Final Results

RNS Number : 3107X
Microsaic Systems plc
04 May 2021
 

04 May 2021

 

Microsaic Systems plc

 

("Microsaic" or the "Company")

 

Final Results for the year ended 31 December 2020

 

Microsaic Systems plc (AIM: MSYS), the developer of point of need mass spectrometry ("MS") instruments, is pleased to announce it audited financial results for the year ended 31 December 2020. Key extracts from the Company's Annual Report and Accounts ("2020 Annual Report") are included at the end of this announcement and the 2020 Annual Report is available on the Company's website at www.microsaic.com.

 

Highlights

· Total 2020 revenue of £0.2m (2019: £0.9m);

· Other operating income of £97k (2019: Nil);

· Operating expenses reduced to £2.73m (2019: £3.39m);

· Loss before tax of £2.59m (2019: £3.10m) after providing for:

Depreciation of £167k (2019: £180k);

Amortisation of £41k (2019: £41k); and

Professional fees of £149k (2019: Nil) relating to corporate activities.

 

Post Year-End Events:

· February: Oversubscribed fundraising raising gross proceeds of £5.5 million via a placing and broker option;

· February: Appointments of Gerard Brandon and Dr Nigel Burton to Board of Directors with Peter Grant and Eric Yeatman stepping down from the Board;

· March: Agreement to join ecowaterOS Consortium for real-time water monitoring, recovery, treatment and recycling;

· March: 3-year Framework Services Agreement with DeepVerge plc with:

Initial orders of £100k;

Investment commitment of up to £150k by DeepVerge for demonstration pilot plant facility in York, UK, plus shared costs of support staff from both companies during collaborations; and

Distribution agreement across 3 continents from existing DeepVerge divisions, in a range of markets in Environmental and Human Health.

· Current trading: Revenues up 180% in Q1 2021 compared to Q1 2020.

 

Signing of agreement with DeepVerge

On 24 March 2021 Microsaic signed a non-exclusive agreement with DeepVerge for the distribution of its products across the geographic markets addressed by DeepVerge. This agreement does not restrict Microsaic from developing and engaging with its existing or other new partners. DeepVerge offers Microsaic the opportunity of increasing volumes substantially, from an established global sales platform, and an extended reach into markets beyond that for standard laboratory use of MS.

 

Under the terms of the agreement, DeepVerge has committed to allocate resources up to a value of £150,000 to assemble a pilot facility for Microsaic's systems at DeepVerge's York laboratories, to provide access for potential customers and clients of DeepVerge to verify and validate the technology in numerous application settings beyond those historically targeted by Microsaic.

 

Additionally, this agreement opens the opportunity for collaboration in several areas:

· DeepVerge will incorporate AI software and services into Microsaic's technology. This fits in with Microsaic's strategy in bioprocessing, where AI enables faster decision making from complex data sets;

· DeepVerge will utilise and integrate Microsaic's technology into Labskin products and services, in pursuit of human and environmental health applications. Microsaic's technology is ideally suited for screening applications and especially for protein detection (e.g. with Microsaic's MiD® ProteinID technology; this collaboration will also progress both companies' respective strategies in point of care diagnostics, where the Directors believe that combining the technologies could have a synergistic effect;

· Certain Microsaic employees will be located at DeepVerge's sites in the UK, to assist with particular collaborations (e.g. Labskin's facility at York); and

· Microsaic will collaborate with Modern Water Group (part of DeepVerge) to develop solutions for point of need water quality and pathogen testing.

 

Outlook

While the business is still affected by the COVID-19 pandemic, good progress has been made in Q1 2021 with revenues of £145k compared to £52k in the same period last year.

 

Discussions are ongoing with DeepVerge across North America, Europe, Japan and China regarding how Microsaic can augment their point of need water monitoring stations and how they can extend their channel to help sell the Company's products including the new portfolio of Liquid Chromatography-Mass Spectrometry ("LCMS") systems. Additionally, Microsaic together with other members of the ecowaterOS consortium, including DeepVerge, will be developing and bringing to market solutions aimed at solving point of need problems in water health.

 

The Centre for Process Innovation Limited ("CPI") project for quality control in biologics manufacturing is progressing well and is expected to be completed during Q2 2021. This project in collaboration with the Digital Innovation Hub is aimed at demonstrating in a process analytical technology ("PAT") digital hub how automated analytics of a bioreactor can be used to intelligently intervene and control the production of biologics.

 

Targeted recruitment is under way to support the Company's business development, service and R&D activities.

 

Glenn Tracey, CEO of Microsaic Systems plc, commented

"2020 was a difficult year for Microsaic, its employees and shareholders. Progress in the year to date shows us turning a corner, with Q1 revenues significantly above the same period last year, and with decent prospects indicating a sustained recovery.

 

"This year, I anticipate that Microsaic will make significant progress in its key verticals of Human and Environmental Health, as we roll out solutions in diagnostics, pharmaceutical and biopharmaceutical therapeutics, and water monitoring and screening. Our partnership with DeepVerge allows us to pivot our business model towards providing more complete, integrated solutions, which are supported by an AI infrastructure."

 

 

Enquiries:

 

Microsaic Systems plc

+44 (0) 1483 751 577

Glenn Tracey, CEO

 

Bevan Metcalf, FD

 

 

N+1 Singer (Nominated Adviser & Joint Broker)

+44 (0)20 7496 3000

Aubrey Powell / George Tzimas (Corporate Finance)

 

Tom Salvesen (Corporate Broking)

 

 

Turner Pope Investments (TPI) Limited  (Joint Broker)

Andy Thacker / Zoe Alexander


+44 (0) 20 3657 0050

 

 

About Microsaic Systems

Microsaic floated on AIM in 2011 to develop and commercialise micro-engineering chip-based mass spectrometry equipment. Having invested c. 30m over 20 years of development, Microsaic has a robust and innovative patent portfolio in cutting-edge technology designed and developed for "Industry 4.0" application. Microsaic serves markets in Human Health, Environmental Health and Diversified Industries. Microsaic's system solutions enable analytical detection and characterisation at the point-of-need, whether within a conventional laboratory setting, or within a bioprocessing facility for continuous MS detection data at multiple steps in the process workflow.

 

Microsaic's products and systems are commercially available through global markets via a network of regional and local partners, targeting its core laboratory, manufacturing and point of need applications

 

CHAIRMAN'S STATEMENT

For the year ended 31 December 2020

I was appointed as Chairman on 5 February 2021 and it is my pleasure presenting the Company's annual report and accounts for the year ended 31 December 2020.

Our Business

Microsaic Systems plc ("Microsaic" or the "Company") was established in 2001 to develop and commercialise point-of-need, micro-engineering technologies to miniaturise mass spectrometry ("MS"), lower the footprint of equipment by up to 90 per cent. compared to standard MS, and to offer online solutions to bio-processing in pharmaceutical manufacturing. To date more than 170 units have been supplied and installed with companies such as Merck, which has published scientific reviews of the micro-engineered technologies.

Having invested £30 million over the last 19 years, prior to the recent injection of £5.5 million (before expenses) and the Board changes which took place in February 2021, the Company has created a robust patent portfolio in cutting-edge technology, focused on monitoring of molecular compounds at point-of-need in the bioprocessing of active pharmaceutical ingredients.

Results

While 2021 has seen a fundamental shift in the strategic business model that is already showing signs of paying off, 2020 was disappointing with the COVID-19 pandemic and the various government restrictions impacting the ability of the Company to expand sales, marketing and distribution, all of which had shown positive signs of growth during 2019. It was a year to reflect on whether the business model of equipment and consumables sales alone was the best route going forward for the Company. With no let up from the global pandemic and an unsuccessful market sounding exercise mid-year, funds ran low, even with a reduced cohort of valued employees, furloughed staff and salary cuts of 20 per cent. The Board was left with little alternative but to initiate a strategic review, which included a formal sales process of the business or the assets of the Company to suitable acquisitive candidates, or until sufficient funding was identified to move forward positively into 2021.

Corporate governance

I believe that good corporate governance is important to support our future growth and the Board, which has extensive experience in publicly listed companies and running companies in the healthcare and environmental sectors, is committed to the highest standards. 

Outlook

While 2020 was a tough year financially for the Company, the new year, with fresh funding injected and a new Board of Directors, has quickly resulted in strategic changes which are presenting multiple growth opportunities. The business model has transformed to a collaborative approach for new products with a revenue sharing commercial strategy being established, supported by AI data analysis services. Out-sourced production and in-licensing of AI technologies will help reduce further development costs, increase revenue and build on the 19 year development of the micro-engineering equipment technology platform.

The strategic challenges through the COVID-19 pandemic are being met with the move to provide support services online, making it easier and safer to interact with customers while at the same time increasing the capacity of our micro-engineering MS equipment to provide surveillance against contaminants and threats for existing clients and our partners clients in the pharma, environmental and life science sectors.

The new strategy gives the Microsaic team the ability to fully exploit the data generated from existing and adapted MS equipment. AI-driven data analytics offered in collaboration with our partners in the environmental and life science sectors offers them additional ongoing shared revenue streams from our CE-marked equipment and consumables. By introducing predictive services for quality control in real-time, Microsaic is adding value for its existing and new clients coming online to manage their production risk in active pharmaceutical ingredients, to detect contaminants in the environment and even to provide medical diagnosis at point of care. Microsaic has moved on from just selling equipment and consumables, to the next level of recurring revenues. Notwithstanding the continuing global uncertainties in managing through the pandemic, we are increasingly optimistic in the prospects for the business to grow on a solid footing.

 

Gerard Brandon

Chairman

30 April 2021

 

STRATEGIC REPORT - Chief Executive's Review

For the year ended 31 December 2020

Progress during 2020

Revenues for the year were £198,258 (2019: £872,125) with performance significantly impacted by the COVID-19 pandemic. The Company's distribution and OEM channels were unable to operate normally due to the international lockdown restrictions in place in many countries and customer investment decisions were postponed.

To maximise cash conservation, the Company implemented a contingency plan in March 2020 to significantly reduce expenditure at every level of the business. 

In mid-2020 the Company undertook a market sounding exercise to raise equity funding. The Board approached both existing shareholders and new investors and brought on board a joint broker to facilitate the process. Unfortunately, at the end of this exercise the Board concluded that the prevailing conditions were not supportive to raising equity finance.

The Board announced in July 2020 that it would undertake a strategic review, including a formal sale process. In December 2020, the Company announced the end of the formal sale process with no party prepared to make a definitive offer for the Company. With no certainty that any transaction would be concluded the Company appointed corporate recovery specialists to advise the Board and offer the business and assets of the Company for sale.

 

That process was halted when it became apparent that a funding opportunity was available which would allow the business to continue and adapt its model both to the current operating environment, and to take advantage of additional opportunities and routes to market.

Despite the disappointing sales performance, the Company's cost cutting measures resulted in a reduced loss from operations before share based payments of £2.53 million, 17.1 per cent. lower than the prior year (2019: £3.05 million). 

Strategic Focus

Microsaic serves Human Health, Environmental Health and Diversified markets with its mass detection technology, which can be used at the point of need to drive better, faster real-time decisions and to solve real-world problems.

Typical point of need markets and applications include process analytical technology for the manufacture of high value biologic drugs; food contamination screening as well as cannabinoid screening. The Company is also developing a longer term capability in point of care diagnostics.

 

Microsaic's technology can also be used in standard laboratory settings, for example in the established pharmaceutical, academic and chemical industries.

 

Business Model

The Company derives revenues from the sale of its mass spectrometry ("MS") instruments, consumables and spare parts, and service/support income. The Company is evolving from being a simple provider of equipment and consumables, towards delivering solutions to end-users, and is developing a business model that, instead of focusing on capital sales (which depend on lengthy sales cycles), is moving to an annuity based model, increasing the proportion of revenues from Artificial Intelligence ("AI") and Internet of Things ("IoT") revenue streams alongside premium services relating to 24/7 operation and support and data analytics, in particular Industry 4.0 smart technology for the bioprocessing industry. Other products will be developed in collaboration with partners and over time the focus will shift towards the integration of analysers to solve specific problems.

Product Overview

The Company's products use miniaturised chip-based technology and are designed to deliver application versatility, ease of deployment and provide users with real-time information to make decisions in a quicker and more cost effective manner.

Microsaic's separation range of products are planned to be launched in Q2 2021, with four fully integrated liquid chromatography systems, serving markets as diverse as water, pharmaceuticals, chemicals, academia, and food and beverage.

 

Microsaic's technology development will pivot towards more dedicated solutions to solve specific problems in Human and Environmental Health and Diversified Industries.

 

Stakeholder Engagement

Section 172 of the Companies Act 2006 ("S.172") recognises that companies are run for the benefit shareholders, but that the long-term success of a business is dependent on maintaining relationships with stakeholders and considering the external impact of the Company's activities.

Microsaic's key stakeholders are our employees, partners (including distributors, OEMs, and collaborators on new products), and our key suppliers such as our manufacturing contractor and key R&D subcontractors. By working with all stakeholder groups, the Company can unlock the potential of the business and maximise the value created. The key principles and values adopted by the Company are detailed under the review of Principle 8 of the QCA Corporate Governance Code within the 2020 Annual Report.

For Microsaic, engagement with our key stakeholders is part of how we operate as a business. Actively seeking to understand the concerns and aspirations of our employees, and how we can better engage with them, how we can work more closely with the partners who distribute our products and those that we collaborate with, plus the challenges faced by our manufacturing partner and other suppliers.

As outlined in the Chairman's Statement and Strategic Report, 2020 was a very challenging year, for Microsaic reflected in the number of Board meetings held during the year (39 versus 12 in 2019). Coming off good performance in 2019, a key priority in 2020 was to ensure Microsaic was sufficiently capitalised to take advantage of the opportunities available to the business. However, the impact of the COVID-19 pandemic severely affected business performance and our ability to raise equity finance.

Due to the COVID-19 pandemic, face-to-face engagement with shareholders and stakeholders during the year was strictly limited. However, the Directors continued to engage with shareholders and key stakeholders keeping them up to date on progress. 

The key decisions made by the Board during the year are outlined below:

1.  In March 2020 the Board implemented a contingency plan to reduce operating costs, capital expenditure and restrict production. This had an adverse effect on the number of employees the business could sustain and on several suppliers, but ultimately extended the cash runway and enabled a reorganisation of the Company and a successful fundraise to be completed in February 2021;

 

2.  Following a market sounding exercise in mid-2020 the Board concluded that the prevailing conditions were not supportive to raising sufficient equity to fund the business. As no other financing options were available at that time the Board decided to undertake a strategic review and formal sales process. The formal sale process concluded in December without securing any definitive offer for the Company or any other solution which would provide sufficient funding for the Company to, pursue its business plans; and

 

3.  The Board considered that the outcome of the formal sale process meant that it was unlikely that the reasonable prospect test could still be met, and therefore the Board agreed its responsibilities should shift to protecting the Company's creditors. The Board appointed corporate recovery specialists to run a process to offer the business and assets of the Company for sale. This process continued post year end but was stopped in January after the Company received a proposal for an equity fundraise and reorganisation of the Company, which completed on 5 February 2021 raising £5.5 million before expenses.

 

Under S.172, a company's directors have a duty to discharge their responsibilities having regard to:


a) the likely consequences of any decision in the long term - the focus of the Board during 2020 was the survival of the Company for the benefit of shareholders and stakeholders.


b) the interests of the company's employees - Unfortunately to extend the cash runway difficult decisions were necessarily made and several employees were made redundant. Affected staff were furloughed for as long as practicably possible. All employees agreed to a temporary 20 per cent. reduction in remuneration which was much appreciated by the Board.


c) the need to foster the company's business relationships with suppliers, customers and others - customers were treated fairly during the year. Suppliers continued to be paid on time, although contracts with certain suppliers were terminated as a cost saving measure. Towards the end of 2020, when the reasonable prospect test could not be met, creditor interest became the priority. 


d) the impact of the Company's operations on the community and the environment - there was no adverse impact on the community or environment from the decisions made by the Board during the year.


e) the desirability of the company maintaining a reputation for high standards of business conduct - the Company acted in a professional manner during 2020 liaising with key stakeholders and followed the principles and values of the Company as outlined on pages 31 to 32 of the Corporate Governance Report in the 2020 Annual Report.


f) the need to act fairly as between members of the Company - the Board treated shareholders fairly and made sure it kept them up to date through regular press releases. Significant shareholders were given the opportunity, through a market soundings exercise to invest in the Company. The strategic review process was undertaken for the benefit of shareholders and other key stakeholders.

 

Performance Measurement

The ongoing performance of the Company is managed and monitored using several key financial and non-financial performance indicators as detailed below:

Revenue

 

 

Year to 31 December 2020

Year to 31 December 2019

Increase/

(Decrease)

 

 

 

 

£

%

Products

 

 

83,397

698,423

(88.1)

Consumables and spare parts

 

 

105,135

132,962

(20.9)

Service and support income

 

 

9,726

40,740

(76.1)

Total

 

 

198,258

872,125

(77.3)

The Company's revenues have been disappointing in 2020 due to the impact of the COVID-19 pandemic and associated restrictions on travel to support partners and customers. Revenue comprises the sale of products, consumables and spare parts, and service and support income. The Board ordinarily reviews trading results and monitors cash on a regular basis, but during 2020 the low levels of trading and funding meant that the Board met more frequently to discharge its obligations and enable actions to be taken to ensure the continuation of the business.

 

Profit/(Loss) & Cash Metrics

 

 

Year to 31 December 2020

 

Year to 31 December 2019

 

Increase/

(Decrease)

 

 

 

 

£

%

Loss from operations before share--based payments, interest, and tax

 

 

 

(2,531,746)

 

(3,054,588)

 

(17.1)

Net cash used in operating and investing activities

 

 

 

(2,126,275)

 

(2,681,913)

 

(20.7)

Cash and cash equivalents

 

 

397,069

2,620,758

(84.8)

 

The Company's profitability is monitored against budget on a monthly basis. The 17.1 per cent. reduction in the loss from operations before share based payments was the result of implementing contingency plans during the year to off-set the impact of the COVID-19 pandemic and extend the cash runway. The Company monitors its cash position closely, and forecasts are updated on a regular basis. The year-end cash position was in line with the Board's expectations.

Non-financial key performance indicators measure a number of key areas, including commercial and operational targets, such as number of sales orders, unit production, new products transferred to manufacturing, number of collaborations, agreements signed with new customers and quality measures from the Company's ISO 9001:2015 system. Key points to note are:

· Sales orders for MS instruments were significantly below last year and budget;

· Microsaic worked with its manufacturing partner to reduce production levels;

· On the customer front, two new partner agreements were entered into during the year;

· The Company was able to continue with two important partner collaborations, albeit delayed, both in bioprocessing; and

· ProteinID was successfully transferred to manufacturing, although significantly later than originally planned while work was placed on hold on the launch of our LC-MS family of products, which is now planned for Q2 2021.

 

Financial Results - 2020

Profit and Loss

Total revenue of £198,258 reduced by 77.3 per cent. compared with last year (2019: £872,125) as a result of the COVID-19 pandemic. Product and service revenues declined by 88.1 per cent. and 76.1 per cent. respectively. Consumable revenue of £105,135 (2019: £132,962) declined by 20.9 per cent.

Gross profit in 2020 of £99,910 (2019: £338,243) fell by 70.5 per cent. over last year following a significant decline in product revenues, as customer investment decisions were postponed due to the COVID-19 pandemic.  The gross margin of 50.4 per cent. is significantly higher than last year (2019: 38.8 per cent.) due to the product mix including a smaller proportion of lower margin product sales.

Other operating income of £96,626 (2019: Nil) relates to grant income under the Coronavirus Job Retention Scheme.

Total operating expenses of £2,728,282 (2019: £3,392,831), fell by 19.6 per cent. or £664,549 following the introduction of a contingency plan to mitigate the fall in revenues due to the COVID-19 pandemic. The main savings over last year due to the contingency plan included:

· Payroll costs reduced by £419,358 to £1,466,342. This included, several staff being made redundant during the year, no salary increase, reversal of the 2019 bonus and no bonus accrual in 2020, a freeze on recruitment and replacement of staff, plus a temporary 20 per cent. pay cut for all staff and Directors between April 2020 and January 2021;

· Marketing and financial PR of £54,485 is down £118,908 over last year with the cancellation of agreements with key agencies;

· Sub-contractors, mainly R&D, reduced by £117,931 to £208,729;

· Travel of £59,893 is down £138,240 over last year; and

· Professional fees before corporate transactions of £182,069 is down £28,365 over last year.

 

The reduction in operating expenses detailed above has been partly offset by higher professional fees on corporate transactions of £149,364. This included £23,278 for legal fees on the unsuccessful fundraise, £101,312 spent on advisers for the strategic review, and £24,774 on corporate recovery advice. 

The loss from operations for the year before share-based payments fell by 17.1 per cent. or £522,842 over last year to £2,531,746 (2019: £3,054,588).

Share based payments of £52,241 are £16,771 lower than the prior year. No options were granted in 2020 compared with 5 million granted in 2019.

Finance costs amounted to £10,775 versus £15,615 in 2019. The majority of this cost relates to interest on the lease liability.

Finance income of £4,393 decreased against the prior year (2019: £35,686) due to lower cash balances and reduced interest rates.

The tax credit on ordinary activities in the year was £217,711 (2019: £322,442), comprising an R&D tax credit claim of £218,568 less an adjustment of £857 relating to the R&D tax credit claimed in respect of 2019. The R&D tax credit claim is £104,731 lower than in 2019 as expenditure on R&D projects was scaled back in line with the contingency plan to mitigate the impact of the COVID-19 pandemic.

The total comprehensive loss for the year of £2,372,658 is a 14.7 per cent. reduction over the prior year (2019: £2,781,087). The basic loss per share fell by 14.8 per cent. from 0.61 pence in 2019 to 0.52 pence per share in 2020. The weighted average number of shares in issue remained unchanged from last year (refer to note 9).  

Balance Sheet

Total non-current assets at £247,312 are £132,542 below the 2019 level. The decrease is due to a lower level of investment in intangibles and property, plant and equipment and the disposal of the leased office and laboratory facilities at Culham Science Park ("Culham") on 1 November as a cost-saving measure.

Current assets at £1,359,097 are down £2,416,298 over last year (2019: £3,775,395). The reduction is mainly due to a lower cash balance of £397,069 (down £2,223,689), lower trade and other receivables (down £272,083), lower corporation tax receivable (down £103,874), partly off-set by higher inventories (up £183,348). The reduction in trade receivables reflects the lower level of sales in December 2020 versus December 2019 and the increase in the provision for expected credit losses (up £64,281). 

Total assets at £1,606,409 are £2,548,840 below last year (2019: £4,155,249), mainly due to the lower level of current assets at the year end. 

Total equity at £1,242,980 is £2,320,417 below last year due to an increase in retained losses (up £2,232,142) and a decrease in the share-based payment reserve of £88,275.  The decrease in the share-based payments reserve is due to the expiry of warrants and options amounting to £140,516 off-set by the share-based option charge for the year of £52,241.

Current liabilities comprise trade and other payables and lease liability due within 12 months of the year end. Trade and other payables at £185,927 (2019: £290,563) are £104,636 less than last year and reflects a reduction in trade payables (down £32,397), lower level of accruals and deferred income (down £48,674) and lower other payables, taxes and social security due mainly to the reduced payroll cost (down £23,565). The lease liability of £52,370 mainly represents the Company's leasehold property in Woking which expires in September 2021. For 2019, the lease liability was recorded as a non-current liability.

Total non-current liabilities at £125,132 are £176,157 below last year. The decrease is mainly down to the lower level of the lease liability because the Company exercised a break clause in the Culham lease in November, and the liability on the Woking lease is now reflected as a current liability.

Total liabilities of £363,429 are £228,423 less than in the prior year due to the reduction in current and non-current liabilities.

Cash Flow

Cash used in operating activities in 2020 of £2,049,610 is £515,482 lower than last year due mainly to the reduction in the comprehensive loss for the year of £408,429 and a higher level of R&D tax credits received (up £44,508).

Net cash used in investing activities of £76,665 compares with £116,821 in 2019. The main movements in the year were a reduction in the purchases of property, plant and equipment of £34,368 and intangibles of

£14,688, offset by lower interest received of £8,900.

 

Net cash used in financing activities amounted to £97,414 and relates to the cash repayment of lease commitments during the year. This is slightly below that used in 2019 due to the disposal of the Culham lease on 1 November 2020.

The net decrease in cash for the year of £2,223,689, left a cash balance as at 31 December 2020 of £397,069.

Going Concern

Following the post period end equity fundraise completed in February 2021, when the Company successfully raised £5.5 million before expenses and having considered the plans and prospects for the business, the Board believes that the Company has enough cash to cover its anticipated working capital requirements for at least the next 12 months from the date of signing of the 2020 Annual Report. Therefore, the Directors have adopted the going concern basis of reporting in preparing the financial statements. The Board's assessment of the going concern basis is explained in more detail in note 3.

Risk Management

The Company manages risk from an operational perspective, where it assesses and weighs up the potential risks to the business and how it can mitigate these risks. The Board has identified the following risks and associated mitigating actions as follows:

 

Description

Risk

Risk rating pre-mitigation

Mitigating actions

Risk rating post-mitigation

COVID-19 pandemic has material impact on sales

Low or little demand from affected markets and less opportunity to visit potential customers

HIGH

Continue dialogue remotely with partners. Increase collaborations regarding the development of new products and expand sales channels. Ensure staff have a safe and protected work environment. 

HIGH

Unable to raise additional funds if required in the future

Inability to continue as a going concern

MEDIUM

Communicate effectively with shareholders and potential investors. Ensure the business plan to profitability is implemented effectively with the focus on expanding sales channels and growing revenues.

MEDIUM

Unable to grow sales required to achieve sustainable profitability

Sales growth is too slow to achieve targets

MEDIUM

Continue to invest in business development to expand partners and sales channels. Launch new products as planned especially ProteinID and LCMS systems.

MEDIUM

 

Reliance on third party manufacturing facilities

A replacement manufacturer is necessary

MEDIUM

Work closely with our manufacturing partner and hold regular review meetings. Ensure contingency plans are prepared and reviewed.

LOW

Retention and recruitment of key employees

Loss of key employees and subsequent difficulty in recruiting suitable replacements

LOW

Ensure the Company's remuneration package is competitive and aligned to performance. Retain key staff by investing in their development.

LOW

Loss of competitive advantage in miniaturised mass spectrometry

Competitors developing competing products

MEDIUM

The Company continues to innovate, invest in IP and focus on its core strengths around point of care, ease of use and simplicity of maintenance. The Company believes the market is large enough for competitors to co-exist.

LOW

 

From the analysis above there are three main risks facing the business:

1.  The COVID-19 pandemic continues to impact revenues, but revenues post period end are improving, especially the sale of units. Restrictions on international travel to and from partner countries will be monitored very closely. The Company will follow government guidelines in the UK and abroad to plan international visits to customers. Working from home will continue for those staff who are not required to go into the office, and policies are in place to ensure the health and safety of our employees is treated as a priority.

 

2.  Failing to grow the sales required to achieve sustainable profitability is a clear risk. To mitigate this, the Company is investing in business development and will continue to sign up new partners such as DeepVerge and launch new products and services in 2021.

 

3.  The inability to continue as a going concern. This has been mitigated by the successful fundraise in February 2021 where the Company raised £5.5 million before expenses. The Board's assessment of the going concern basis is summarised in more detail in note 3.

 

Key events and progress post year end

· In February 2021, the Company raised £5.5 million before expenses through the issue of new ordinary shares at a placing price of 0.1 pence per ordinary share. Full details of the transaction can be found in note 29.

· As part of the restructuring, resolutions were passed at the General Meeting to appoint Gerard Brandon and Dr Nigel Burton to the Board as Non-executive Chairman and Non-executive Director respectively, replacing Peter Grant and Eric Yeatman with effect from 5 February 2021. The Directors are pleased to be retaining Eric as a consultant to the Company given his expert knowledge of the Company's technology and business.

· In February 2021, Microsaic announced it was joining the ecowaterOS Consortium, an end-to-end water contamination detection and decontamination solutions provider network, for real-time monitoring and detection of contaminated water.  

· On 24 March 2021, the Company signed a Technology and Commercial agreement with DeepVerge. 

· Current trading: Revenues up 180% in Q1 2021 compared to Q1 2020.

 

Signing of agreement with DeepVerge

On 24 March 2021, Microsaic signed a non-exclusive agreement with DeepVerge for the distribution of its products across the geographic markets addressed by DeepVerge. This agreement does not restrict Microsaic from developing and engaging with its existing or other new partners. DeepVerge offers Microsaic the opportunity of increasing volumes substantially, from an established global sales platform, and an extended reach into markets beyond that for standard laboratory use of MS.

Under the terms of the agreement, DeepVerge has committed to allocate resources up to a value of £150,000 to assemble a pilot facility for Microsaic's systems at DeepVerge's York laboratories, to provide access for potential customers and clients of DeepVerge to verify and validate the technology in numerous application settings beyond those historically targeted by Microsaic.

Additionally, this agreement opens the opportunity for collaboration in several areas:

· DeepVerge will incorporate AI software and services into Microsaic's technology. This fits in with Microsaic's strategy in bioprocessing, where AI enables faster decision making from complex data sets;

· DeepVerge will utilise and integrate Microsaic's technology into Labskin products and services, in pursuit of human and environmental health applications. Microsaic's technology is ideally suited for screening applications and especially for protein detection (e.g. with Microsaic's MiD® ProteinID technology); this collaboration will also progress both companies' respective strategies in point of care diagnostics, where the Directors believe that combining the technologies could have a synergistic effect;

· Certain Microsaic employees will be located at DeepVerge's sites in the UK, to assist with particular collaborations (e.g. Labskin's facility at York); and

· Microsaic will collaborate with Modern Water Group (part of DeepVerge) to develop solutions for point of need water quality and pathogen testing.

 

The Framework Services Agreement with DeepVerge constituted a related party transaction under Rule 13 of the AIM Rules for Companies, by virtue of Microsaic and DeepVerge having two directors in common. At the time of entering into the agreement, the Independent Directors, being Glenn Tracey and Bevan Metcalf, confirmed that they considered, having consulted with the Company's nominated adviser, that the terms of the Framework Services Agreement were fair and reasonable insofar as the Company's shareholders are concerned.

Outlook

While the business is still affected by the COVID-19 pandemic, good progress has been made in Q1 2021 with revenues of £145k compared to £52k in the same period last year.

Discussions are ongoing with DeepVerge across North America, Europe, Japan and China regarding how Microsaic can augment their point of need water monitoring stations and how they can extend their channel to help sell the Company's products including the new portfolio of Liquid Chromatography-Mass Spectrometry ("LCMS") systems. Additionally, Microsaic together with other members of the ecowaterOS Consortium, including DeepVerge, will be developing and bringing to market solutions aimed at solving point of need problems in water health.

The Centre for Process Innovation Limited ("CPI") project for quality control in biologics manufacturing is progressing well and will be completed during in Q2 2021. This project in collaboration with the Digital Innovation Hub is aimed at demonstrating in a process analytical technology ("PAT") digital hub how automated analytics of a bioreactor can be used to intelligently intervene and control the production of biologics.

Targeted recruitment is under way to support the Company's business development, service and R&D activities.

The Strategic Report was approved by the Board of Directors on 30 April 2021 and signed on its behalf by:

Glenn Tracey

Chief Executive Officer

 

DIRECTORS' FINANCE & AUDIT COMMITTEE REPORT

For the year ended 31 December 2020

Introduction

This report details how the Finance & Audit Committee ("the Committee") has met its responsibilities under its terms of reference. The Committee is a sub-committee of the Board. As Non-executive Directors, the members of the Committee are, together with the Board as a whole, responsible for the integrity and probity of the Company. The work of the Committee is aimed at supporting the creation of long-term value for shareholders.

The Committee continues to act as an oversight sub-committee of the Board, considering and challenging but not itself performing the relevant processes. The ultimate responsibility for reviewing and approving the Annual Report and Accounts and interim financial statements remains with the Board.

The Committee does not believe there is a requirement for an internal audit function due to the Company's size and level of complexity.

Role and Responsibilities

The Board has established a Finance & Audit Committee to monitor the integrity of the Company's financial statements and the effectiveness of the Company's internal financial controls. The Committee's role and responsibilities are set out in the terms of reference which are available from the Company's website. The terms of reference are reviewed regularly and amended where appropriate. During the year, the Committee worked with management and the external auditors in fulfilling these responsibilities.

The Committee report deals with the key areas in which it plays an active role and has responsibility. These areas are as follows:

i.  Financial reporting and related primary areas of judgement;

ii.  The external audit process;

iii.  Risk management and internal controls; and

iv.  Whistleblowing procedures.

The members of the Finance & Audit Committee are Dr Nigel Burton and Gerard Brandon who were appointed post year end on 5 February 2021. Dr Burton became Chairman of the Committee, following the resignation of Peter Grant and has appropriate relevant financial experience. The Board considers that the Committee has an appropriate and experienced blend of commercial, financial and industry expertise to enable it to fulfil its duties.

Financial Reporting and External Audit Process

The Chairman of the Committee participated in the Audit Planning meeting held in March 2021 with the external auditors to plan the financial audit, discussed potential key audit matter(s) and along with the Committee reviewed the Audit Strategy Document.

The Board as a whole, reviewed the going concern paper prepared by management including detailed financial forecasts for the period 2021 to 2024, related assumptions, risks and opportunities, sensitivities, and areas for mitigation. The outcome of the Board's discussions on going concern is explained in more detail in note 3.

The Committee has satisfied itself that the 2020 Annual Report has been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, are fair, balanced and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

Risk Management and Internal Controls

The Board considered as part of its review of risks those risks detailed in the Strategic Report including mitigating actions. Following the successful fundraise in February 2021 the Company continues to be a going concern. The key risk still facing the Company is the ongoing impact of the COVID-19 pandemic on the results of the business.

Another key responsibility of the Committee is to review the Company's internal control systems, including internal financial controls. The Finance Director reviewed and updated the Company's Financial Procedures Manual to ensure it was in line with current practice. There were no reported instances of fraud during the year.

The Company's auditors are encouraged to raise comments on internal control in their management letter following the annual audit. The points raised and actions arising are monitored through to completion by the Finance & Audit Committee.

Whistleblowing

The Committee had no whistleblowing incidents reported during 2020. Dr Nigel Burton has been appointed Primary Designated Officer during the year and Gerard Brandon as Alternative Designated Officer.

Committee Meetings

The Committee met three times in the year. Two meetings related to the Annual Report and Accounts which the external auditors attended. The other meeting was to review and sign off the 2020 Interim Financial Statements which involved the full Board.

Auditors Fees and Non-Audit Services

The Committee reviewed and agreed to the proposed audit fee of £20,750 (2019: £19,950). Fees for other audit related services during the year amounted to £2,070 (2019: £2,820). These fees included the review of 2020 interims and the provision of information around accounting standards.

Auditor Independence

The Committee satisfied itself on the auditors' independence. Mr Roger Weston is undertaking his third audit of the Company, in the capacity of partner in charge and no non-audit services have been provided in the current financial year.

The Report of the Finance & Audit Committee was approved by the Board of Directors on 30 April 2021 and signed on its behalf by:

 

Dr Nigel Burton

Chairman of the Finance & Audit Committee

 

INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF MICROSAIC SYSTEMS PLC

For the year ended 31 December 2020

Opinion

We have audited the financial statements of Microsaic Systems plc for the year ended 31 December 2020 which comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Changes in Equity, the Statement of Cash Flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and international accounting standards (IAS) in conformity with the requirements of the Companies Act 2006.

In our opinion, the financial statements:

· give a true and fair view of the state of the company's affairs as at 31 December 2020 and its loss for the year then ended;

· have been properly prepared in accordance with IAS in conformity with the requirements of the Companies Act 2006; and

· have been prepared in accordance with the requirements of the Companies Act 2006.

 

Basis for opinion

We 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 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 SME 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.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors' assessment of the company's ability to continue to adopt the going concern basis of accounting included:

· obtaining, critically appraising and assessing for arithmetical accuracy the directors' formal going concern assessment;

· reviewing projected cashflows and other available evidence to assess the ability of the company to continue in operation for at least 12 months from the date of signing this report;

· performing a sensitivity analysis on key assumptions underlying the directors' going concern assessment, including the forecast unit sales, the level of development activity and the ability to reduce the cost base if required to conserve cash;

· agreeing the receipt of funds relating to the fundraise held in February 2021 to underlying bank statements at the time of receipt;

· discussion of events after the reporting date with the directors to assess their impact on the going concern assumption, including comparison of the post year end cash balances to forecast positions, and;

· considering the impact of the non-exclusive agreement signed with DeepVerge on potential cashflows and operations.

 

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Our approach to the audit

We tailored the scope of our audit to ensure that we obtained sufficient evidence to support our opinion on the financial statements as a whole, taking into account the structure of the Company, the accounting processes and controls, and the industry in which it operates.

 

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at areas where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.

 

Key audit matters

Key audit matters are those matters that, in our professional judgement, 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 statement as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

Key audit matter

How our audit addressed the key audit matter

Valuation of inventories

The value of stock has increased materially since 2019, primarily due to low sales volumes in 2020. As a result, our audit planning process identified the valuation of stock as a significant risk.

 

Should the company not be able to realise the value of this stock through sales, this would be a significant loss to the company. Additionally, it would impact on the assessment of the company as a going concern.

 

Due to the significance of this balance to the financial statements, and the level of estimation uncertainty in concluding on inventory valuation, we consider this to be a key audit matter.

Our audit procedures included the following:

· We attended the year end stock take remotely, and agreed a sample of lines counted to the final inventories listing as represented in the financial statements, confirmed that controls around stock were operating as expected, and considered the possibility of inventory impairment due to damaged stock.

· A sample of items from the inventories listing were agreed to invoice to confirm the cost of inventories. Where possible, these were also traced to sales after the year end to confirm that the carrying value was recoverable.

· The year-end inventory holding was considered in light of sales, commitments and potential orders for 2021, to gain comfort that the year-end inventory will be realised and that the level of stock provision was appropriate.

 

Based on the procedures performed, we conclude that the valuation of inventories at the year end is appropriate.

 

Compliance with laws and regulations relating to administration of the Coronavirus Job Retention Scheme and changes in payroll

 

As part of the cost control measures enacted in the year, the company made several changes to routine payroll transactions.

 

All staff, including directors, took a 20% pay reduction from April 2020, and for the remainder of the financial year, and several members of staff were placed on full or flexible furlough throughout the year. The furlough scheme itself changed through the year, increasing the complexity of following scheme rules and accounting for the scheme correctly.

 

Given the changes applied to payroll during the period, and the complexities of administering the Coronavirus Job Retention Scheme, this is considered to be a key audit matter.

 

Our audit procedures included the following:

 

· We tested payroll transactions on a sample basis, including agreement to furlough claims,  recalculation of the amounts claimed under the scheme, review of compliance with grant scheme conditions and verification of employees claimed against.

· Furlough claims were agreed to cash receipts, and traced back to payroll records.

· Contracts and correspondence with staff were reviewed to confirm gross pay levels and agreement to adjustments made as a result of cost control measures.

· Enquiries with management regarding compliance with payroll legislation and related HRMC matters.

 

Based on the procedures performed, we did not identify any material misstatements arising from compliance with laws and regulations relating to administration of the Coronavirus Job Retention Scheme and changes in payroll

 

Our application of materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, as set out below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, if any, both individually and in aggregate on the financial statements as a whole

We have applied a materiality of £50,000 (2019: £55,000). This is based on 2% of the loss for the year ended 31 December 2020. Performance materiality was set at 80% of materiality.

Our triviality level was set at £2,500 which is 5% of planning materiality, and any uncorrected audit differences below this level were not reported to management, unless warranted under qualitative grounds.

Other information

The 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.

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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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 2006

In 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 exception

In the light of the knowledge and understanding of the 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 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 directors

As explained more fully in the Directors' Responsibilities Statement set out on page 18 of the 2020 Annual Report, 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 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 company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue 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.

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The specific procedures for this engagement and the extent to which these are capable of detecting irregularities, including fraud are detailed below.

Identifying and assessing risks related to irregularities:

We assessed the susceptibility of the company's financial statements to material misstatement and how fraud might occur, including through discussions with the directors, discussions within our audit team planning meeting, updating our record of internal controls and ensuring these controls operated as intended. We evaluated possible incentives and opportunities for fraudulent manipulation of the financial statements.  We identified laws and regulations that are of significance in the context of the company by discussions with directors and updating our understanding of the sector in which the company operates.

 

Laws and regulations of direct significance in the context of the company include The Companies Act 2006, the AIM Rules for Companies and UK Tax legislation, particularly with reference to Research & Development Expenditure Credits. Additionally, legislation relating to the Coronavirus Job Retention Scheme is of particular relevance for the year to 31 December 2020.

Audit response to risks identified:

We considered the extent of compliance with these laws and regulations as part of our audit procedures on the related financial statement items including a review of financial statement disclosures. We reviewed the minutes of meetings to identify potential material misstatements arising. We discussed the company's policies and procedures for compliance with laws and regulations with members of management responsible for compliance, along with the existence of any breaches or regulatory visits in the year.

During the planning meeting with the audit team, the engagement partner drew attention to the key areas which might involve non-compliance with laws and regulations or fraud. We enquired of management whether they were aware of any instances of non-compliance with laws and regulations or knowledge of any actual, suspected or alleged fraud. We addressed the risk of fraud through management override of controls by testing the appropriateness of journal entries and identifying any significant transactions that were unusual or outside the normal course of business. We assessed whether judgements made in making accounting estimates gave rise to a possible indication of management bias. At the completion stage of the audit, the engagement partner's review included ensuring that the team had approached their work with appropriate professional scepticism and thus the capacity to identify non-compliance with laws and regulations and fraud.

There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.

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

Use of our report

This report is made solely to the 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 company's members those matters we are required to state to them in an auditor's report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

…..

Roger Weston (Senior Statutory Auditor)

for and on behalf of Saffery Champness LLP

 

Chartered Accountants

Statutory Auditors 

71 Queen Victoria Street

London EC4V 4BE

30 April 2021

 

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2020

 

 

 

 

Notes

Year to 31 December

2020

 

Year to 31 December 2019

 

 

£

 

£

Revenue

5

198,258

 

872,125

Cost of sales

 

(98,348)

 

(533,882)

Gross profit

 

99,910

 

338,243

Other operating income

 

96,626

 

-

Research and development expenses

 

(777,597)

 

(1,052,592)

Professional fees - Corporate transactions

 

(149,364)

 

-

Other operating expenses

 

(1,801,321)

 

(2,340,239)

Total operating expenses

6

(2,728,282)

 

(3,392,831)

Loss from operations before share-based payments

 

(2,531,746)

 

(3,054,588)

Share-based payments

 

(52,241)

 

(69,012)

Loss from operations after share-based payments

 

(2,583,987)

 

(3,123,600)

Financial cost

7

(10,775)

 

(15,615)

Finance income

7

4,393

 

35,686

Loss before tax

 

(2,590,369)

 

(3,103,529)

Tax on loss on ordinary activities

8

217,711

 

322,442

Total comprehensive loss for the year

 

(2,372,658)

 

(2,781,087)

 

 

 

 

 

Loss per share attributable to the equity holders of the Company

 

 

 

 

Basic and diluted loss per ordinary share

9

  (0.52)p

 

  (0.61)p

 

The notes below form part of these financial statements.

 

STATEMENT OF FINANCIAL POSITION

As at 31 December 2020

 

 

Notes

31 December 2020

 

31 December 2019

 

 

£

 

£

ASSETS

 

 

 

 

Non-current assets

 

 

 

 

Intangible assets

10

83,763

 

97,211

Property, plant and equipment

11

114,145

 

124,727

Right of use assets

12

49,404

 

157,916

Total non-current assets

 

247,312

 

379,854

Current assets

 

 

 

 

Inventories

13

569,589

 

386,241

Trade and other receivables

14

173,871

 

445,954

Corporation tax receivable

  8

218,568

 

322,442

Cash and cash equivalents

 

397,069

 

2,620,758

Total current assets

 

1,359,097

 

3,775,395

TOTAL ASSETS

 

1,606,409

 

4,155,249

EQUITY AND LIABILITIES

 

 

 

 

Equity

 

 

 

 

Share capital

18

1,140,913

 

1,140,913

Share premium

20

24,867,886

 

24,867,886

Share-based payment reserve

 

324,264

 

412,539

Retained losses

 

(25,090,083)

 

(22,857,941)

Total equity

 

1,242,980

 

3,563,397

Current liabilities

 

 

 

 

Trade and other payables

15

185,927

 

290,563

Lease liability

12

52,370

 

-

Total current liabilities

 

238,297

 

290,563

Non-current liabilities

 

 

 

 

Provisions

16

124,035

 

136,748

Lease liability

12

1,097

 

164,541

Total non-current liabilities

 

125,132

 

301,289

Total liabilities

 

363,429

 

591,852

TOTAL EQUITY AND LIABILITIES

 

1,606,409

 

4,155,249

 

The financial statements were approved for issue by the Board of Directors on 30 April 2021 and signed on its behalf by:

Glenn Tracey

Chief Executive Officer

Company number 03568010


The notes below form part of these financial statements.

 

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2020

 

 

 

 

 

Share

 

 

 

 

 

Share

 

Share

-based payment

 

Retained

Total

 

Notes

capital

premium

reserve

Losses

equity

 

 

£

£

£

£

£

At 1 January 2019

 

1,140,913

24,867,886

345,806

(20,079,133)

6,275,472

Total comprehensive loss for the year

 

-

-

-

(2,781,087)

(2,781,087)

Transaction with owners:

 

 

 

 

 

 

Shares issued

 

-

-

-

-

-

Share issue costs

 

-

-

-

-

-

Transfer in respect of lapsed share options

 

 

-

 

-

 

(2,279)

 

2,279

 

-

Share-based payments-share options

 

-

-

69,012

-

69,012

At 31 December 2019

 

1,140,913

24,867,886

412,539

(22,857,941)

3,563,397

Total comprehensive loss for the year

 

-

-

-

(2,372,658)

(2,372,658)

Transaction with owners:

 

 

 

 

 

 

Shares issued

 

-

-

-

-

-

Share issue costs

 

-

-

-

-

-

Transfer in respect of lapsed share options

 

 

-

 

-

 

(140,516)

 

140,516

 

-

Share-based payments options

 

-

-

52,241

-

52,241

At 31 December 2020

 

1,140,913

24,867,886

324,264

(25,090,083)

1,242,980

 

The notes below form part of these financial statements.

 

STATEMENT OF CASH FLOWS

  For the year ended 31 December 2020

 

 

 

 

Notes

Year to 31

December

2020

 

Year to 31

December

2019

 

 

 

£

 

£

 

Total comprehensive loss for the year

 

(2,372,658)

 

(2,781,087)

 

Amortisation of intangible assets

10

40,767

 

40,740

 

Depreciation of right of use assets

12

87,237

 

90,560

 

Depreciation of property, plant and equipment

11

80,034

 

88,993

 

Transfer of property, plant and equipment to cost of goods

 

 

 

-

 

 

14,255

 

Profit on disposal of right of use assets

 

(1,426)

 

-

 

Decrease in provision for leasehold dilapidations

16

-

 

(21,138)

 

Decrease in provision for warranty

16

(12,713)

 

(12,817)

 

Increase in provision for expected credit losses

14

64,281

 

4,306

 

Share-based payments

24

52,241

 

69,012

 

Increase/(Decrease) in inventory provision

 

17,650

 

(26,854)

 

Tax on loss on ordinary activities

 8

(217,711)

 

(322,442)

 

Interest on lease liability

12

9,041

 

15,615

 

Interest received

 7

(4,393)

 

(35,686)

 

Accrued furlough income

 

(17,748)

 

-

 

(Increase)/Decrease in inventories

 

(200,998)

 

42,558

 

Decrease/(Increase) in trade and other receivables

 

209,838

 

(12,215)

 

(Decrease)/Increase in trade and other payables

 

(104,636)

 

4,032

 

Cash used in operations

 

(2,371,194)

 

(2,842,168)

 

Corporation tax received

 

321,584

 

277,076

 

Net cash used in operating activities

 

(2,049,610)

 

(2,565,092)

 

Cash flows from investing activities

 

 

 

 

 

Purchases of intangible assets

10

(27,319)

 

(42,007)

 

Purchases of property, plant and equipment

11

(69,452)

 

(103,820)

 

Interest received

 

20,106

 

29,006

 

Net cash used in investing activities

 

(76,665)

 

(116,821)

 

Cash flows from financing activities

 

 

 

 

 

Repayment of lease liabilities

  12

(97,414)

 

(99,550)

 

Net cash used in financing activities

 

(97,414)

 

(99,550)

 

Net decrease in cash and cash equivalents

 

(2,223,689)

 

(2,781,463)

 

Cash and cash equivalents at the beginning of the year

 

 

2,620,758

 

 

5,402,221

 

Cash and cash equivalents at the end of the year

397,069

 

2,620,758

 

 

The notes below form part of these financial statements.
 

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2020

The principal activity of the Company continues to be the research, development and commercialisation of miniaturised mass spectrometry instruments that are designed to improve the efficiency of pharmaceutical R&D. The Company is incorporated in England and its registered address is GMS House, Boundary Road, Woking, Surrey, GU21 5BX. The Company has no subsidiaries so the financial information relates to the Company only.

1.  Accounting policies
 

The following principal accounting policies have been used consistently in the preparation of these financial statements.

Basis of preparation

These financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

These financial statements have been prepared under the historical cost basis except where financial instruments are required to be carried at fair value under IFRS. 

Revenue recognition

IFRS 15 provides a single, principles based five-step model to be applied to all contracts with customers. The five-step framework includes:

1)  Identify the contract(s) with a customer;

2)  Identify the performance obligations in the contract;

3)  Determine the transaction price;

4)  Allocate the transaction price to the performance obligations in the contract; and

5)  Recognise revenue when the entity satisfies a performance obligation.

 

The Company recognises revenue from the following three sources:

1)  Sale of products;

2)  Sale of consumables and spare parts; and

3)  Service and support income.

 

All revenues and trade receivables arise from contracts with customers. Revenue is measured based on the consideration which the Company expects to be entitled in a contract with a customer and excludes amounts collected on behalf of third parties. The Company recognises revenue when it transfers control of a product or service to a customer.

Sale of products

The Company sells compact mass spectrometers (Microsaic 4500 MiD®) mainly through OEMs and Distributors. A small proportion of its sales are direct to the customer. Discounts are offered and agreed as part of the contractual terms. Terms are generally Ex Works so control passes when the customer collects the goods. Payment terms are generally 30 days from the date of invoice.

 

Sales of consumables and spare parts

The Company sells consumables and spare parts mainly through OEMs and Distributors. Terms are generally Ex Works so control passes when the customer collects the goods. Discounts are offered and agreed as part of the contractual terms.  Payment terms are generally 30 days from the date of invoice.

Service and support income

Service and support to our OEMs and Distributors includes training their sales and service teams and servicing the products from time to time. Discounts are offered and agreed as part of the contractual terms.

Terms are Ex Works so control passes when the customer receives the service. Payment terms are generally 30 days from the date of invoice.

Generally, there is no obligation on the Company for returns, refunds or similar arrangements. Also, the Company does not manufacture specific items to a customer's specification and no financing component is included in the terms with customers.

The Company provides assurance warranties which are 15 months from the date of shipment for OEMs and Distributors. These warranties confirm that the product complies with agreed-upon specifications. The Company is looking to provide service warranties in the future to direct Europe customers, where the revenue from such warranties will be recognised over the period of the service agreement.

Other operating income

Other operating income includes grant income, insurance income arising from a claim and income from development contracts. The Company's management assesses the contracts at each balance sheet date, including the costs to completion, which are subject to estimation uncertainty. The Company received Coronavirus Job Retention Scheme ("CJRS") grants totalling £96,626 during the year.  Grant income is recognised when there is reasonable assurance that the grant will be received, and the Company will comply with any attached conditions. Grants are recognised in the profit or loss in line with the expenditure they are intended to compensate and are shown gross of the underlying expense. The Company received CJRS grants totalling £96,626 during the year, which has been recognised in line with the corresponding payroll expenditure. There are no unfulfilled conditions attached to the grant that the Company is aware of.

Segmental reporting

The Company currently has one business segment, being the research, development and commercialisation of scientific instruments. This is undertaken wholly within the United Kingdom. Revenue by geographical market is analysed in note 5.

Intangible assets

Trademarks and patents are stated at historic cost of registration less accumulated amortisation and any accumulated impairment losses. Amortisation is charged to operating expenses and calculated to write off the cost in equal annual instalments over five years, which is a prudent estimate of their useful economic lives.

Certain software is stated at historic cost less accumulated amortisation and any accumulated impairment losses. Amortisation is charged to operating expenses and calculated to write off the cost in equal annual instalments over three years, which is considered to be a prudent estimate of its useful economic life.

Property, plant and equipment

Items of property, plant and equipment are stated at cost of acquisition or production costs less accumulated depreciation and impairment losses. Depreciation is charged to the statement of comprehensive income on a straight-line basis to write-off the carrying value of each asset to residual value over its estimated useful economic life as follows:

Plant and equipment   - 33.3% on a straight line basis

Fixtures and fittings   - 33.3% on a straight line basis

Software   - 33.3% on a straight line basis

Pensions

The Company has an auto-enrolment pension scheme for employees. Contributions are charged to the statement of comprehensive income in the period they are payable.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their present location and condition. The cost of finished goods and work in progress comprises raw materials, direct labour and other direct costs. Net realisable value is the estimated selling price in the ordinary course of business less applicable selling expenses.

Provisions

Provisions are established where the Directors have identified an obligation which is probable and where the amount can be estimated reliably.

Taxation

Current taxes are based on the results of the Company and are calculated according to local tax rules using the tax rates that have been enacted by the balance sheet date.

The Company recognises research and development tax credits receivable in cash as a current asset under the heading corporation tax receivable. Any difference to amounts received are dealt with as adjustments to prior period tax.

Deferred tax is provided in full using the balance sheet liability method for all taxable temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax is measured using currently enacted or substantially enacted tax rates.

Deferred tax assets are recognised to the extent the temporary difference will reverse in the foreseeable future and that it is probable that future taxable profit will be available against which the asset can be utilised.

Foreign currency translation

Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of transaction, or forward contract rate, if applicable.  All differences are taken to the statement of comprehensive income.

Financial instruments

Financial assets and financial liabilities are recognised in the Company's statement of financial position when the Company becomes a party to the contractual provisions of the instrument. Examples of the Company's financial instruments include:

Cash and cash equivalents

The fair value of cash and cash equivalents is considered to be their carrying amount due to their short-term maturity.

Trade receivables

The Company's trade receivables do not carry a significant financing element as defined by IFRS 15. Therefore, trade receivables are recorded at transaction price (e.g., invoice amount excluding costs collected on behalf of third parties) and throughout the life of the receivable at an amount equal to lifetime expected credit losses ("ECL"). The Company has applied a simplified "provision matrix" for calculating expected credit losses as a practical expedient. The percentages below are applied to the overdue receivable balance.

 

31-60 days past due

61-90 days past due

91-120 days past due

121-150 days past due

151-180 days past due

181 days + past due

5.0%

10.0%

15.0%

20.0%

40.0%

80.0%

100.0%

 

Other points:

· The Company determines whether trade receivables are impaired through regular meetings between finance and business development.

· The credit situation of new customers is reviewed before the first shipment. If possible, a credit report is obtained. If there is any concern over the credit worthiness of the customer, the Company may ask the customer to pay an amount in advance or enter into a confirmed letter of credit (Non-UK/Europe) etc.

· Trade receivables are considered low risk at initial recognition but this changes if they have an overdue invoice(s). Depending on the value of the shipment, the customer may be placed on hold until the overdue amount is paid. Discussions as to why an invoice is overdue are held promptly between finance and business development and the customer.

· The provision is monitored at customer level by business development and finance.

· If the Company is having ongoing dialogue with the customer regarding their overdue balance the debt will not be written off. It may be that a payment plan can be agreed or more time is given to the customer to sell the product. If the customer is not actively engaging wit the Company legal action may be taken. 

· Forward looking information from business development is taken into account when preparing the provision matrix including geographical risk, changes in customer circumstances and macro-economic factors. 

 

Financial liability and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all its liabilities.

Bank borrowings

The Company had no bank borrowings at 31 December 2020 and 2019.

Trade payables

Trade payables are not interest bearing and are stated at their nominal value.

Equity instruments

Equity instruments issued by the Company are recorded at the value of the proceeds received net of direct issue costs including the fair value of any warrants issued in lieu of issue costs. The Company has no derivative financial assets or investments in equity instruments.

Under IFRS 9 impairment for receivables including trade receivables is assessed using an expected loss model. For trade receivables this focuses on the risk that, and an extent to which, a receivable will default. Accordingly, the Company calculates the allowance for credit losses by considering the cash shortfalls it would incur in various default scenarios and multiplying the shortfalls by the probability of each scenario occurring. The Company only has short-term receivables and has adopted a "simplified approach" in assessing impairment.

The Company has applied a simplified "provision matrix" for calculating expected losses as a practical expedient (e.g., for trade receivables), as the Directors believe that this is consistent with the general principles for measuring expected losses. The provision matrix is based on an entity's historical default rates over the expected life of the trade receivables and is adjusted for forward-looking estimates.

In preparing the provision matrix the Company looks at the geographic base of its trade receivables and whether they are existing or new customers. Finally, management considered forward looking information that may affect the default rates applied in the matrix.

Leases

The Company has adopted IFRS 16, which became effective on 1 January 2019. For all leases, the Company recognises a right of use asset and corresponding lease liability on the balance sheet, which are depreciated and amortised respectively over the lease term. However, where leases are low value or of less than 12 months old, the Company has taken advantage of the practical expedient allowing the expense to be recognised on a straight line basis over the lease term.

Research and development

Expenditure on research is recognised as an expense in the period in which it is incurred.

Development costs incurred on specific projects are capitalised when all the following conditions are satisfied:

· Completion of the intangible asset is technically feasible so that it will be available for use or sale;

· The Company intends 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. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits;

· There are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

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

 

Costs incurred which do not meet all of the above criteria are expensed as incurred. No development costs have been capitalised to date.

Share-based payments

In accordance with IFRS 2 "Share-based payments", the Company reflects the economic cost of awarding shares and share options to Directors, employees and advisors by recording an expense in the statement of comprehensive income equal to the fair value of the benefit awarded; fair value being determined by reference to option pricing models. The expense is recognised in the statement of comprehensive income over the vesting period of the award.

The fair value of warrants issued to advisors as remuneration for their services in a fundraising will be charged to share premium over the vesting period of the award.

2.  Adoption of new and revised standards

During the financial year, the Company has adopted the following new IFRSs (including amendments thereto) and IFRIC interpretations, that became effective for the first time.

Standard

Effective date, annual period beginning on or after

Conceptual Framework and
Amendments to References to the Conceptual Framework in IFRS Standards

1 January 2020

Amendments to IFRS 3 Business Combinations

1 January 2020

Amendments to IAS 1 and IAS 8: Definition of Material

1 January 2020

Interest Rate Benchmark Reform: amendments to IFRS 9, IAS 39 and IFRS 7

1 January 2020

 

Their adoption has not had any material impact on the disclosures or amounts reported in the financial statements.

Standards issued but not yet effective

At the date of authorisation of these financial statements, the following standards and interpretations relevant to the Company and which have not been applied in these financial statements, were in issue but were not yet effective. In some cases, these standards and guidance have not been endorsed for use in the European Union.

Standard

Effective date, annual period beginning on or after

Covid 19-Related Rent Concessions (Amendment to IFRS 16 Leases)

1 April 2021

Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS  4 and IFRS 16)

1 January 2021

Updating a Reference to the Conceptual Framework (Amendments to IFRS 3 Business Combinations)

1 January 2022

Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)

1 January 2022

Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets)

1 January 2022

Annual improvements 2018-2020 cycle

1 January 2022

Classification of Liabilities as Current or Non-Current: amendments to IAS 1

1 January 2023

IFRS 17 - Insurance Contracts

1 January 2023

Amendments to IFRS 17 - Insurance Contracts;

and Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4 Insurance Contracts)

1 January 2023

 

The Directors are evaluating the impact that these standards will have on the financial statements of Company, but at this stage the impact is not expected to be material.

3.  Going concern

 

Microsaic is engaged in the research, development and commercialisation of miniaturised point of care mass spectrometry detectors. The Company is loss making and has raised funds in the past by issuing equity in discrete tranches. As of 31 December 2020, the Company had £0.4 million in cash and bank balances. The most recent fundraise was completed on 5 February 2021 where the Company raised £5.1 million after expenses from new and existing shareholders. The business plan adopted by the Board is based on the working capital projections used at the time of the fund raising. The Directors have reviewed the cash forecasts and financial projections of the business plan under various scenarios to assess the sensitivity of the Company's going concern position. The key sensitivities considered include changes to the projected unit sales, or delays in sales. The Company retains a contingency plan, if required, to preserve cash and bank balances through the management of operational expenditure. This review indicates that the Company has enough cash to cover its anticipated working capital requirements for at least the next 12 months from the date of signing the 2020 Annual Report. On this basis, the Directors have concluded that it is appropriate to prepare the financial statements on a going concern basis.

4.  Critical accounting estimates and judgements

 

Accounting estimates and judgements are continually evaluated and are based on past experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Company makes estimates and assumptions concerning the future. The resulting accounting estimates could, by definition, differ from the actual outcome.

The estimates and assumptions that have a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are summarised below:

Amortisation of trademarks, patents and software

Capitalised costs relating to trademarks and patents are amortised over their estimated useful lives. As the product development programme is still ongoing and the lifetime of the Company's intellectual property is difficult to determine, the Directors have applied a prudent estimate of five years. In addition, intangible software costs have been amortised over an estimated useful life of three years. These assumptions are reviewed at each balance sheet date and amended if required.

Share-based payments

The calculation of the share-based payment expense utilises assumptions and estimates (for example volatility, future exercise rates etc) which may differ from actual results. Details of the assumptions are set out in note 24.  The Company uses the Black Scholes Option pricing model to determine a theoretical option call price. If there are market related conditions (e.g. realising certain share price targets before vesting) then the Company uses external advisers to apply more advanced modelling techniques. In terms of inputs volatility is the most difficult input to estimate and is probably the key input where management has had to use its discretion.

Provision for dilapidations

The Company occupies leasehold premises in Woking.  The dilapidations provision for Woking is £76k and has been applied consistently since 2016 and is based on a detailed dilapidations schedule. The Company undertook a review of this figure in early 2021. On a comparable basis the new estimate was in line with the provision.

Provision for inventories

The provision for inventories is to cover the write-off of a superseded product together with spare and replacement parts that may become obsolete plus slow-moving stock. The provision included £39k for slow moving parts in the year. This figure was arrived at by assessing current stock levels, projected demand and applying management judgement. As a result of the COVID-19 pandemic sales of MS units were significantly below last year. Although, production was curtailed from budget levels 11 MS units remained in finished goods at year end. The CEO and FD reviewed this in line with orders received and prospects identified and based on their judgement did not include an allowance for slow-moving finished goods in the provision. The provision will be reviewed at the half year where the assumptions made in December 2020 will be revisited. 

Provision for warranties

The Company provides OEMs and distributors with a 15-month warranty on mass spectrometry products. The assurance warranties confirm that the product complies with agreed-upon specifications. The approach adopted to calculate the warranty provision is one which estimates the costs associated with fulfilling the Company's warranty obligations covering materials, replacement parts, engineers time and travel that may have to be incurred over the 15-month warranty period. The provision decreased by £12,713 over last year's figure.

Research and development tax credits

As Microsaic is loss making and has qualifying expenditure, the Company can choose to receive R&D tax credits in cash from HMRC, instead of carrying forward the loss. The scheme for SMEs offers a benefit equivalent of up to 33p for every £1 spent on qualifying expenditure. 

The Company recognises research and development tax credits receivable in cash as a current asset under the heading corporation tax receivable.

The Company follows a process for identifying the qualifying R&D costs. To get R&D relief the Company needs to explain how a project(s):

· looked for an advance in science and technology;

· had to overcome uncertainty;

· tried to overcome this uncertainty;

· could not be easily worked out by a professional in the field.

 

A technical report is prepared by the Chief Technologist to support the claim and he reviews the assumptions around which R&D projects are qualifying. Clearly there is judgement involved in this process as to what is qualifying and what is not.

These credits are subject to acceptance by HM Revenue & Customs and the resulting cash receipt may be greater or less than this amount.

Credit losses

Lifetime expected credit loss ("ECL") has been calculated using a simplified provision matrix (see Financial Instruments under note 1 Accounting Policies for more information) where the Company has made assumptions on the default rates used in calculating the ECL of trade receivables.  Management has used its best estimates to arrive at the ECL at the year end, of £68,587. The ECL relates predominantly to one customer an invoice shipped in December 2019 and was due to be paid end of March 2020. 

Depreciation of Property, plant and equipment

Items of property, plant and equipment are stated at cost of acquisition or production costs less accumulated depreciation and impairment losses. Depreciation is charged to the statement of comprehensive income on a straight-line basis to write-off the carrying value of each asset to residual value over its estimated useful economic life as follows:


Plant and equipment   - 33.3% on a straight line basis

Fixtures and fittings   - 33.3% on a straight line basis

Software   - 33.3% on a straight line basis

These assumptions are reviewed at each balance sheet date and amended if required.

 

5.  Revenue

 

Throughout 2020, the Company operated in one business segment, that of research, development and commercialisation of mass spectrometry instruments. The attribution of revenue is based on the country or group of countries to where the goods are shipped. In 2020 our largest customers had the following revenues as a percentage of total revenues:

Customer number 1 - 26.3 per cent.

Customer number 2 - 25.9 per cent.

Customer number 3 - 16.1 per cent.

Customer number 4 - 14.0 per cent.

The geographical analysis of revenue (by location of shipment) was as follows:

 

Year to 31 December 2020

Year to 31 December 2019

 

£

£

UK

2,225

28,798

Japan

8,756

53,662

USA

41,346

159,068

Europe

57,280

448,923

China

126

139,562

South Korea

83,397

-

Rest of World

5,128

42,112

Total

198,258

872,125

 

6.  Expenses by nature

 

Year to 31 December 2020

Year to 31 December 2019

 

 

 

 

£

£

Loss from operations is stated after charging/(crediting):

 

 

Amortisation of intangible assets

40,767

40,740

Depreciation of right of use assets

87,237

90,560

Expected credit losses

64,281

4,306

Movement in inventory provision

17,650

(26,854)

Inventory items expensed

(3,318)

(870)

Staff benefit expense

1,466,342

1,885,700

Depreciation of property, plant and equipment

80,034

88,993

Provision for dilapidations on leased buildings

-

(6,559)

Provision for warranty

(12,713)

(12,817)

Material costs including R&D

58,071

67,528

Professional fees (including audit fees detailed below)

182,069

210,434

Pension costs

153,476

164,285

Exchange loss/(gain)

2,897

513

Directors' emoluments (before pensions and share based payments)

  292,140

343,420

 

 

Year to 31 December 2020

Year to 31 December 2019

 

 

 

 

£

£

Services provided by the Company's auditors

 

 

Fees payable to the Company's auditors for the audit of the financial statements

 

20,750

 

  19,950

Fees payable to the Company's auditors for other services

 

 

 - Tax compliance1

-

  5,750

- Audit related services

2,070

  2,820

 

22,820

  28,520

1 The auditors can no longer provide tax compliance services from 2020 in line with auditing ethical standards.  

 

7.  Finance income and Finance cost

 

Year to 31 December 2020

Year to 31 December 2019

 

£

£

Bank interest receivable

4,393

35,686

Interest cost under IFRS 16

(9,041)

(15,615)

Other interest

(1,734)

-

 

(10,775)

(15,615)

       

 

8.  Tax on loss on ordinary activities

 

Year to 31 December

 2020

Year to 31 December 2019

 

£

£

Domestic current period tax

 

 

UK corporation tax receivable

(218,568)

(322,442)

Adjustment for prior periods

857

-

Current tax credit

(217,711)

(322,442)

Tax on loss on ordinary activities

(217,711)

(322,442)

 

Factors affecting the current tax credit for the period:

 

Year to 31 December

 2020

Year to 31 December 2019

 

£

£

Loss before tax

(2,590,369)

  (3,103,529)

Loss before tax multiplied by standard rate of UK corporation tax of 19% (2019: 19%)

 

(492,170)

 

(589,671)

Effects of:

 

 

Non-deductible expenses

6,774

15,730

Depreciation

15,206

16,909

Profit on disposal of property, plant and equipment

(16)

-

Capital allowances

(13,363)

(17,017)

Research and development expenditure

(94,045)

(138,742)

Tax losses carried forward

359,046

390,349

Previous period research and development adjustment

857

-

Current tax credit

(217,711)

(322,442)

 

The Company has estimated tax losses of £23,587,006 (2019: £21,734,786) available for carry forward against future trading profits.  Deferred tax is detailed in note 17.

 

9.  Basic and diluted loss per ordinary share

    

Year to 31 December

2020

 

Year to 31

December

2019

 

Loss after tax attributable to equity shareholders £

(2,372,658)

(2,781,087)

Weighted average number of ordinary 0.25p shares for the purpose of basic and diluted loss per share

 

456,365,146

 

456,365,146

Basic and diluted loss per ordinary share

(0.52)p

(0.61)p

 

The basic loss per share reduced by 14.8 per cent. from 0.61p to 0.52p per share, due to the reduction in loss after tax to equity shareholders. Potential ordinary shares are not treated as dilutive as the Company is loss making, therefore the weighted average number of ordinary shares for the purposes of the basic and diluted loss per share are the same.

Under IAS 33 the calculation of basic and diluted earnings/(loss) per ordinary share is adjusted retrospectively when the number of ordinary shares issued changes after the balance sheet date but before the financial statements are authorised for issue. As detailed in note 29, 5,620,000,000 new ordinary shares were issued on 5 February 2021 as part of a fundraising and reorganisation bringing the total shares in issue to 6,076,365,146. The basic and diluted loss per share for 2020 taking into account the new ordinary shares in issue at the date of publishing the 2020 Annual would be (0.039)p.

10.  Intangible assets
 

Intangible assets comprise patents, trademarks and software owned by the Company. The cost is amortised on a straight-line basis over their estimated useful life.

 

Year ended 31 December 2020: 

 

£

 

Cost

 

 

 

At 1 January 2020

 

564,977

 

Additions

 

27,319

 

Disposals

 

-

 

At 31 December 2020

 

592,296

 

Amortisation

 

 

 

At 1 January 2020

 

467,766

 

Charge for the year

 

40,767

 

Disposals

 

-

 

At 31 December 2020

 

508,533

 

Net book value

 

 

 

At 31 December 2020

 

83,763

 

Cost

At 1 January 2019

 

 

522,970

Additions

 

42,007

Disposals

 

-

At 31 December 2019

 

564,977

Amortisation

 

 

At 1 January 2019

 

427,026

Charge for the year

 

40,740

Disposals

 

At 31 December 2019

 

467,766

Net book value

 

 

At 31 December 2019

 

97,211

           

   

11.  Property, plant and equipment

 

  Year ended 31 December 2020:

 

Plant and equipment

Fixtures and fittings

Total

 

£

£

£

Cost

 

 

 

At 1 January 2020

787,487

185,038

972,525

Additions

69,452

-

69,452

Disposals

(6,343)

(6,731)

(13,074)

At 31 December 2020

850,596

178,307

1,028,903

Depreciation

 

 

 

At 1 January 2020

663,015

184,783

847,798

Charge for the year

79,802

232

80,034

Disposals

(6,345)

(6,729)

(13,074)

At 31 December 2020

736,472

178,286

914,758

Net book value

 

 

 

At 31 December 2020

114,124

21

114,145

 

Year ended 31 December 2019:

 

Plant and equipment

Fixtures and fittings

Total

 

£

£

£

Cost

 

 

 

At 1 January 2019

721,843

224,602

946,445

Additions

103,820

-

103,820

Disposals

(20,480)

(39,564)

(60,044)

Transfer

(17,696)

-

(17,696)

At 31 December 2019                                 

787,487

185,038

972,525

Depreciation

 

 

 

At 1 January 2019

598,403

223,887

822,290

Charge for the year

88,533

460

88,993

Disposals

(20,480)

(39,564)

(60,044)

Transfer

(3,441)

-

(3,441)

At 31 December 2019

663,015

184,783

847,798

Net book value

 

 

 

At 31 December 2019

  124,472

  255

  124,727

 

12.  Lease reporting

 

IFRS 16 was effective for annual reporting periods on or after 1 January 2019 and removes the distinction between finance and operating leases for lessees. For lessees, all leases are now recorded on the balance sheet as liabilities, at the present value of the future lease payments, along with an asset reflecting the right of use of the asset over the lease term. This information aims to provide users of financial statements with the basis to assess the effect leases have on the financial position, financial performance and cash flows of an entity.  Microsaic had three leases at the 1 January 2020, two property leases and one equipment lease. One of the property leases was terminated on 1 November 2020.

 

Right of use lease assets

 

 

 

 

Property

Equipment

Total

 

£

£

£

Cost

 

 

 

At 1 January 2020

240,035

8,441

248,476

Additions

Disposals

(60,272)

-

(60,272)

At 31 December 2020

179,763

8,441

188,204

Depreciation

 

 

 

At 1 January 2020

88,071

2,489

90,560 

Charge for the year

84,742

2,495

87,237

Disposals

At 31 December 2020

(38,997)

133,816

-

4,984

(38,997)

138,800

Carrying amount

 

 

 

At 31 December 2020

45,947

3,457

49,404

 

 

 

 

 

Lease liability

£

£

£

 

 

 

 

At 1 January 2020

158,458

6,083

164,541

Repayment of lease liabilities

(94,777)

(2,637)

(97,414)

Interest on lease liabilities

Disposals

8,851

(22,701)

190

-

 

9,041

(22,701)

 

At 31 December 2020

49,831

3,636

53,467

 

Lease liability maturity analysis

 

 

 

 

 

  2020

  2019

 

Property

Equipment

Property

Equipment

Gross lease payments due:

 

 

 

 

Within one year

51,577

2,637

98,732

2,637

Between two and five years

-

1,111

71,392

3,748

 

51,577

3,748

170,124

6,385

Less future financing charges

(1,745)

(113)

 (11,666)

 (302)

 

49,832

3,635

158,458

6,083

Other disclosures: 

IFRS 16 - Leases

Property

 

£

Equipment

 

£

Year to 31 December 2020

£

Variable lease payments expensed/(received)

(6,468)

(139)

(6,607)

 

 

 

 

 

 

 

13.  Inventories

 

Year to 31 December 2020

Year to 31 December 2019

 

 

 

 

£

£

 

 

 

Raw materials

262,506

299,650

 

 

 

Work in progress

-

47,978

 

 

 

Finished goods

364,687

78,567

 

 

 

Subtotal

627,193

426,195

 

 

 

Provision for inventories

(57,604)

(39,954)

 

 

 

Total

569,589

386,241

 

 

 

 

Inventories are higher in 2020 following a significantly lower level of sales during the year. Production was reduced to mitigate the fall in sales. The provision increased in 2020, mainly due to slow moving stock.

 

14.  Trade and other receivables

 

Year to 31 December 2020

Year to 31 December 2019

 

£

£

Amounts falling due within one year

 

 

Trade receivables

108,529

267,893

Provision for expected credit losses

(68,587)

(4,306)

Other receivables

123,385

153,949

Other taxes and social security

10,544

28,418

 

173,871

445,954

Not past due

37,849

267,893

1 to 30 days past due

 2,506

-

31  to 60 days past due

-

-

270 days past due

68,174

-

 

108,529

267,893

 

Year to 31 December 2020

Year to 31 December 2019

 

 

£

£

 

Provision for expected credit losses on trade receivables:

 

 

 

Balance brought forward

(4,306)

-

 

Written back to P&L during the year

4,306

-

 

Provided during the year

(68,587)

(4,306)

 

Balance carried forward

(68,587)

(4,306)

 

         

 

The provision for expected credit losses is mainly in respect of the 270 days past due invoice. For trade receivables the loss allowance is mandatorily measured at an amount equal to the lifetime expected credit losses.

15.  Trade and other payables

 

Year to 31 December 2020

Year to 31 December 2019

 

£

£

Amounts falling due within one year

 

 

Trade payables

63,034

95,431

Other taxes and social security

29,174

46,665

Other payables

11,278

17,352

Accruals and deferred income

82,441

131,115

 

 

16.  Provisions

 

Dilapidations

 

Warranties

TOTAL

 

£

 

£

£

Balance at 1 January 2020

75,779

 

60,969

136,748

Provided for/(reduced) during the year

-

 

(12,713)

(12,713)

Balance at 31 December 2020

75,779

 

48,256

124,035

 

The provision for anticipated dilapidations is in respect of the Company's leasehold premises at Woking. The amount carried forward of £75,779 is based on the potential future cost which could be incurred at the end of the lease.

The Company provides OEMs and distributors with a 15-month warranty on MS products. The provision represents the anticipated cost of servicing those warranty claims. The provision is based on historical costs including product, replacement parts and the cost of service engineers that may have to be incurred over the warranty period. The provision for warranty at the end of the year is £48,256. There were no significant claims during the year. 

17.  Deferred tax

Deferred taxation provided in the financial statements: 

 

£

 

Balance at 1 January and 31 December 2020

 

  -

 

 

Year to 31 December 2020

Year to 31 December 2019

 

 

£

£

Accelerated capital allowances

21,688

21,204

Tax losses carried forward

(21,688)

(21,204)

 

-

-

           

 

 A deferred tax asset in respect of tax losses has only been recognised to the extent of the deferred tax 
 liability in respect of accelerated capital allowances at a tax rate of 19 per cent (2019: 17 per cent.).
 

18.  Share capital 

 

Number

£

Allotted, called up and fully paid ordinary shares of 0.25p each

 

 

Ordinary shares as at 31 December 2019

456,365,146

1,140,913

Ordinary shares issued for cash in the year

-

-

Ordinary shares as at 31 December 2020

456,365,146

1,140,913

 

The Company has one class of share, ordinary shares of 0.25p each, with each share carrying one vote and equal rights to discretionary dividends. No shares were issued in 2019 or 2020. Post year end on the 5 February 2021 the Company undertook a share reorganisation reducing the nominal value of ordinary shares from 0.25 pence to 0.01 pence. In addition, the Company issued new ordinary shares, details of which can be found in note 29. The number of shares in issue on the 30 April 2021 is 6,076,365,146.

19.  Reserves

 

The share premium account represents the excess over the nominal value for shares allotted less issue costs. The share option reserve represents accumulated charges made under IFRS 2 in respect of share-based payments. Where share options that have vested expire, lapse or are exercised, the amounts within the share-based payments reserve relating to those options are transferred to retained earnings as shown in the Statement of Changes in Equity.

20.  Share premium

 

Year to 31 December 2020

Year to 31 December 2019

 

£

£

Opening balance brought forward

24,867,886

24,867,886

Share issue in the year

-

-

Share issue costs

-

-

Closing balance carried forward 

24,867,886

24,867,886

 

21.  Commitments

 

Year to 31 December 2020

Year to 31 December 2019

 

£

£

Contracted for but not provided in the financial statements

426,595 

806,185 

 

  The commitment above relates to purchase orders placed on our third-party manufacturer.
 

22.  Directors' emoluments

 

Year to 31 December 2020

Year to 31 December 2019

 

£

£

Salaries and fees

291,086

342,017

Non-cash payments

1,054

1,403

Pension costs

23,429

27,560

Employment related share-based payments

51,753

47,075

 

367,322

418,055

 

In the year to 31 December 2020 the two Executive Directors that served during the year accrued benefits under the Company's auto-enrolment pension scheme. There are no key management personnel other than the Directors. The highest paid Director, Mr Glenn Tracey, received emoluments of £135,168 as disclosed in the Directors' Remuneration Report in the Company's 2020 Annual Report, which included a share-based payment charge of £12,991.

There were no gains on the exercise of share options in the year.

23.  Employees

 

 

Year to 31 December 2020

Year to 31 December 2019

 

Number

Number

Directors

5

5

 

Other staff

21

24

 Average Headcount

26

29

       

 

 

Year to 31 December 2020

Year to 31 December 2019

 

£

£

Employment costs (including Directors)

 

 

Wages and salaries

1,081,201

1,488,583

Social security costs

121,141

163,820

Termination payments

58,283

-

Pension costs

153,476

164,285

Employment related share-based payments

52,241

69,012

 

1,466,342

1,885,700

 

24.  Share-based payments
 

Share option schemes

The Company operates an EMI and an unapproved share option scheme as a means of encouraging ownership and aligning interests of staff and shareholders. The table below shows the number of options outstanding and exercisable at 31 December 2020 and the weighted average exercise price.

 

 Year to 31 December 2020

 Year to 31 December 2019

 

Number of options

Weighted average exercise  price

Number of options

Weighted average exercise price

Outstanding at the beginning of the year

 

18,644,000

 

5.2p

 

13,964,000

 

6.5p

Granted during the year

-

-

5,000,000

1.55p

Forfeited/expired during the year

(1,169,000)

6.0p

(320,000)

7.0p

Exercised during the year

-

-

-

-

Outstanding at 31 December

17,475,000

5.1p

18,644,000

5.2p

Exercisable at 31 December

4,375,000

9.8p

2,624,000

12.1p

 

Details of options in issue at the year-end are:

Date of grant

Exercise price

Latest exercise date

Estimated fair value

Number of options 31 December 2020

Number of options 31 December 2019

 

December 2010

25.86p

December 2020

11.0p

-

29,000

 

July 2012

42.00p

July 2022

12.1p

190,000

230,000

 

May 2014

46.80p

May 2024

11.4p

90,000

90,000

 

November 2014

  49.50p

November 2024

11.9p

100,000

100,000

 

April 2015

47.75p

May 2025

10.5p

100,000

100,000

January 2016

23.50p

January 2026

11.7p

395,000

395,000

September 2016

5.00p

September 2026

2.0p

2,000,000

2,100,000

September 2016

5.00p

September 2026

0.6p

2,000,000

2,000,000

January 2018

4.05p

January 2028

1.3p

2,100,000

3,100,000

January 2018

4.05p

January 2028

2.2p

5,500,000

5,500,000

June 2019

1.55p

June 2029

0.7p

5,000,000

5,000,000

 

 

 

 

17,475,000

18,644,000

 

The estimated fair values of the share options were calculated by applying the Black Scholes or Monte Carlo models. The period of exercise for all options granted is ten years from the date of grant and the vesting period is normally three years from the date of grant. Prior to 2016 the expected volatility had been determined by calculating the historical volatility of the share price over the previous year. From September 2016, and consistent with the application guidance in IFRS 2, the Directors considered the most appropriate method to calculating volatility to be the use of the historical volatility of comparable listed companies. The model inputs are detailed below:

The model inputs using Black Scholes were:

Date of grant

Exercise price

Share price

Risk free rate

Expected volatility

Gross dividend yield

July 2012

  42.00p

42.00p

0.50%

33%

-

May 2014

  46.80p

46.80p

2.69%

16%

-

November 2014

  49.50p

49.50p

2.05%

18%

-

April 2015

  47.75p

47.75p

1.58%

17%

-

January 2016

  23.50p

23.50p

1.74%

38%

-

September 2016

  5.00p

  5.12p

0.87%

30%

-

January 2018 (staff)

  4.05p

  4.29p

0.79%

31%

-

January 2018 (directors)

  4.05p

  4.29p

1.29%

39%

-

June 2019

  1.55p

  1.55p

0.87%

34%

-

 

On 5 February 2021, options and warrants over 1,125,000,000 ordinary shares were issued to Directors and staff. Details can be found in note 29.

25.  Warrants
 

On 20 October 2015, the Company granted warrants to Numis Securities Ltd, the Company's brokers at the time as part of its remuneration for the equity placing, which was completed in October 2015, to subscribe for 1,467,303 ordinary shares, being 2 per cent. of the issued share capital of the Company on that date. These warrants expired on 20 October 2020, 5 years from the date of grant.

26.  Financial instruments
 

The Company's financial instruments comprise cash and various trade receivables and trade payables that arise directly from its operations. No trading in financial instruments is undertaken. The main risks arising from the Company's financial instruments are liquidity, currency and interest rate. The Board oversees the management of these risks, which are summarised below.

Liquidity risk

The Company finances its operations from equity funding provided by shareholders and revenues generated by the business. The Company seeks to manage liquidity risk to ensure enough funds are available to meet working capital requirements. The Company successfully raised £5.5 million before expenses through the issue of new shares in February 2021.  

The Company invests its cash reserves in bank and money market deposits as a liquid resource to fund its operations. The Company's strategy for managing cash is to balance interest income with counterparty risk ensuring the availability of cash to match the profile of the Company's cash flows.

The £5.5 million raised in February 2021 should take the Company through to profitability. In reviewing the Company as a going concern management prepared alternative business scenarios where performance falls below the level required to reach breakeven. Contingency plans and mitigating actions have been identified in case actual results differ from the Company's business plans. There can be no guarantee that the commercial objectives of the Company will be achieved.

Interest rate risk

The Company does not face any significant interest rate risk as it has no borrowings. Surplus funds are invested to maintain a balance between accessibility of funds, competitive rates, and counterparty risk while investing funds safely.

Credit risk

The Company manages its credit risk in cash and cash equivalents by spreading surplus funds between creditworthy financial institutions. The Company is also exposed to credit risk attributable to trade and other receivables. The maximum credit risk in respect of the financial assets at each period end is represented by the balance outstanding on trade and other receivables.  The Company monitors the credit worthiness of its customers on a regular basis.

Foreign currency risk

The majority of the Company's transactions are denominated in pounds sterling. The Company has no long-term commitments to purchase goods or services in foreign currencies. Purchases denominated in foreign currency are expensed at the exchange rate prevailing at the date of the transaction and represents an immaterial proportion of the Company's total expenditure. 

The only assets and liabilities denominated in foreign currencies relate to trade receivables and trade payables with overseas counterparties together with small balances of US dollar and Euro currencies to settle these liabilities.  The risks and sums involved are immaterial.

Fair values

The Directors consider that there is no material difference between the book value and the fair value of the financial instruments on 31 December 2020 and 31 December 2019.

Capital management

The Company's capital base comprises equity attributable to shareholders.  As the Company's focus has been on establishing itself as a successful supplier of MS detectors, the primary objective in managing

cash spend has been to achieve progress on product development and commercialisation in a cost-efficient manner and in managing liquidity risk to ensure the Company continues as a going concern.

 

27.  Related party transactions
 

There are no related party transactions to disclose. Remuneration paid to the Directors is shown in note 22 to the financial statements. There were no related party transactions with third parties.
 

28.  Control
 

As at 31 December 2020, no individual shareholder had a controlling interest in the Company.

29.  Events after the Reporting Date


(i) The Company made RNS announcements regarding the Transaction on 15 and 21 January 2021, and on 4 and 5 February 2021. The Circular issued to shareholders in connection with the Transaction can be found on the Company's website at http:/www.microsaic.com/investors/documents. The Transaction included the following:

 

a placing with certain institutional and other investors, to raise £5.0 million before expenses through the issue of up to 5 billion new ordinary shares at the placing price of 0.1 pence per new ordinary share (referred to as the "placing shares"). The placing price was at a discount of approximately 50 per cent. to the closing middle market price of 0.2 pence per existing ordinary Share on 15 January 2021, being the latest practicable date prior to the publication of the Circular;

-  a Broker Option to raise £0.5 million whereby Turner Pope allocated 500 million new ordinary shares (the "broker option shares") at the Placing Price of 0.1 pence per new ordinary share to meet additional demand for the new ordinary shares ;

 

-  the issuance of the fees shares, whereby (i) 35 million new ordinary shares were issued at the placing price of 0.1 pence per new ordinary share in respect of the first year of fees due to Turner Pope for the provision of its broking services to the Company and (ii) 85 million new ordinary shares were issued at the placing price of 0.1 pence in settlement of the first year's fees of Gerard Brandon (50 million shares) and Dr Nigel Burton (35 million);

 

the issuance of broker warrants, whereby transferable warrants were issued to JIM Nominees Limited (as nominee on behalf of Turner Pope) for up to 997 million new ordinary shares, equivalent to 20 per cent. of the placing shares issued, exercisable at the placing price for two years from Admission, as part of the consideration paid to Turner Pope for its services as placing agent to the Transaction;

 

-  Board changes included the appointment Gerard Brandon as Non-executive Chairman and Dr Nigel Burton as Non-executive Director, replacing Peter Grant and Eric Yeatman who resigned as part of the reorganisation;

 

- Director options and warrants were awarded over 675 million New Ordinary Shares including Gerard Brandon (250 million warrants), Dr Nigel Burton (200 million warrants), Glenn Tracey (150 million options) and Bevan Metcalf (75 million options).  Eric Yeatman was awarded 75 million warrants and was retained as a consultant to the Company. The performance condition, prior to vesting, is based on the Company's shares trading at a VWAP at or above a 50 per cent. premium to the placing price for 20 consecutive business days at any time since their issue, or on a change of control of the Company. The share-based payment charge in relation to the award of the 750 million options and warrants is estimated to be £1.125 million, and this will appear the 2021 financial statements of the Company as the options and warrants vested in March 2021; and

 

-  a share reorganisation, enabled shares to be issued at the placing price of 0.1 pence per new ordinary share, which was below the nominal value of the ordinary shares. The new nominal value approved by shareholders is 0.01 pence per ordinary share. The share reorganisation comprised: a) the sub-division and re-designation of every existing ordinary Share of 0.25 pence each into: (i) one (1) ordinary share of 0.01 pence each; and (ii) twenty-four (24) deferred share of 0.01 pence each; and b) the immediate consolidation of every twenty four (24) deferred shares of 0.01 pence each arising under (a) above into one (1) deferred share of 0.24 pence.  Each new ordinary share carry the same rights as each existing ordinary share under the Articles. Each deferred share will have very limited rights and will effectively be valueless.


(ii) On 5 February 2021 the Company awarded staff 375,000,000 options over the Company's shares at an exercise price of 0.1 pence. There are no performance conditions associated with the staff options but there is a two year holding period before the options can vest. The share-based payment charge is estimated at £0.6 million vesting over two years from the date of grant. Existing 
options held by Directors and staff amounting to 13,110,000 were cancelled on 4 February 2021. A further 3,500,000 options held by Peter Grant were cancelled on 5 February 2021. The cancelled options will be credited to the P&L in 2021 (estimated at £0.1 million) for those that had not yet vested and a credit to retained losses reserve for those options that have vested (£0.2 million).

 

 

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