, well before the current Board were in place, has been written off and this has resulted in a further write down in the second half of the year of £300,000.

Financials

The Company reported a loss for the period of £684,964 compared to a profit of £1.471,319 in the corresponding period to 30 September 2018. This reflects the net revaluation of the portfolio with the significant gain on SatoshiPay achieved last year representing the major difference.

Net assets have decreased to £5,209,377 at 30 September 2019, changing from £5,459,581 at 30 September 2018, reflecting the write down in DTL. Blue Star’s cash position at 30 September 2019 was £120,808 compared to a balance of £31,416 at 30 September 2018. Post year end, the Company raised £900,000 before expenses through a further issue of equity in November 2019 and invested a similar amount in the esports portfolio of companies.

Portfolio Review

SatoshiPay 

Company Description

SatoshiPay is a fintech company supplying payment and money transfer infrastructure based on blockchain technology to digital industries and globally operating SMEs. SatoshiPay’s micropayment infrastructure provides a frictionless online payment service, allowing digital content and service providers to monetise their products both efficiently and at a low cost across vendor platforms. The technology is offered both through in-house built products and as an application programming interface (“API”) upon which third party developers may build their own solutions.

The vision for the future of SatoshiPay’s micropayment solution is a fast, secure, cross-platform and login-free global peer-to-peer payment system for the commercial internet which transforms the mainstream payment market and facilitates fair, transparent value exchange between any internet-connected device.

To further advance SatoshiPay’s mission to connect the world through instant payments, the company recently announced SatoshiPay B2B, a cross-border payments service for businesses.

SatoshiPay Technology

The SatoshiPay technology is designed to overcome existing issues with online payments. In the field of micropayments, it is addressing issues that have prevented them from achieving mainstream adoption, primarily the high level of transaction costs driven by existing bank infrastructure that makes such levels of payments commercially unfeasible.

The foundation of SatoshiPay’s platform is built upon blockchain technology. A blockchain is a decentralised database of transactions that exists on multiple computers at the same time. It is a record keeping technology that, in simple terms, is conceptually similar to a spreadsheet that is duplicated thousands of times across a network of computers and that is constantly updated.

The advantages of blockchain are that it is, by its inherent set-up, independent, transparent and secure. Its security comes from the fact that its data cannot be altered, it cannot be controlled by any single entity and has no single point of failure that can be exploited by hackers. Encryption technology allows individuals’ digital assets to be kept anonymous and protected. Further, removing intermediaries from the process allows transactions on a blockchain to be carried out faster and cheaper than traditional methods.

SatoshiPay’s payment platform is based on the Stellar blockchain network, a distributed ledger technology, and uses Stellar lumens (XLM) as the underlying settlement token.

Micropayments and the SatoshiPay Solution

Existing issues relating to micropayments include financial costs (transaction costs being high in relation to the level of payment) and usability costs (cumbersome, multi-step online payment mechanisms for the end user).

SatoshiPay’s solution is able to overcome these issues by offering a P2P payment method which does not require download, installation or log-in for the end user, and that is transferable across vendor platforms and facilitates instant transactions of very small amounts. This flexible, low-cost solution allows for pricing strategies at a more granular level, and the board of Blue Star believe that it has many potential applications.

Potential Applications of SatoshiPay

The directors of SatoshiPay believe that its micropayment technology can be employed in a range of sectors. Wherever instant, login-free, granular payments open up the potential to improve existing revenue streams or generate new ones for online publishers and content providers, micropayments and the SatoshiPay technology have a potential application. Examples include purchase of digital goods, direct streaming of content, cross-border payments, as a settlement mechanism for machine-to-machine transactions (i.e. toll payments) and in-app/game closed-loop systems.

Recent developments at SatoshiPay

During the year, SatoshiPay raised approximately £2m at a £15m pre-money valuation from investors including Börsenmedien AG (Germany), Danny Masters (UK), Aeternity Anstalt (Liechtenstein), Aergo Limited (Hong Kong) and Neofin Hamburg GmbH (Germany). In addition to the fundraise, SatoshiPay was granted £360k in cash from the HMRC R&D tax credits fund.

The two independent blockchain organisations, Aeternity and Aergo, partnering with SatoshiPay lead the development of their respective networks and developer ecosystems, with focus on smart contract capabilities and scalability. Their investment is part of SatoshiPay’s strategy to support multiple blockchain ledgers in the future, in addition to its current default ledger Stellar.

SatoshiPay’s leadership in the Stellar blockchain ecosystem has been extended by adding infrastructure nodes containing the full ledger history to the Stellar network and by releasing “Solar”, an open-source wallet application for Stellar. Solar is available on all major platforms including Android, iOS, Windows and MacOS, and its features include easy access to the network’s decentralised trading and multi-signature account capabilities.

The company’s angel investor, Danny Masters, was appointed as Non-executive Director on 18 April 2019. His extensive experience in blockchain-based financial projects makes his profile a very valuable addition to SatoshiPay.

On 31 January 2019, SatoshiPay and Axel Springer SE announced a joint offering, enabling users to pay for content with the digital SatoshiPay wallet. Powered by blockchain technology, the wallet will be used to send direct payments from the user’s device to the publisher without an intermediary.

On 9 December 2019, SatoshiPay announced its move into the international B2B money transfer space. Using its existing technology platform, SatoshiPay is currently developing a service allowing companies to instantly transfer funds globally, generating recurring revenues and processing high transaction volumes by facilitating macro-payments. The SatoshiPay B2B service aims to solve issues typically connected with cross-border payments, such as delayed transfers, high transaction and forex costs, and lack of transparency, by leveraging the Stellar network and its connected financial services institutions across the globe.

Blue Star’s holding in SatoshiPay 

The Company’s shareholding in SatoshiPay was acquired for £1,876,788 and represents 27.9 per cent, of SatoshiPay as at 30 September 2019. The investment has a carrying value of £4,754,201.

Sthaler Limited (“Sthaler”) 

Company Description 

In June 2015 the Company invested £50,000 in Sthaler Limited, an early stage identity and payments technology business which enables a consumer to identify themselves and pay using just their finger at retail points of sale.

Sthaler was founded in 2012 by Nick Dryden when he introduced a biometric identity authentication and payment platform into the UK live entertainment industry with British Telecom and Bancorp / Elavon. The system, named Fingopay, uses a biometric called VeinID which instantly recognises an individual through the unique pattern of veins inside each finger.  Also in 2012, the Company entered a long-term partnership with Hitachi for exclusive use of Fingopay across many areas of the globe. Sthaler also has a patent pending 2016 VeinID™ “cloud matching engine manager” to maintain matching speeds as its database scale.

During the period of 2016-2019 the Company conducted several successful authentication security trials with Hitachi, Visa, Mastercard, Worldpay and Ernst and Young, all funded by these companies and all of which produced revenues to these companies. Such trials led the deployment of Fingopay to various UK consumer and sports establishments. Also, in 2019 Fingopay was deployed in Denmark with Nets and Dankort, the Danish national debit card scheme. In 2020, Fingopay was piloted successfully by the UK’s Open Banking Authority with the Financial Conduct Authority to introduce a new fraud free bank-to-bank account payment scheme.

Fingopay wants to be a component of digital cities, which aspire to be international hubs for technology, digital and creative industries. One of those cities is Manchester, the Company’s oldest market where management has invested up to 5 years to build relationships with key decision makers who are supporting the ‘city-wide’ Identity Platform to support innovation, job creation and social inclusion targets

The largest market the company is targeting is Egypt, with a population of 100 million. In 2019, the Chairman of Egypt Post approached the Company to build a demo as a solution for citizens to access digital government and financial services. The Egypt Post Chairman then presented Fingopay to Egypt’s President El Sisi. Approval at this level led to the project being passed to the Central Bank of Egypt (CBoE) which oversees the national biometric identity project. Fingopay is now being piloted in Egypt by the banking industry to authenticate payment transactions and by the Ministry of Supply to authenticate government food subsidies. The Egyptian approach came from global television coverage of Fingopay including CNBC, BBC, Al Jazeera and Fox, to name just a few.

In addition, Fingopay has won the following awards this year:

·   The Fintech Power 50 – Most influential, innovative and powerful figures in the Global Fintech industry 2020

·   Card & Payment Industry Awards – Industry Innovation of the Year 2020

·   Fast Company – Top 50 World’s most Innovative Companies 2020

Blue Star’s Shareholding in Sthaler 

The Company’s shareholding in Sthaler is 0.9 per cent at 30 September 2019 and is valued on the basis of Sthaler’s last completed fund raise at approximately £350,000.

Disruptive Tech Limited (“DTL”) 

Blue Star invested £300,000 in DTL in 2007. Post the Company’s original investment, DTL raised money at significantly higher valuations and as a result it’s carrying value had risen to £1.6 million at 30 September 2017. Unfortunately, DTL’s key investments did not perform as expected and as a result DTL’s performance has declined and the investment had been written down to cost at 30 September 2018. Having consulted in depth with DTL and the Company’s advisors, the Directors have decided it now prudent to write off the investment in full.

Esports portfolio

Background on Esports

Esports are electronic sports, usually in the form of competitions, using video or electronic games for multiple professional players and watched at a physical venue or through digital media. The Esports market is large and experiencing significant growth. By way of illustration, in 2018 the market was estimated at approximately 395 million viewers and is projected to reach around 640 million viewers by 2022. This is expected to result in revenues growing over the same period from $885 million to $1.80 billion.

As Esports are now one of the most popular spectator sports, its increasing global following has enabled esports businesses to commercialise their activities through sponsorship, merchandising, licensing, broadcasting and tournaments. Given the growth in the market and the diverse array of commercial opportunities, the Board believes that esports will eventually constitute a significant proportion of the global sports industry.

Esports portfolio and investment approach

During the second half of last year, the Board was presented with an opportunity to invest in a number of esports businesses and given the early stage nature of these businesses the Board decided it appropriate to adopt a portfolio approach. It is the intention of each of the six Esports businesses in which the Company has invested to create or acquire Esport businesses, such as a competitive esports franchise, a platform on which Esports competitors gather to compete, or the creation of Esports tournaments.  Each investee company will monetize engagement of the growing number of Esport participants, fans and sponsors, generating revenue from a variety of sources, including, tournament winnings, digital marketing opportunities, sponsorship, merchandise, platform fees, and promotional tours and events. Each of the companies is targeting a different region globally for financing and launch, but all will attempt to become global players.

Further details on each of the six companies Blue Star has invested in are shown below:

The Lords Esports plc, is a UK based company with a focus on the European esports market. The Lords acquired Cyqiq Gaming at the end of 2019 and is expected to launch the UK’s most recognizable franchise in the first half of 2020. Blue Star’s shareholding in The Lords is currently just over 11%.

Googly Esports plc is an Indian based company with a focus on the Indian Esports market. The company is aiming to become the largest and most respected professional esports events/media company in India, playing in the intersection between traditional sports (ex: cricket) and Esports. Blue Star’s shareholding in Googly is currently 11%.

Dynasty Esports PTE ltd is based in Singapore and is focussed on monetizing grass roots Esports participation across South East Asia.  It will enable participation through a combination of a full featured online portal and in person leagues and events at the local, regional and country wide level. Blue Star’s shareholding in Dynasty is currently 13.7%.

The Drops Esports Inc is a Canadian based company and has already announced a proposed transaction with FibreSources Corporation. If the transaction proceeds the enlarged business is expected to list on the Canadian Securities Exchange. Blue Star’s shareholding in The Drops prior to the transaction was 18.6%. Further details will be announced in due course.

Diemens Esports PTY ltd is an Australian company which has already announced a potential merger with Critical Hit Entertainment. Blue star’s shareholding in Diemens prior to the proposed transaction was 13.3%. Further details will be announced in due course

The Dibs Esports Corp is a US business based in Los Angeles. The company will focus on empowering female Esports players and has the goal of creating the largest female network of Esports in the North American esports market.  Blue Star’s shareholding in The Dibs is currently 13.7%.

Outlook

The Board believes the Company’s portfolio, enhanced by the recent esports investments, has significant potential. SatoshiPay and Sthaler have been developing their businesses and are on the verge of commercialisation. Such developments should lead to access to capital and the creation of shareholder value for the Company’s shareholders. These historic investments are now complimented by an exciting portfolio of esports businesses which although early stage, are already showing signs of capital appreciation. The Board expects to see significant activity within this portfolio in the remainder of 2020. The appointment of Sean King to the Board as a non-executive director in January and Derek Lew as non-executive Chairman in November 2019 brings valuable knowledge and experience. Overall, the Directors believe the Company is at an exciting stage in its development and the Board views the future outlook with confidence.

Derek Lew

Chairman

4 March 2020

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.