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IQ-AI Limited (IQAI)

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Monday 04 May, 2020

IQ-AI Limited

Final Results

RNS Number : 8050L
IQ-AI Limited
04 May 2020
 

IQ-AI Ltd

("IQ-AI" or the "Company")

 

Publication of Annual Report

 

 

The Board of IQ-AI Ltd are pleased to present announce that the Company's audited financial statements for the year ended 31 December 2019.

 

The Annual Report will be available on the Company's corporate website.

 

--ENDS--

The Directors of the Company accept responsibility for the contents of this announcement.

For further information, please contact:

IQ-AI Limited

Trevor Brown/Vinod Kaushal/Qu Li

Tel: 020 7469 0930

Peterhouse Capital Limited (Financial Adviser and Broker)

Lucy Williams/Heena Karani

Tel: 020 7220 9797

 

The Company's financial statements have been extracted, without material change, from the Company's Annual Report and reproduced without material change:

 

Chief Executive Officer's Statement

Annual Report and Financial Statements

For the year ended 31 December 2019

To the members of IQ-AI Limited

I am pleased to present the Company's results for the twelve months ended 31 December 2019.

Operational report - Michael Schmainda

During 2019, IQ-AI's operating subsidiaries, Imaging Biometrics, LLC and Stone Checker Software Limited, continued efforts to increase sales of existing products as well as accelerate the development of new technologies. We sell and service products through a combination of direct sales and independent distributors, and have particularly increased our efforts through our established partnerships and sales channels. While our primary focus is in providing proven solutions to clinicians for assisting them in the treatment of a wide variety of disorders, we also remained active in providing translational services to researchers and other companies needing assistance in the development and commercialization of their own products. The combination of our existing product platform and our investment in product development positions us well for an exciting 2020.

The Company will focus on the following areas of revenue development in 2020:

 

1.  Growing IQ-AI's Footprint in Core Markets

During 2019, the Company intensified its efforts to penetrate clinical routines in areas we feel we have a technological advantage. We believe the current standard of care for treating brain tumor patients is insufficient and the information offered by conventional imaging is lacking. IB's Fractional Tumor Burden (FTB) mapping application, which is based on the underlying technology within IB Neuro, continues to be a solution that offers brain tumor treatment teams singular information not available elsewhere. Continued growth amongst new customers in 2020 will include marketing directly to the broader care team including neurosurgeons and neuro-oncologists working at US-based brain tumor centers. While neuroradiologists continue to be a primary user of our solutions, expanding our customer outreach to other members of the brain tumor treatment team will help drive adoption of our approach and provide the fastest return on our investment.

 

Through our participation in the US National Cancer Institute's Quantitative Imaging Network (QIN), the advantages of FTB and IB Neuro in general have been promoted and are gaining momentum as the accepted standard in brain tumor imaging. As the ONLY industrial participant of the QIN, our FTB and Delta T1 applications have been showcased to other participating members located at prestigious academic research hospitals. During 2019, we continued our engagement with three prestigious cancer centers. One site, a leading brain tumor center in California USA, has purchased IB's FTB mapping platform and will have the ability to generate quantitative FTB and Delta T1 maps for patients by early Q2, 2020.

 

Increase Penetration in US Cancer Centers  

We believe our brain tumor mapping software is the most accurate and validated platform commercially available. Our collaborators, and those early adopters of our application, continue to contribute to a growing body of peer-reviewed publications that further support the superiority of our approach. Yet, major cancer centers remain a relatively untapped opportunity for us. To exploit this opportunity, we intend to increase our marketing activity on:

·   Exhibits:  Throughout our history, we have attended various tradeshows and scientific meetings geared primarily towards radiologists. This field remains a key market for us, however, in 2020, we will expand our involvement in neurosurgery and neuro-oncology shows. While the current Covid-19 pandemic has caused a number of tradeshow cancellations thus far in 2020, we are actively demonstrating our solutions to prospective clients via net meeting and other virtual means.

·   Brain Tumor Foundations:  Tremendous efforts by a broad international coalition of researchers continued  throughout      2019 to further standardise the approach for diagnosing and treating brain tumors. Worldwide foundations are involved in these discussions which often include regulatory agencies such as the US Food and Drug Administration. Similar to the cancer center outreach, we intend to educate and convey the benefits of our approach with these foundations who may have a direct impact on creating guidelines for brain tumor imaging standards. Along those lines, we were recently invited by The Musella Foundation to participate in a live video lecture series. May is Brain Cancer Awareness Month and the lecture will be streamed via Facebook and distributed via social media.  

· Direct Marketing:  In the latter part of 2019, a comprehensive list of cancer centers was compiled. Each will receive a customized introduction to the benefits of our approach.

· Surgical Navigation Incorporation. Companies such as Medtronic and BrainLAB have surgical navigation platforms that are commonplace in brain tumor treatment centres. These platforms provide mapping software that helps surgeons navigate to tumor sites for biopsy sampling and excisions. Our FTB maps have the ability to more accurately identify areas of aggressive tumor and non-tumor tissue for informing surgical navigation strategies and our software is complementary to these products.

· Radiation Treatment Planning. Analogous to surgical navigation systems, FTB maps have the potential to impact the way radiotherapy is performed by improving accuracy of target volume definition and helping to spare critical adjacent brain tumor.

 

2. StoneChecker® 510(k) Market Clearance

On September 26, 2019, we received USFDA market clearance for the StoneChecker software product. This long-awaited decision was a significant accomplishment for our company and marked the commencement of US-based marketing activities. Following an internal strategic review of the company's opportunities and identifying the best use of our resources, it was decided to sell the StoneChecker technology. This process is now underway. Unfortunately, the Covid-19 pandemic has meant that potential purchasers have been obliged to postpone following up on their original expressions of interest from in purchasing this product. We will resume the process as soon as conditions allow.

 

3. Leveraging Existing Commercial Channels to Increase Adoption and Sales

Channel Partnerships

Our software is designed for rapid integration into other medical imaging platforms. By strategically choosing not to "reinvent the wheel" by developing another version of industry-standard image visualization capabilities, we can maintain our focus on developing novel and sophisticated solutions that add value to other vendor's platforms. On July 9, 2019, we announced our latest partnership with CorTechs Labs, Inc. This sales agreement incentivizes the sales teams at CorTechs to introduce their existing client base to IB's products. Training of the global CorTechs sales team was completed and monthly meetings are taking place to discuss lead generation activities and co-marketing efforts.

In addition, 2019 saw a marked increase in activity from our existing channel partners. aycan Medical Systems, the makers of the aycan Workstation on which our FTB maps are generated, remained a valued reseller and provided renewal licenses and support for key clients. Envoy/TeraRecon, Blackford/InteleRAD, QMENTA, and Medimsight provide automated processing options for our "tools" through their platforms. In May 2019, Medimsight became the first channel partner to secure a client who used our tools and all partners have increased co-marketing efforts and represented IB well at tradeshows such as the American Society of Neuro Radiology (ASNR) and the Radiological Society of North America (RSNA) throughout 2019.

Throughout the course of 2019, we established a relationship with SNR Technology, an exclusive provider of the OsiriX MD platform in Turkey. This relationship's initial focus was for using key features of IB Diffusion to help analyse prostate images. Specifically, IB Diffusion has the ability to generate an "extrapolated b-value" which has a direct application when used in conjunction with 1.5T MR scanners. High b-value output can only be generated directly on high field strength systems (3.0T and over), which are costly and not widely available in all regions. Since the vast majority of scanners in Turkey are 1.5T, there is strong interest in IB Diffusion for prostate imaging. In early 2020, we sold our first license of IB Diffusion with SNR Technology, and we are optimistic about the future opportunity in this area and the promising relationship established with SNR Technology.

 

4. Development and Regulatory Services

Throughout all of 2019, we provided development and regulatory support for AI Metrics, LLC and partnered with them to commercialize their first software application, Liver Surface Nodularity (LSN) for use in chronic liver disease. This product analyses CT datasets by computing a roughness score along a user-defined edge of the liver. This LSN score correlates to the severity of disease, and aids in the staging and ultimate treatment for those patients. In early 2020, after completing the development of the initial LSN version, we entered into an agreement   with AI Metrics to serve as their contract manufacturer. Under this agreement, we receive a monthly payment for distributing AI Metrics' software to clients and providing support under our established Quality Management System (QMS). In addition, we are acting as a reseller of LSN software for which a commission of net sales is received under mutually agreeable terms.

In addition, the company also contracted with Oregon Health and Science University (OHSU) in the development of a "steady-state" cerebral blood volume (ssCBV) processing workflow. This product generates CBV maps using Ferumoxytol instead of Gadolinium as a contrast media in MRI. Ferumoxytol is an iron-based imaging agent currently under development by OHSU. It has a long circulation time and is a good candidate for imaging due to the absence of early leakage out of vessels. As with our own standardized rCBV maps, ssCBV maps could potentially be a beneficial option in planning biopsy and evaluating treatment response in patients with central nervous system (CNS) neoplasms. In clinical practice, the application of ssCBV would apply to patients who can remain still in MR scanners over longer periods of time.

 

5. Development of New Products

In 2019, we announced the development of several significant new product initiatives. To support these initiatives, the company enlisted key person nel to assist in both the core development of those products as well as provide business and regulatory support. Specifically, in late 2019 a recognized leader in Artificial Intelligence (AI) and Deep Learning applications was contracted and will be an integral factor in achieving our development goals.

· Longitudinal Delta T1 Maps:  Using Image to identify areas of residual brain tumor after surgery is integral to the evaluation of treatment response and clinical decision-making. Despite continued developments in advanced imaging biomarkers, the selection of the contrast-agent enhancing (T1+C) tumor volume (or region of interest, ROI) will remain central to this process. Delta T1 maps were developed by IB to robustly determine enhancing tumor volumes. Using an exclusive technology termed "standardization", Delta T1 maps have the ability to cause a paradigm shift in how brain tumor burden is assessed before surgery and during treatment. To fully realize its potential, development efforts are underway to automate the segmentation of the residual enhancing volumes. Once automated, this quantitative information would be provided to the treatment team as a fundamental biomarker for any neuro exam containing a pre- and post-contrast image. The next logical step would then be to present this information over time, or longitudinally, in a concise report. 

 

· Stroke Processing:  In the latter half of 2019, IB announced the launch of a stroke imaging platform. This platform leverages our existing algorithms optimized for neuro application, and a stroke application represents the next logical extension of our product portfolio. In the US alone, stroke costs an estimated $34 billion annually. These costs include health care services, medicines to treat stroke, and lost days of work. While several competitors have strong market positions in stroke imaging, we believe an opportunity exists in streamlining the processing of the information and optimizing workflows using our existing software algorithms.

 

New information is emerging around the ever-changing landscape of the global COVID pandemic. Initially thought to only affect respiratory tracts, new findings offer evidence that COVID impacts major organ systems throughout the body. People between the ages of 20 and 50 and otherwise healthy are uncharacteristically experiencing (large-vessel) strokes after being diagnosed with the virus. Blood clots throughout the body are forming and migrating to the brain. At the time of publishing this Annual Report, it is still not clear how COVID-19 is causing blood clots. According to a New England Journal of Medicine (NEJM) publication, initial reports from Wuhan, China stated that approximately 5% of patients who were hospitalized with the coronavirus suffered a stroke. And, other clinicians are noticing abnormal clotting in a "significant minority" of intensive care unit patients with COVID-19.

 

Thus, clinicians specialising in neurological disorders are coming to the forefront, and IB's software solutions are available to help them in cases where stroke is suspected. IB's core products are renown for accurately computing a variety of MR and CT perfusion parameters in the brain which are directly applicable to stroke assessment. We intend to maintain a watchful eye as new findings about COVID-19 surface and, as a nimble and responsive company, potentially allocate resources to help clinicians combat this virus as best we can (or as appropriate).

 

· Automating FTB:  As highlighted earlier, we believe FTB maps represent the standard of care for brain tumor diagnosis and treatment monitoring. To foster widespread adoption, we intend to automate the final manual step necessary to generate FTB maps; the auto-segmentation of the Delta T1 enhancing region. Currently, neuroradiologists or MR Technologists need to manually segment the enhancing region by drawing rough "bounding" regions-of-interest (ROI) around the areas of concern. Depending on the location and invasiveness of the tumor, this could take upwards of ten (10) minutes to complete. Eliminating this manual step would foster adoption particularly at sites with a high-volume of brain tumor scans and provide the ability for any-sized healthcare facility to generate FTB maps.

 

· StoneChecker: While we are currently pursuing strategic pathways to optimise the economic value of StoneChecker Software, we continue to enhance its basic functionality to help prepare it for widespread clinical adoption. During 2019, we incorporated an easy way to route CT dataset to the software. This feature mimics PACS retrieval capability common in the industry. In addition, an output reporting feature was developed that can be exported directly to a site's PACS.

 

· Gd-Free Imaging:  We continue efforts to offer lower dose and, eventually, zero Gd contrast imaging options. These include:

 

Simultaneous Perfusion Imaging with Consecutive Echoes ("SPICE"), a patented technology owned by IB that eliminates the preload dose of the required two administrations of gadolinium-based contrast agent (GBCA) during image acquisition for brain tumor perfusion analysis. This patent has the additional benefit of providing both dynamic susceptibility ("DSC") and dynamic contrast enhanced ("DCE") parameter maps using a single MR acquisition. Both DSC and DCE imaging provide biological and physiological information about the brain. IB Neuro already incorporates the ability to compute SPICE DSC parameters and two sites are already leveraging this functionality to take advantage of the reduced GBCA administration. Researchers at the Medical College of Wisconsin (Milwaukee, WI, USA) are currently working with major scanner vendors for acquiring the data in order to optimize the DCE processing as well. Once validated, the benefits of a reduced GBCA approach and the simultaneous generation of both DSC and DCE parameters will be an attractive benefit.

Low Flip Angle is an approach published in April 2019 that also offers the option of eliminating the preload dose of GBCA. This is currently validated on 3T MRI scanners and researchers do intend to validate on 1.5T MRI scanners soon. Some existing sites are already transitioning their MR protocols to acquire data using this approach. Along with the reduction in GBCA use, the obvious benefit is a smoother, more streamlined, workflow for patients through MR departments.

Simulated T1+C would provide the generation of post-contrast images without the need for any GBCA. The acquisition of a pre- and post-contrast T1-weighted image is common to all brain exams. IB has filed a patent application at the USPTO for gadolinium free imaging with the ultimate goal of using deep learning networks to create a "simulated T1+C" without any exogenous contrast material.

 

· Development of PC-based options for IB software via ClearCanvas (Synaptive Medical, Toronto, CA) remains on our 2020 roadmap. The final steps are underway to release IB Software as plugin options to ClearCanvas. Since our inception, we have leveraged the Mac computer based OsiriX platform to host our plugins. The OsiriX environment has proven very stable and robust, but Mac-based applications are not widely used in hospital environments. In recognizing this fact, we have chosen ClearCanvas as our PC-alternative host environment for our plugins. Once validated, prospective clients will have immediate access to PC-based options for our products.

 

· IB Clinic, our automated processing option, continues to experience increases in demand. Similar to the offering of our channel partners, IB Clinic was developed to offer hands-free, fully automated, processing and routing of quantitative maps and information to a site's picture archiving and communication system (PACS). As radiologists continue to be inundated with an exploding number of images to view and interpret, IB Clinic allows them to remain focused on their diagnostic evaluations by eliminating these manual processing steps. An added benefit of IB Clinic is that the datasets, which contain personal health information (PHI), are not sent to the "cloud" for processing. Instead, the datasets remain on site, within a site's IT firewall, thereby alleviating all PHI concerns for healthcare administrators.

 

Outlook

We leave 2019 positioned on a strong foundation of talent, technology, and optimism. Our best-in-class software solutions continue to deliver clarity for brain tumor patients and their care providers every day. While we are committed and focused on our short and mid-term plans, we remain nimble and flexible to respond to the ever-changing landscape and emerging opportunities we anticipate evolving in healthcare over the next five years.

 

Increasing sales of our core products will be the backbone of our business over this period. Supported by research and development as evidenced by a growing body of clinical evidence and research publications, our product enhancements are being fueled by top software engineering talent. Automating the processing of data using   artificial intelligence (AI) and deep learning networks will pave the way for widespread and rapid clinical adoption. At the close of 2019, four leading brain tumor centers from major metropolitan areas continued to explore the adoption of our tools and, in early 2020, one of those centers purchased our neuro oncology platform. Fully automating our brain tumor monitoring platform will enable healthcare facilities of all sizes to take advantage of our solution. The short-term focus on neuro applications includes the development of stroke solutions and the development of concise longitudinal reporting capabilities for our exclusive Delta T1 maps.

 

Looking forward, as we advance our software capabilities for our existing products, opportunities for new products present themselves. We continue to be invited to collaborate with leading research centers throughout the world. These collaborative efforts include expanding our " fractional tumor burden" (FTB) mapping process for low-grade tumors and metastatic cancers. A distinct advantage in achieving our goals is our long-standing relationship with the lab of Kathleen Schmainda PhD at the Medical College of Wisconsin, which ensures we remain on the forefront of medical imaging in the neuro space. We also have growing relationships with researchers and clinicians in fields outside of the brain, such as prostate, breast, and lung.

 

Since our inception, we have designed our plugins for portability into other vendors platforms. We do anticipate a marked increase in revenue through our growing relationships with channel partners, distributors, and other medical imaging companies. Our advanced mapping capabilities can directly apply in markets that remain relatively untapped. For instance, neuro navigation and radiotherapy companies are prime candidates for adopting advanced imaging tools to more accurately guide their planning and treatment platforms. Likewise, drug development companies could leverage our proven biomarkers to provide a more accurate indication of the effectiveness of their new agents. Improved accuracy for drug developments equates to shortened product development timelines and, ultimately, substantial benefits and savings.

 

Our expertise of translating novel technologies into routine clinical practice sets us apart from other medical imaging companies. As we move forward in 2020, we will continue to offer services to researchers who may need assistance in translating their research and technologies. Those services, whether software development, regulatory assistance, or marketing support, allows us to assess the commercialization potential of these new technologies for possible merger and/or acquisition opportunities.

 

Finally, we remain alert to the myriad of new companies creating innovative solutions that solve healthcare problems and aid patients. While we are excited about our organic growth potential, we recognize that merger and acquisition activity may accelerate revenue generation, fulfill technical gaps, and a potentially faster time to market. Expanding our footprint in medical imaging to better serve patients remains our unwavering goal, and we will remain aggressive in this pursuit.

 

 

 

Trevor Brown
Chief Executive Officer

 

Strategic Report

Annual Report and Financial Statements For the year ended 31 December 2019  

The Directors present their strategic report on the group for the year ended 31 December 2019.

 

Principal activities

The principal activity of the Group is the provision of convenient, cost-effective and clinical treatments to patients in the field of medical imaging diagnostics, based on proven technologies

 

Strategy

IQ-AI's vision is to become a leader in the field of medical imaging diagnostics. The Company purchased 100% of the equity in Stone Checker Software Limited in June 2017, and in March 2018 purchased Imaging Biometrics LLC ("IB") with its suite of advanced imaging diagnostic software products.

On 18 December 2019, the Directors announced their intention to seek a buyer for Stone Checker Software Limited.

Event since the year end

On 13 January 2020, David Smith exercised share options of 1,000,000 Ordinary Shares at £0.026 each, totalling £26,000.

On 6 February 2020, the Company converted £60,000 convertible loan notes and the £16,875 associated interest into 5,125,000 Ordinary Shares at a price of 1.15 pence per share.  The convertible loan notes were issued on 18 November 2015 to Free Association Books Limited.

Results for the 2019 financial period

The summary results are found in the primary statements of the Group, primarily being the Income Statement, the Statement of Comprehensive Income and Statement of Financial Position.

In summary:

· The net interest cost for the Group for the period was £28,975 (2018: £15,662)

· Group revenue for the year was £267,868 (2018: £164,971)

· Administrative expenses from continuing operations decreased to £859,171 (2018: £878,648)

· Group loss after tax from continuing operations was £617,067 (2018: £764,080)

· Taxation charge was £nil for the period (2018: £nil) 

· Basic and diluted loss per share from continuing operations was 0.48p (2018: 0.64p loss)

· As at 31 December 2019, the Group had cash and cash equivalents of £865,875 (2018: £28,783)

· The Group's net assets increased to £1,659,649 (2018: £762,884)

· Intangible assets, comprising intellectual property, imaging and diagnostic software and goodwill, decreased to £567,396 (2018: £922,543)

Key performance indicators

The main KPI for the Group is achieving its cash flow forecasts whilst efforts continue to implement the new investing policy.

The Board monitors its cash flow carefully to ensure that it has the funds necessary to meet its on-going working capital requirements, and planned product development costs. Detailed forecasts are produced and reported against on a regular basis. 

Future developments

With the encouraging results from the clinical studies, the Company is in an excellent position to deliver benefits to patients, as well as generate value for stakeholders. Further commentary on the Group's future developments can be found in the Chief Executive's Statement on page 2.

 

 

Principal risks and uncertainties

This section describes the principal risk factors that the Directors believe could materially affect the Group's risk and performance. Information relating to financial risk management is included in note 21 to the financial statements.

Liquidity risk

Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

The Board reviews cash flow projections at periodic intervals during the year as well as information regarding cash balances.  At balance sheet date, the Group had cash balances of £865,875 (2018: £28,783). The financial forecasts indicate that the Group is expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances.

 

Interest rate risk

The Group has convertible loan notes totalling £668,278, including accrued interest, outstanding as at 31 December 2019 (2018: £145,033). The notes accrue interest at a fixed rate of 6.75%p.a. and, as such, carries a limited interest rate risk. 

Cash resources are held in current, floating rate accounts.

Market risk

Market price risk arises from uncertainty about the future valuations of financial instruments held in accordance with the Group's investment objectives.  These future valuations are determined by many factors but include the operational and financial performance of the underlying investee companies, as well as market perceptions of the future of the economy and its impact upon the economic environment in which these companies operate. 

 

Risk Table

The following table, whilst not an exhaustive list as other risks may arise or existing risks may materially increase in the future, sets out the principal risks and uncertainties to the continuing Group. These are listed in no order of priority, and alongside the description of each risk is a note of the main mitigating factors and actions the Group is taking to address that risk.

Risks/uncertainties to the continuing Group

 

Issue

Risk/Uncertainty

Mitigation

Imaging Biometrics and Stone Checker may be subject to medical regulatory risk

Without medical regulatory approval it would be difficult to market and sell the products.

The products are medical devices under Classification 1 (medical software), which is the lowest level of classification requiring the least regulatory oversight as they are non-invasive and non-sterile.  The products are not used for treatment but are rather used for diagnosis.

Intellectual p roperty

The Group's success depends, in part, on its ability to obtain and maintain protection for its intellectual and proprietary information, so that it can prevent others from making, using or selling its inventions or proprietary rights. The Group's patent applications may not be granted, and its existing patent rights may be successfully challenged and revoked.

The Group invests in maintaining and protecting this intellectual property to reduce risks over the enforceability and validity of the Group's patents. The Group works

closely with its legal advisors and obtains where necessary opinions on the intellectual property landscape relevant to the Group's programmes and activities.

 

TexRAD Limited - use of Intellectual property

Stone Checker's ability to exploit its products is reliant upon the terms of an exclusive licence from TexRAD Limited which grants Stone Checker the right to use the TexRAD's patents in the field of urolithiasis and to research, develop or have developed, make or have made, keep, use, import, export, sell and supply products based upon the TexRAD Plug-in pursuant to the terms of the licence agreement dated 20 August 2015.

TexRAD may terminate this agreement under a number of circumstances, which would prevent Stone Checker being able to develop and sell its products.

Balaji Ganeshan of TexRAD works very closely with Stone Checker in the development of the products.

The Group continuously monitors its ongoing compliance with the terms of the licence agreement.

Identifying further suitable investments

 

 

 

 

 

 

 

The Group is dependent upon the ability of the Directors to identify suitable investment opportunities and to implement its investing policy. The Directors are continuing their search to identify further opportunities in line with the Company's investing policy for creating value.

The Directors may be unable to identify further targets and thus the Company may not be able to invest its cash in a manner which accomplishes its objectives.

There is no guarantee that the Company will be able to acquire further identified opportunities, or indeed complete the investment.

The Group's ability to ascertain the merits or risks of the operations of a target company or business.

The Group's ability to deploy the net proceeds on a timely basis.

The availability and cost of equity or debt capital for future transactions.

The Group has formal investment criteria to identity suitable, earnings-enhancing acquisition targets and employs experienced professionals to drive the acquisition process.

Raising emergency funding

In the event of a significant issue arising for which the Group is required to access substantial liquid funds in excess of its available cash balances, it may not be easy to obtain additional funds as and when required and on acceptable terms. 

 

The Group monitors its cash requirements carefully and in the need of significant additional funds would look to increase its financing.

Loss of key personnel

 

The Group comprises of a few key individuals in a market which requires high quality experienced staff.  Any unforeseen loss of these key personnel would be damaging to the Group. The retention of their services cannot be guaranteed.

 

The Group has a continuity program in place to ensure that Directors would be able to minimise the disruption caused by the potential loss of key personnel.

 

The Group may be adversely affected by the enforcement of and changes in legislation and regulation affecting its business

 

Compliance with various laws and regulations does impose compliance costs and restrictions on the Group, with fines and/or sanctions for non-compliance.

The Group monitors legislative and regulatory changes and alters its business practices where appropriate.

The Group relies on the experience and talent of its senior management and on its ability to recruit and retain key employees

The successful management and operations of the Group are reliant upon the contributions of senior management and directors. In addition, the Group's future success depends in part on its ability to continue to recruit, motivate and retain highly experienced and qualified management and directors.

 

The Group offers incentives in the form of share options or warrants to incentivise its senior management. 

 

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive Officer's Statement.

The financial position of the Group, its cash flows and liquidity position are described in this business review. In addition, note 21 to the financial statements include the Group's objectives, policies and processes for managing its capital, the financial risk management objectives, details of its financial instruments and its exposure to credit risk and liquidity risk.  As highlighted in note 21, the Group meets its day to day working capital requirements through its revenue generating cash flows, discrete fund raises and the issue of convertible loan notes.

The Company's employees carry out their duties remotely, via the network infrastructure in place. As a result, there was no disruption to the operational activities of the Company during the COVID-19 social distancing and working from home restrictions. All key business functions continue to operate at normal capacity.

The Directors have prepared Group forecasts and projections, which show that the Group has a reasonable expectation of maintaining sufficient working capital to enable the Group to meet its liabilities as they fall due for the foreseeable future, being a period of not less than 12 months from the date of approval of this report. At 31 December 2019, the Group had cash balances of £865,875 (2018: £28,783).

After making appropriate enquiries, the Directors continue to adopt the going concern basis in preparing the annual report and accounts.

This report was approved by the board of directors on 4 May 2020 and signed on behalf of the board by:

 

 

Trevor Brown

Chief Executive Officer

 

Directors' Report

Annual Report and Financial Statements

For the year ended 31 December 2019

The Directors present their annual report and audited financial statements for the year ended 31 December 2019.

 

Incorporation

IQ-AI Limited is incorporated in Jersey, Channel Islands.

During 1996, the Group created a twinned share structure with IQ-AI Holdings (UK) plc to enable UK based shareholders to receive a UK dividend and thereby avoid being double taxed on the Jersey dividend.

As a result of a General Meeting held in June 2017, the twinned share structure has been discontinued. Shareholders now only hold shares in IQ-AI Limited, which are listed on the Main Market (standard segment) of the London Stock Exchange.

In January 2018, IQ-AI Holdings (UK) plc was dissolved and removed from the register at Companies House in the United Kingdom.

Full details of the share capital are provided in note 16 to the financial statements.

 

Results and dividends

The audited financial statements for the year for the Group and Company are set out on pages 25 to 47.

No dividends will be distributed for the year ended 31 December 2019 (2018: £nil). 

 

Directors

The directors, who served throughout the year, were as follows:

 

Mr T Brown

Chief Executive Officer

Dr Qu Li

Non-Executive Chairman

Mr V Kaushal

Non-Executive Director

Mr M Schmainda

Non-Executive Director (appointed on 18 December 2019)

Biographical details of the Directors are given on page 18.

The interests of the Directors in the shares of the company and their service contracts are noted in the Remuneration Committee report on pages 19 to 20. The Directors have no interests in share options and awards.

Although an overseas Company, the Directors have sought to ensure that the financial statements of the Company and the Group comply with the disclosure requirements of Jersey Company Law and the listing requirements of the UK Listing Authority.

 

Capital expenditure

During the year, the Group did not invest in any capital expenditure (2018: £nil). The Group made an investment in product development during the period of £112,115 (2018: £62,147).

The Group held no bank debt at 31 December 2019 (2018: £nil). Currently, the Group retains clearing facilities with the bank.

Share capital

Details of the authorised and issued share capital, together with details of the movements in the Company's issued share capital during the year, are shown in note 16. Each share carries the right to one vote at general meetings of the Company and carries no right to fixed income.

There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the Company's shares that may result in restrictions on the transfer of securities or on voting rights.  No person has any special rights of control over the Company's share capital and all issued shares are fully paid .

 

Statement of Directors' Responsibilities

Annual Report and Financial Statements

For the year ended 31 December 2019

 

Significant agreements/takeovers directive

There are a number of agreements that take effect, alter or terminate upon a change of control of the Group such as commercial contracts and employee share option/award schemes. None of these are deemed to be significant in terms of their potential impact on the business of the Group as a whole.

 

Charitable and political donations

The Company did not make any political or charitable donations during the year ended 31 December 2019 (2018: £nil).

Employees

The Company's policy is to provide equal opportunities to all present and potential employees, including, where practical, those who are disabled.

The Group believes in respecting individuals and their rights in the workplace. With this in mind, specific policies are in place covering harassment and bullying, whistle blowing, equal opportunities and data protection.

Ratio of men to women

At 31 December 2019, there were two women (2018: 2) employed across the Group making 32% (2018: 32%) of our Group-wide employee base.

The Board is satisfied that it has the appropriate balance of skills, experience and expertise necessary, and will give due regard to diversity in the event of further changes to both its own membership and/or the membership of the senior management team.

 

Health and safety

The Group is committed to providing a safe place of work for employees. Group policies are reviewed on a regular basis to ensure that policies regarding training, risk assessment, safe working and accident management are appropriate. There are designated officers responsible for health and safety and issues are reported at each board and executive meeting.

 

Greenhouse gas emissions  

The Group is aware that it needs to measure its operational carbon footprint in order to limit and control its environmental impact. However, given the very limited nature of its operations during the year under review, it has not been practical to measure its carbon footprint. In the future, the Group will only measure the impact of its direct activities, as the full impact of the entire supply chain of its suppliers cannot be measured practically.

Statement of disclosure to independent auditors

Each of the persons who is a Director at the date of approval of this annual report confirms that:

· so far as the Director is aware, there is no relevant audit information of which the Company's auditor is unaware; and

· the Director has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

 

Independent auditor

PKF Littlejohn LLP have expressed their willingness to continue in office as auditor and will be proposed for reappointment at the next Annual General Meeting.

 

This report was approved by the board of directors on 4 May 2020 and signed on behalf of the board by:

 

 

 

Trevor Brown

Chief Executive Officer

 

The Directors are responsible for preparing the annual report and the financial statements in accordance with the applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors are required to prepare the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. 

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company, and of the profit or loss of the Group and Company for that period.

 

In preparing these financial statements the Directors are required to:

· Select suitable accounting policies and then apply them consistently;

· Make judgements and estimates that are reasonable and prudent;

· State whether the IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; and

· Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

 

The Directors are responsible for keeping accounting records that are sufficient to show and explain the Group's and Company's transactions. These records must disclose with reasonable accuracy at any time the financial position of the Group and Company and to enable the Directors to ensure that any financial statements prepared comply with the Companies (Jersey) Law 1991, as amended. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud, error, non-compliance with law and regulations and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic report, Directors' report, Directors' Remuneration report and Corporate Governance statement that comply with that law and those regulations.

The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in Jersey governing the preparation and dissemination of financial statements, which may vary from the legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

 

Corporate Governance Report

Annual Report and Financial Statements

For the year ended 31 December 2019

 

IQ-AI has a standard listing on the London Stock Exchange and is thus not required to comply with the requirements of the U.K. Corporate Governance Code ("the Code") as issued by the Financial Reporting Council. The disclosures below are required by the UKLA's Disclosure and Transparency Rule 7.

The Board is committed to ensuring the highest standards of corporate governance, and voluntarily complies with, subject to a small number of exceptions listed below, the supporting principles and provisions set out in the Code.

In order to implement its business strategy, the Company has adopted a corporate governance structure whereby the key feature is a board of directors comprising at present one executive and three non-executives, where despite the Company's early stage of development, and its registration being in Jersey, the board strives to observe the Quoted Companies Alliance revised Corporate Governance Code for Small and Mid-Size Quoted Companies ('the QCA Code') which the Company has voluntarily adopted. The voluntary adoption of the QCA Code is over and above the requirements of Jersey law.

The Company regularly updates its corporate governance policies and procedures to reflect the changes made to corporate governance guidelines. The following describes the ways in which the Company complies with the detailed provisions of the Code. It includes full disclosure of the limited number of areas in which the Company is non-compliant and explanations why this is so.

The two areas of non-compliance with the Code are;

· neither the Chairman, nor the other member of the Audit Committee, has any relevant accounting experience; and

· the Audit Committee is made up of only two members and not at least three independent non-executive Directors.

Meetings of the Board of Directors

Four Board meetings were held during the year. The Directors' attendance record during the year are as follows:

 

 

Attendance at Board Meetings

T Brown

 

4

Dr Q Li

 

4

V Kaushal

 

4

M Schmainda (appointed on 18 December 2019)

 

0

 

The terms of appointment of the Non-Executive Directors are made available for inspection at the AGM, along with the service contract for the Executive Director. The Non-Executives do not have a fixed term of office in their letters of appointment.

Re-election

The articles of association require each director to retire and submit themselves for re-election every three years, but also that at least one third of the Directors must be submitted for re-election every year.

On an annual basis, the Chairman considers the performance of the Board and discusses with the Company Secretary the re-election process. Given the performance of the Company, the Chairman has confirmed that the Directors being submitted for election in 2020 continue to be highly effective, qualified and committed to their respective roles.

Insurance cover

The Company maintains insurance with a limit of £5m to cover its Directors and officers against the cost of defending themselves against civil legal proceedings taken against them. To the extent permitted by law, the Company also indemnifies its Directors and officers. Neither protection applies in the event of fraud or dishonesty.

Board objectives and operation

The key objectives of the Board are as follows:

· The agreement of strategy.

· The agreement of the detailed set of objectives and policies that facilitate the achievement of strategy.

· Monitoring the performance of executive management in the delivery of objectives and strategy.

· Monitoring and safeguarding the financial position of the Company and Group to ensure that objectives and strategy can be delivered.

· Approval of major capital expenditure and other expenditure that is not part of the defined objectives or strategic plan.

· Approving corporate transactions - this includes any potential acquisition or disposal.

· Delegating clear levels of authority to the Executive management team. This is represented by the defined system of internal controls which is reviewed by the Audit Committee.

· Providing the appropriate framework of support and remuneration structures to encourage and enable Executive management to deliver the objectives and strategies of the Company.

· Monitoring the risks being entered into by the Company and ensuring that all of these are properly evaluated.

· Approval of all external announcements.

 

A schedule is maintained of matters reserved to the Board for decision.

The Board formally met four times in 2019 (2018: 4); the Directors' attendance is summarised on page 14.

For each Board meeting, each Board member receives a pack of information, including financial reports, project updates and a formal agenda together with any relevant documentation.

Nominations Committee

The committee consists of the Chairman and the Chief Executive.  The committee meets as required to fulfil its duties of reviewing the Board structure and composition and identifying and nominating candidates to fill Board vacancies as they arise.

No formal induction process exists for new Directors, but the Chairman ensures that each individual is given a tailored introduction to the Company and fully understands the requirements of the role.

Appraisal of Non-Executive Directors

The Chief Executive normally carries out an annual formal appraisal of the performance of the Non-Executive Directors which takes into account the objectives set in the previous year and the individual's performance in the fulfilment of these objectives. However, given the CEO is the only Executive Director, a formal annual appraisal of the Chief Executive is carried out by the Non-Executive Chairman. All the appraisals of the Non-Executive Directors are provided to the Remuneration Committee.

Remuneration Committee

The report of the Remuneration Committee is included in this annual report.  Formal terms of reference for the Remuneration Committee have been documented and are made available for review at the AGM.

 

Audit Committee

Formal terms of reference for the committee have been documented and are made available for review at the AGM.

The terms of reference of the Audit Committee include the following requirements:

· To monitor the integrity of financial statements and of any formal announcements relating to the Company's financial performance.

· To review the Company's internal controls and risk management systems.

· To make recommendations to the Board in relation to internal control matters that require improvement or modification.

· To make recommendations to the Board in relation to the appointment, re-appointment and removal of the external auditor and to approve remuneration.

· To review and monitor the external auditor's independence and objectivity and the effectiveness of the audit process.

· To establish and monitor whistle blowing procedures.

 

No internal audit function exists due to the size of the Group. This is reviewed annually by the Audit Committee which reflects on any increased risk or regulatory changes in the period under review in making their recommendation to the Board.

The Audit Committee met three times during the year and after the year end. Matters considered at these meetings included: reviewing and approving the report and financial statements for the year ended 31 December 2018, the half year results to 30 June 2019 and the report and financial statements for the year ended 31 December 2019; discussion with the external auditors to confirm their independence and scope for audit work; considering the reports from external auditors identifying any accounting or judgemental issues requiring the board's attention and the auditors' assessment of internal controls; reviewing the company's risk register and business continuity procedures; and considering the adequacy of the whistle-blowing facility, the anti-bribery training and monitoring and data protection policy and procedures.

The Audit Committee chairman has maintained dialogue with the auditors outside of the scheduled meetings and meets with the auditors without the presence of the Executive Director and members of the finance team.

The company did not engage its auditor for any non-audit services, which has safeguarded the Auditor's objectivity and independence.

The Audit Committee considers independence from a number of perspectives, not only the materiality of fee income to the audit firm in question.  It is only after considering these aspects (along with a report on independence from the external auditor) does it conclude and make recommendations to the Board.

None of the members of the Audit Committee have a formal accounting qualification though all have operated at the highest levels of businesses. The Board is content that the overall level of qualification within the Audit Committee is currently sufficient to enable it to discharge satisfactorily its obligations. 

In addition to the Non-Executive Director and the Chief Executive, the external auditor was invited to attend part of the meetings where relevant. 

Internal controls

The Board is responsible for the Group and Company's system of internal control and for reviewing its effectiveness. Given the size of the organisation and the level of transactions involved there are limited controls documented and in operation which is appropriate for the Group in its current state.

The Audit Committee consider each year if the current level of internal control is appropriate. On advice from the Audit Committee, the Board does not consider any additional independent verification of the system of internal control to be required, based on the size of the Company and the Group, and the non-complex nature of both its management systems and financial structure.

The Group operates certain controls specifically relating to the production of consolidated financial information, covering operational procedures, validation and review.

The above procedures reflect the Group's commitment to ensuring it has policies in place that ensure high standards of integrity and transparency throughout its operations. Further, when these procedures detect unauthorised practises, the Group is committed to correction of such events. The Group is committed to analysing its internal controls to make them more robust and further limit the risk of such incidents. The Board believes such action properly reflects the Group's commitment to financial discipline and integrity at all levels. The Board has reviewed the effectiveness of internal control systems in operation during the financial period in accordance with the guidelines set out in the FRC's Risk Guidance report, through the processes set out above and no weaknesses or failings were identified.

Dialogue with major shareholders

The Company places considerable importance on communications with shareholders. Discussions take place with major shareholders with the Company's delegating authority to the Chairman and Chief Executive to present the strategy and financial results of the Group.

Annual general meeting

At its AGM the Company complies with the provisions of the Code relating to the disclosure of proxy votes, the separation of resolutions and attendance of Directors, particularly committee chairpersons.  The timing of the despatch of the formal notice of the AGM also complies with the Code.

The Directors consider that all the resolutions to be put to the AGM, to be held in May/June 2020, are in the best interests of the Company and its shareholders. The Board will be voting in favour of them and unanimously recommends that shareholders do also.

Responsibility statement of the Directors in respect of the annual financial report

We confirm that to the best of our knowledge:

(i)  the financial statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

(ii)  the annual report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

This report was approved by the board of directors on 4 May 2020 and signed on behalf of the board by:

 

 

Trevor Brown

Chief Executive Officer

 

 

Directors' Information

Annual Report and Financial Statements

For the year ended 31 December 2019

 

 

Trevor Brown

Trevor has been a strategic investor in equities and real estate for more than 30 years.  He is currently a Director of Remote Monitored Systems plc and Braveheart Group plc.

Dr Qu Li

Qu Li is a Non-Executive Director of IQ-AI Limited. With over 25 years of experience in international mergers, acquisitions and joint ventures, Dr Li has completed turnkey transactions ranging from $5m-$200m and raised more than $300 million over the last 10 years. Dr Li is the founder and Chairman of China Ventures Ltd, a leading consultancy and venture capital company, specialising in Sino/Western business and offering a wide range of skills associated with international business transactions. Dr Li relocated to the UK over 20 years ago, where she obtained her Doctor of Philosophy at Leeds University and then established her business base. She is a qualified engineer and a successful business entrepreneur who has worked on activities related to government, industry and commerce in China, South East Asia, South America, Europe and the US for over 20 years.

Apart from her business commitments, Dr Li devotes great effort, interest and financial support to the development of young entrepreneurs across the globe. She sits on the advisory board of the Business School of Leeds University and is one of the Leaders in Resident for the post graduates.

Vinod Kaushal

Vinod is a Non-Executive Director of IQ-AI Limited. Vinod is a well-seasoned healthcare industry executive with nearly 30 years' experience in predominantly commercial and general management roles. He has worked nationally, regionally and globally for several blue chip and SME companies.

Having been a member of the team which orchestrated the international launch of Losec®/Prilosec® at Astra to its place as the global No. 1 selling pharmaceutical, Vinod was Head of Global Marketing at Novo Nordisk, Senior Vice President Fresenius Kabi, Vice President of Amersham/GE Health's Neurology business, Vice President at Royal Numico/Danone and CEO of SPL amongst other pivotal roles.

Since leaving Big Pharma, Vinod has recently been focused on entrepreneurial activities with several successful SMEs in the Pharma/Healthcare space. With an impressive deal sheet to his name, Vinod has been involved in various IP and business acquisitions. His career has seen him relate to investors on several global stock exchanges and he is an accomplished external speaker. Vinod holds a BSc (Hons) in Biochemistry from Warwick University and an MBA from Henley Business School.

Michael Schmainda

Michael was appointed as a Non-Executive Director of IQ-AI Limited on 18 December 2019. Michael has a 20-year history of successfully building global medical imaging businesses including Prism Clinical Imaging and Imaging Biometrics. As co-founder of IB, and has overseen all aspects of the company's development, operation, and growth since its inception. He has established strong collaborative relationships with leaders in the medical imaging field who drive new product development and has led the translation and commercialisation of sophisticated imaging solutions, achieved regulatory approvals in the US and Europe, and global product adoption.

Michael's career began with 3M Company, a company renowned for bringing new products to market, where he held leadership roles across multiple industries including the life science sector. Prior to IB, Michael was a foundational member of Prism Clinical Imaging, secured the initial investment for the company, and served as president and COO. 

 

The Remuneration Committee presents its report for the year ended 31 December 2019.

Membership of the Remuneration Committee

The Remuneration Committee is currently comprised of Dr Li and V Kaushal.

Subject to what appears below, no other third parties have provided advice that materially assisted the Remuneration Committee during the period.

Remuneration policy

The Group's remuneration policy is to retain and motivate its staff with rewards linked to performance and results which promote the interest of the shareholders. Bonus awards for employees are assessed annually taking in to account the Group results.

Policy Table:

Objective

Operation

Maximum potential value

Base salary

The basic salary element of remuneration is set in relation to responsibilities, length of service and contribution to the Group's activities.

 

Reflects level of responsibility and achievement of individual.

 

Base salary is set annually on 1 January.

 

Salary levels are reviewed on an annual basis by reference to the median for comparable positions in main market companies of a similar market capitalisation and with similar revenues to the Group. Broadly the Group seeks to pitch base salary around the median level for such comparable positions without tracking it mechanistically.

Broadly pitched around the median level for comparable positions.

 

When considering any increases to base salaries in the normal course (as opposed to a change in role or responsibility), the Board will take into consideration:

Reference to the increases provided to Executives in the comparator group.

Pay and employment conditions of employees throughout the Group, including increases provided to the employee population

Inflation

 

Other benefits

To provide competitive levels of employment benefits.

Futures benefits may include:

- Private medical insurance.

- Permanent health insurance.

- Life assurance of two times base salary.

 

The level of benefits provided is reviewed annually to ensure they remain market competitive.

 

Cost of providing life assurance, private medical insurance and permanent health insurance.

Non-Executive Director Fees

To attract Non-Executive Directors with the requisite skills and experience to perform the role.

Fee levels are set at the level paid for comparable roles at companies of a similar size and complexity to IQ-AI Limited within the main market. The Non-Executive Director fee structure is a matter for the full Board.

Fee levels are set by reference to the median of this peer group. Fee levels are reviewed annually in January. When considering any increases to fee levels in the normal course, the Board will take into consideration:

- Increases provided to comparable roles in the comparator group;

- Pay and employment conditions of employees throughout the Company, including increases provided to the employee population; and

- Inflation.

 

 

Share options

No share option scheme is provided to the Directors of the Company.

Directors' pensions

The Company does not provide a pension scheme. Additionally, no dependent pensions or benefits are provided.

Remuneration policy for Executive and Non-Executive Directors

The Remuneration Committee seeks to provide the remuneration packages necessary to attract, retain and motivate Executive and Non-Executive Directors of the quality required to manage the business of the Group and seeks to avoid paying more than is necessary for this purpose. In establishing the level of remuneration of each director, the committee has regard to packages offered by similar companies.

Consistent with this policy, the benefit packages awarded to Executive and Non-Executive Directors comprise a mix of performance and non-performance elements. During 2019, the Executive and Non-Executive Directors' pay was not based on the Group achieving financial targets.

Directors' interests (held directly or indirectly) in the Company's shares

 

2019

2018

 

Number

Number

T Brown*

38,294,766

11,868,112

Dr Q Li

-

-

V Kaushal

-

-

M Schmainda**

9,108,400

9,108,400

*Includes shares held by Free Association Books Limited.

**Includes shares held by related parties

Directors' emoluments

The following table summarises the emoluments of Directors during the year.

 

Salary

 

 

2019

2018

 

and fees

Pension

Benefits

Total

Total

 

£

£

£

£

£

T Brown

65,000

-

-

65,000

65,000

V Kaushal

30,000

-

-

30,000

30,000

Dr Q Li*

30,000

-

-

30,000

30,000

M Schmainda

-

-

-

-

-

TOTAL

125,000

-

-

125,000

125,000

*Dr Qu Li's services were invoiced by China Ventures Limited.

 

 

Dr Qu Li

Chairman of the Remuneration Committee

4 May 2020

 

 

Independent auditor's report to the members of IQ-AI Limited

Annual Report and Financial Statements

For the year ended 31 December 2019

 

Opinion

We have audited the financial statements of IQ-AI Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2019 which comprise of the Consolidated Income Statement,  Consolidated Statement of Comprehensive Income, Consolidated and Company Statements of Financial Position, Consolidated and Company Statements of Changes in Equity, Consolidated and Company Statement of Cash Flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In our opinion the financial statements:

· give a true and fair view of the state of the group and parent company's affairs as at 31 December 2019 and of the group's loss for the year then ended;

· have been properly prepared in accordance with IFRSs as adopted by the European Union; and

· have been prepared in accordance with the requirements the Companies (Jersey) Law 1991.

 

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 group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Conclusions relating to going concern

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

· the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

· the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group's or the parent company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

 

Our application of materiality

The quantitative and qualitative thresholds for materiality determine the scope of our audit and the nature, timing and extent of our audit procedures. The materiality applied to the group financial statements was £36,000 based on 5% of the loss before tax. The performance materiality was £25,200. The materiality applied to the parent company financial statements was £13,800 based on 5% of the loss before tax. The performance materiality was £9,660. For each component in the scope of our group audit, we allocated a materiality that was less than our overall group materiality. As a group whose trade is in the process of expanding through product development and existing product revenue streams, loss before tax was considered the most appropriate benchmark to shareholders.

We agreed with those charged with governance that we would report all differences identified during the course of our audit in excess of £1,800.

 

An overview of the scope of our audit

In designing our audit, we determined materiality and assessed the risk of material misstatement in the group and parent company financial statements. In particular, we looked at areas involving significant accounting estimates and judgements by the directors and considered future events that are inherently uncertain, in particular with regard to the recognition and valuation of intangible assets. We also assessed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

 

An overview of the scope of our audit (continued)

In addition to the parent company, two material components were identified. One component was subject to an audit conducted directly by us. The other component is located in the US and was audited by a component auditor under our instruction and supervision under ISA (UK) 600.

We interacted regularly with the component audit team during all stages of the audit and was responsible for the scope and direction of the audit process. This, in conjunction with additional audit procedures performed at a consolidation level, gave us sufficient appropriate evidence for our opinion of the group and parent company financial statements.

 

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

Key audit matter

How the scope of our audit responded to the key audit matter

Recognition and valuation of intangible assets (refer note 11)

As shown in note 11 of the financial statements, the group reported £439,100 of intangible assets as at 31 December 2019.

There is a risk that the Intellectual Property (IP) developed and under development may not be correctly capitalised in accordance with IAS 38. Additionally, there is a risk that projects under development are not fully recoverable and whether existing commercially available products have any indicators of impairment.

We performed the following work to address the identified risk:

 

· issued detailed instructions to the component auditor which addressed all assertions relating to the costs incurred on the development of IP;

· reviewed the working papers of the component auditor, and held discussions with the component audit team, of testing performed on intangible assets and the results thereof;

· assessed any accounting policy differences regarding recognition and valuation between US GAAP and EU endorsed IFRS;

· completed substantive testing on additions;

· assessed compliance of the capitalised IP expenditure with the recognition criteria under IAS38 and challenged management on areas involving significant judgement; and

· inquired into any indicators of impairment for IP which is commercially available and subject to amortisation.

 

Going concern

The going concern accounting policy, as disclosed in note 1 of the financial statements, describes the Directors' assessment of the group and parent company's ability to continue as a going concern. This also includes the Directors' consideration of the COVID-19 impact.

IQ-AI Limited is currently loss making and relies on funding raised through issuing equity or convertible loan notes.

The risk for our audit is whether additional funds will need to be raised over the going concern period, and whether this, and the potential impact of COVID-19, amounts to a material uncertainty that may cast doubt about the ability of the group and parent company to continue as a going concern.

We performed the following work to address the identified risk:

· reviewed the Directors' going concern assessment and challenged the assumptions based on our knowledge of the business and of the market.

· assessed the accuracy of previously provided budgets and forecasts to actual results; and

· stress-tested the forecasts for possible change, including those changes arising from the impact of COVID-19, and performed an assessment of the ability to raise new funds, if required.

 

 

 

Other information

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

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

 

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where The Companies (Jersey) Law 1991 requires us to report to you if, in our opinion:

· proper 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

· we have not received all the information and explanations we require for our audit.

 

Responsibilities of directors

As explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the group and parent company 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 group and parent company financial statements, the directors are responsible for assessing the group's and parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or 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.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: http://www.frc.org.uk/auditors responsibilities. 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 Article 113A of the Companies (Jersey) Law, 1991 and our engagement letter dated 2 January 2019. 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.

 

 

 

David Thompson (Engagement Partner)

for and on behalf of PKF Littlejohn LLP

Registered Auditor

15 Westferry Circus

Canary Wharf

London

E14 4HD

04 May 2020

 

 

Annual Report and Financial Statements

For the year ended 31 December 2019

 

 

Consolidated Income Statement

For the year ended 31 December 2019

 

 

2019

2018

 

 

 

 

 

Notes

£

£

Continuing operations

 

 

 

Revenue

 

267,868

164,971

Cost of sales

 

(4,361)

(34,962)

Gross profit

 

263,507

130,009

 

 

 

 

Administrative expenses

 

(859,171)

(709,772)

Other income

 

7,572

221

Operating loss

5

(588,092)

(579,542)

Finance costs

4

(28,975)

(15,662)

 

 

 

 

Loss before income tax

 

(617,067)

(595,204)

Income tax

7

-

-

 

 

 

 

Loss for the year from continuing operations

 

(617,067)

(595,204)

 

 

 

 

Discontinued operations

 

 

 

Loss for the year from discontinued operations

14

(21,587)

(168,876)

 

 

 

 

Loss for the year attributable to the owners of the Company

 

(638,654)

(764,080)

 

 

 

 

Earnings per share attributable to owners of the Company

 

 

 

From continuing operations:

 

 

 

Basic & diluted (pence per share)

8

(0.48)

(0.64)

From discontinued operations:

 

 

 

Basic & diluted (pence per share)

 

(0.02)

(0.18)

 

 

 

 

Total earnings per share (pence per share)

 

(0.50)

(0.82)

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2019

 

 

2019

2018

 

 

£

£

Loss for the period

 

(638,654)

(764,080)

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

Items that may be subsequently reclassified as profit or loss

 

 

 

Exchange differences on translation of foreign operations

 

2,162

8,322

 

 

2,162

8,322

Total comprehensive loss for the year attributable to the owners of the Company 

 

(636,492)

(755,758)

 

 

 

 

 

Total comprehensive loss for the year arises from:

Continuing operations

 

(614,905)

(586,882)

Discontinued operations

 

(21,587)

(168,876)

 

 

(636,492)

(755,758)

 

The accompanying accounting policies and notes are an integral part of these financial statements.

Consolidated Statement of Financial Position

As at 31 December 2019

 

 

2019

2018

 

 

£

£

 

Notes

 

 

Non-current assets

 

 

 

Property, plant and equipment

9

2,710

918

Goodwill

10

128,296

201,274

Intangible assets

11

439,100

721,269

Total non-current assets

 

570,106

923,461

 

 

 

 

Current assets

 

 

 

Trade and other receivables

13

28,030

65,568

Cash and cash equivalents

 

865,875

28,783

Assets classified as held for sale

14

404,504

-

Total current assets

 

1,298,409

94,351

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

15

199,918

254,928

Liabilities directly associated with assets classified as held for sale

14

8,948

-

Total current liabilities

 

208,866

254,928

 

 

 

 

Net current assets/(liabilities)

 

1,089,543

(160,577)

NET ASSETS

 

1,659,649

762,884

 

 

 

 

Equity

 

 

 

Share capital

16

1,398,310

1,203,465

Share premium

 

19,812,071

19,025,466

Capital redemption reserve

 

23,616

23,616

Merger reserve

 

160,000

160,000

Convertible loan note reserve

19

668,278

145,033

Share based payment reserve

 

36,982

10,877

Foreign currency reserve

 

10,484

8,322

Retained losses

 

(20,450,092)

(19,813,895)

Equity attributable to owners of the Company

 

1,659,649

762,884

TOTAL EQUITY

 

1,659,649

762,884

 

 

Company Statement of Financial Position

As at 31 December 2019

 

 

2019

2018

 

 

£

£

 

Notes

 

 

Non-current assets

 

 

 

Investments

12

543,823

783,823

Total non-current assets

 

543,823

783,823

 

 

 

 

Current assets

 

 

 

Investments held for sale

12

240,000

-

Trade and other receivables

13

761,756

449,618

Cash and cash equivalents

 

834,172

26,460

Total current assets

 

1,835,928

476,078

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

15

106,651

111,876

Total current liabilities

 

106,651

111,876

 

 

 

 

Net current assets

 

1,729,277

364,202

NET ASSETS

 

2,273,100

1,148,025

 

 

 

 

Equity

 

 

 

Share capital

16

1,398,310

1,203,465

Share premium

 

19,812,071

19,025,466

Capital redemption reserve

 

23,616

23,616

Merger reserve

 

160,000

160,000

Convertible loan note reserve

19

668,278

145,033

Share based payment reserve

 

36,982

10,877

Retained losses

 

(19,826,157)

(19,420,432)

Equity attributable to owners of the Company

 

2,273,100

1,148,025

TOTAL EQUITY

 

2,273,100

1,148,025

 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2019

 

Share

capital

Share

premium

Capital redemption reserve

Merger

reserve

Convertible loan note reserve

Share based payment reserve

Foreign currency reserve

Retained

losses

TOTAL EQUITY

 

£

£

£

£

£

£

£

£

£

Balance at 1 January 2018

675,594

18,418,674

23,616

160,000

368,933

-

-

(19,056,978)

589,839

Loss for the year

-

-

-

-

-

-

-

(764,080)

(764,080)

Exchange differences on translation of foreign operations

-

-

-

-

-

-

8,322

-

8,322

Total comprehensive loss for the year

-

-

-

-

-

-

8,322

(764,080)

(755,758)

Shares issued

527,871

651,792

-

-

-

-

-

-

1,179,663

Cost of shares issued

-

(45,000)

-

-

-

-

-

-

(45,000)

Unclaimed dividends

-

-

-

-

-

-

-

7,163

7,163

Share based payments

-

-

-

-

-

10,877

-

-

10,877

Movement in the year

-

-

-

-

(223,900)

-

-

-

(223,900)

Balance at 31 December 2018

1,203,465

19,025,466

23,616

160,000

145,033

10,877

8,322

(19,813,895)

762,884

Loss for the year

-

-

-

-

-

-

-

(638,654)

(638,654)

Exchange differences on translation of foreign operations

-

-

-

-

-

-

2,162

-

2,162

Total comprehensive loss for the year

-

-

-

-

-

-

2,162

(638,654)

(636,492)

Shares issued

194,845

854,385

-

-

-

-

-

-

1,049,230

Cost of shares issued

-

(67,780)

-

-

-

-

-

-

(67,780)

Unclaimed dividends

-

-

-

-

-

-

-

2,457

2,457

Share based payments

-

-

-

-

-

26,105

-

-

26,105

Movement in the year

-

-

-

-

523,245

-

-

-

523,245

Balance at 31 December 2019

1,398,310

23,616

160,000

668,278

36,982

10,484

(20,450,092)

1,659,649

 

 

CompanyStatement of Changes in Equity

For the year ended 31 December 2019

 

Share

capital

Share

premium

Capital Redemption reserve

Merger

Reserve

Convertible Loan Note Reserve

Share based payment reserve

Retained

losses

TOTAL EQUITY

 

£

£

£

£

£

£

£

£

Balance at 1 January 2018

675,594

18,418,674

23,616

160,000

368,933

-

(18,997,023)

649,794

Total comprehensive loss for the year

-

-

-

-

-

-

(430,572)

(430,572)

Shares issued

527,871

651,792

-

-

-

-

-

1,179,663

Cost of shares issued

-

(45,000)

-

-

-

-

-

(45,000)

Unclaimed dividends

-

-

-

-

-

-

7,163

7,163

Share based payments

-

-

-

-

-

10,877

-

10,877

Movement in the year

-

-

-

-

(223,900)

-

-

(223,900)

Balance at 31 December 2018

1,203,465

19,025,466

23,616

160,000

145,033

10,877

(19,420,432)

1,148,025

Total comprehensive loss for the year

-

-

-

-

-

-

(408,182)

(408,182)

Shares issued

194,845

854,385

-

-

-

-

-

1,049,230

Cost of shares issued

-

(67,780)

-

-

-

-

-

(67,780)

Unclaimed dividends

-

-

-

-

-

-

2,457

2,457

Share based payments

-

-

-

-

-

26,105

-

26,105

Movement in the year

-

-

-

-

523,245

-

-

523,245

Balance at 31 December 2018

1,398,310

19,812,071

23,616

160,000

668,278

36,982

(19,826,157)

2,273,100

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated and Company Statement of Cash Flows

For the year ended 31 December 2019

 

GROUP

COMPANY

 

2019

2018

2019

2018

 

£

£

£

£

 

 

 

 

 

Loss for the year

(638,654)

(764,080)

(408,182)

(430,572)

Adjustment for:

 

 

 

 

Depreciation and amortisation

110,991

33,499

-

-

Share based payment expense

26,105

10,877

26,105

10,877

Foreign exchange gain/(loss)

(5,580)

-

-

-

Decrease/(increase) in receivables

37,538

(65,070)

(312,138)

(336,235)

(Decrease)/increase in payables

(55,010)

101,101

(2,768)

58,628

 

 

 

 

 

Net cash used in operating activities

(524,610)

(683,673)

(696,983)

(697,302)

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchase of equipment

(4,065)

-

-

-

Purchase of intangible assets

(112,115)

(32,877)

-

-

Purchase of subsidiary

-

(104,366)

-

(104,366)

 

 

 

 

 

Net cash from investing activities

(116,180)

(137,243)

-

(104,366)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Shares issued

1,049,230

515,085

1,049,230

515,085

Costs of shares issued

(67,780)

(45,000)

(67,780)

(45,000)

Interest paid

(28,975)

(15,662)

-

-

Proceeds from convertible loan notes issued

523,245

-

523,245

-

 

 

 

 

 

Net cash from financing activities

1,475,720

454,423

1,504,695

470,085

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

834,930

(366,493)

807,712

(331,583)

Cash and cash equivalents brought forward

28,783

386,954

26,460

358,043

Effects of exchange rate changes on cash and cash equivalents

2,162

8,322

-

-

Cash and cash equivalents carried forward

865,875

28,783

834,172

26,460

 

Notes to the financial statements (continued)

Annual Report and Financial Statements

For the year ended 31 December 2019

1.  Summary of significant accounting policies

IQ-AI Limited (the "Company") is a limited liability company incorporated and domiciled in Jersey. The address of the registered office is given on page 48.

The financial statements are presented in pounds sterling (£) since that is the currency of the primary environment in which the Group and Company operates.

The principal accounting policies applied in the preparation of these financial statements are set out below.  These policies have been consistently applied to all the years presented, unless otherwise stated.

Basis of preparation

These financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations (IFRS IC) as adopted by the European Union.

The financial statements have been prepared under the historical cost convention, as modified for the assets held for sale measured at fair value less costs to sell.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive Officer's Statement. In addition, note 21 to the financial statements includes the Group's and Company's objectives, policies and processes for managing its capital and its financial risk management objectives.

The current economic conditions continue to create uncertainty, particularly over (a) the level of demand for the group's products; and (b) the availability of finance for the foreseeable future. The Directors' are satisfied that the Group has sufficient resources to meet any obligations over the going concern period. At 31 December 2019, the Group had cash balances of £865,875 (2018: £28,783).

The Group's employees carry out their duties remotely, via the network infrastructure in place. As a result, there has been no disruption to date to the operational activities of the Group during the COVID-19 social distancing and working from home restrictions. All key business functions continue to operate at normal capacity.

Taking in to account the comments above, the Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Therefore, they continue to adopt the going concern basis of accounting in preparing the financial statements

 

New standards, amendments and interpretations adopted by the Group and Company

The Group and Company have applied the following new and amended standards for the first time for its annual reporting period commencing 1 January 2019:

· IFRS 16 Leases

· Annual improvements to IFRS Standards 2015-2017 Cycle

· Interpretation 23 'Uncertainty over Income Tax Treatments'

These new and amended standards have not had a material effect on the Group and Company financial statements.

 

New standards, amendments and interpretations not yet adopted

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group or Company.  

Basis of consolidation

The Group financial statements consolidate the financial statements of the Company and all its subsidiaries ("the Group"). Subsidiaries include all entities over which the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.  The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control commences until the date that control ceases. Intra-group balances and any unrealised gains and losses on income or expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

The acquisition method of accounting is used to account for business combinations. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued, and liabilities incurred or assumed at the date of exchange, and the equity interests issued. Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date. Acquisition related costs are expensed as incurred. Where necessary, amounts reported by subsidiaries have been adjusted to conform with the Group's accounting policies.

 

Investments in subsidiaries

Investments in subsidiaries are held at cost less any impairment.

 

Goodwill

Goodwill on acquisition of subsidiaries represents the excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets and contingent liabilities acquired. Identifiable assets are those which can be sold separately, or which arise from legal rights regardless of whether those rights are separable. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is not amortised but is tested annually, or when trigger events occur, for impairment and is carried at cost less accumulated impairment losses.

 

Foreign Currency Translation

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Foreign exchange gains and losses are presented in the income statement within 'finance income or costs.'

 

The results and financial position of Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

· assets and liabilities for each Statement of Financial Position presented are translated at the closing rate at the date of that Statement of Financial Position;

· income and expenses for each Income Statement presented are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

· all resulting exchange differences are recognised in other comprehensive income.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income.  

Property, Plant and Equipment

Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives, as follows:

  Furniture, fittings and equipment  3 - 8 years

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

Intangible Assets - Intellectual property and internally generated software

Separately acquired intellectual property is shown at historic cost. Intellectual property acquired in a business combination is recognised at fair value at the acquisition date. Amortisation is calculated using the straight-line method over the estimated useful life of up to 5 years.

Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the following criteria are met:

· it is technically feasible to complete the software product so that it will be available for use;

· management intends to complete the software product and use or sell it;

· there is an ability to use or sell the software product;

· it can be demonstrated how the software product will generate probable future economic benefits;

· adequate technical, financial and other resources to complete the development and use or sell the software product are available; and

· the expenditure attributable to the software product during its development can be reliably measured.

Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads.

Other development expenditure that does not meet these criteria is recognised as an expense as incurred.  Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Software development costs recognised as assets are amortised over their estimated useful lives, which do not exceed 5 years. Amortisation commences when regulatory approval is obtained, and the product is commercially available.

 

Impairment of Non-Financial Assets

Intangible assets that have an indefinite useful life or intangible assets not ready to use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). Prior impairments of non-financial assets (other than goodwill) are reviewed for possible reversal at each reporting date.

Non-Current Assets (or Disposal Groups) Held-for-Sale and discontinued operations

Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell. A discontinued operation is a component of the Group that is classified as held for sale and that represents a separate line of business or geographical area of operations. The results of discontinued operations are presented separately in the Consolidated Income Statement.

 

Segment reporting

An operating segment is a component of the Group that engages in business activity from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with and of the Group's other components. All operating segments' operating results, for which discrete financial information is available, are reviewed regularly by the Group's Board to make decisions about resources to be allocated to the segment and assess its performance. As a result of the acquisition during the year, the Group reports on a two-segment basis - holding company expenses and medical software.

 

Financial instruments

Financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.

 

Financial assets

The Group classifies its financial assets in the following categories financial assets as "at fair value through profit and loss" and "loans and receivables". The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Management determines the classification of its financial assets at initial recognition.

 

Loans and receivables

Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. Trade receivables are held with the objective of collecting the contractual cash flows. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets.  If not, they are presented as non-current assets.

Trade receivables are recognised initially at fair value, and subsequently measured at amortised cost using the effective interest method, less provision for impairment. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets.

Due to the short-term nature of the other current receivables, their carrying amount is considered to be the same as their fair value.

A financial asset is assessed at each reporting date to determine whether there is any evidence that it is impaired. A financial asset is considered impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.  Individual significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the consolidated income statement.

 

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with maturities of three months or less. In the consolidated Statement of Financial Position, bank overdrafts are shown within borrowings in current liabilities.

 

 

 

 

Financial liabilities and equity instruments issued by the group

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 Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issued costs.

Convertible loan notes

The convertible loan note ("CLN") is a compound financial instrument that can be converted to share capital at the option of the holder. As the CLN, and the accrued interest, can only be repaid by the issue of shares, it has been recognised in equity only, with no liability component. Interest is accounted for on an accruals basis and charged to the Consolidated Income Statement and added to the carrying amount of the equity component of the CLN.

Trade and other payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers.  Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer).  If not, they are presented as non-current liabilities.

Trade and other payables are recognised initially at fair value, and subsequently measured at amortised cost using the effective interest method. The carrying amounts of trade and other payables are considered to be the same as their fair values.

Share capital

Ordinary   shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects, from the proceeds.

 

Share-Based Payments

The Company operates an equity-settled, share-based compensation plan, under which the entity receives services from employees as consideration for equity instruments (options) of the Company.  The fair value of the employee services received in exchange for the grant of the options is recognised as an expense.  The total amount to be expensed is determined by reference to the fair value of the options granted:

· including any market performance conditions (for example, an entity's share price);

· excluding the impact of any service and non-market performance vesting conditions (for example, profitability or sales growth targets, or remaining an employee of the entity over a specified time period); and

· including the impact of any non-vesting conditions (for example, the requirement for employees to save or holding shares for a specific period of time).

At the end of each reporting period, the group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions and service conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

 

In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant date fair value is estimated for the purposes of recognising the expense during the period between service commencement period and grant date.

 

When the options are exercised, the company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.

 

Share-Based Payments (continued)

The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution.  The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase in investment in subsidiary undertakings, with a corresponding credit to equity in the parent entity accounts.

 

The social security contributions payable in connection with the grant of the share options is considered an integral part of the grant itself, and the charge will be treated as a cash-settled transaction.

 

Revenue recognition

The group derives revenue from the transfer of goods and services at a point in time and over time. Revenue from external customers arise on the sales of software licences, including associated maintenance, and consultancy services.

 

Revenue from licence sales is measured at the agreed transaction price at a point in time. A receivable is recognised when access to the software is granted, since this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. Support and maintenance services are provided on the product supplied; this is deemed to be a separately identifiable product and is recognised over time. Revenue from consulting services are recognised in the accounting period in which the services are rendered.

 

Taxation

The Company is registered in Jersey, Channel Islands and is taxed at the Jersey Company standard rate of 0%. However, the Company's subsidiaries are situated in jurisdictions where taxation may become applicable to local operations.

The major components of income tax on profit or loss include current and deferred tax.

The tax currently payable is based on the taxable profit for the period using the tax rates that have been enacted or substantially enacted by the balance sheet date. Taxable profit differs from the net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Group financial statements. Deferred tax is determined using tax rates that have been enacted or substantially enacted at the balance sheet date and are expected to apply when the related deferred income tax asset is realised of the deferred tax liability is settled.

Deferred tax assets are only recognised to the extent that it is probable that future taxable profit will be available against which the asset can be utilised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited to equity, in which case the deferred tax is also dealt with in equity.

 

2.  Critical accounting estimates and judgements

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

 

Critical Accounting Estimates and Assumptions

The Group makes estimates and assumptions concerning the future.  The resulting accounting estimates will, by definition, seldom equal the related actual results.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

 

 

 

Fair value measurement

Management uses valuation techniques to determine the fair value of assets held for sale. This involves developing estimates and assumptions consistent with how market participants would price the instrument. Management bases its assumptions on best observable data available as far as possible. Estimated fair values may vary from the actual prices that would be achieved in an arm's length transaction at the reporting date.

 

Critical judgments in applying the entity's accounting policies

The following are the critical judgements that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

Capitalisation of internally developed software

Distinguishing the research and development phases of the software suites and determining whether the recognition requirements for the capitalisation of development costs are met requires judgement. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired.

 

3.  Segmental analysis

The Directors are of the opinion that under IFRS 8 - "Segmental Information" the Group operated in two primary business segments in 2019; being holding company expenses and medical software. The secondary segment is geographic.  The Group's losses and net assets by primary business segments are shown below.

Segmentation by continuing businesses:  

 

 

 

 

2019

2018

 

 

 

 

£

£

Loss before income tax

 

 

 

 

 

Holding company

 

 

 

(408,182)

(430,426)

Medical software

 

 

 

(208,885)

(164,778)

 

 

 

 

(617,067)

(595,204)

 

 

 

 

 

 

Net assets

 

 

 

 

 

Holding company

 

 

 

2,273,100

1,148,025

Medical software - net liabilities

 

 

 

(320,335)

(448,617)

Segmentation by geographical area:

 

 

 

 

2019

2018

 

 

 

 

£

£

Revenue to external customers

 

 

 

 

 

Jersey

 

 

 

-

-

United States of America

 

 

 

267,898

164,971

 

 

 

 

267,898

164,971

 

 

 

 

 

 

Loss before income tax

 

 

 

 

 

Jersey

 

 

 

(408,182)

(430,426)

United States of America

 

 

 

(208,885)

(164,778)

 

 

 

 

(617,067)

(595,204)

 

 

 

 

 

 

Net assets

 

 

 

 

 

Jersey

 

 

 

2,273,100

1,148,025

United States of America

 

 

 

(320,335)

(210,961)

 

 

4.  Finance costs

 

2019

2018

 

£

£

Interest payable on unsecured convertible loan notes

28,975

15,662

 

5.  Operating loss

 

2019

2018

 

£

£

The following items have been included in arriving at operating loss

 

 

Staff costs

414,167

348,294

Amortisation of internally generated intangible assets

109,012

33,187

Auditor's remuneration has been included in arriving at operating loss as follows:

 

 

Fees payable to the Company's auditor and their associates for the audit of the Group and Company's financial statements

20,000

20,000

Non-audit services

-

-

Total audit fees payable to the Group auditors

20,000

20,000

 

6.  Employee information

The average monthly number of employees (including Executive Directors) was:

 

2019

2018

 

Number

Number

 

 

 

Administration

7

7

 

 

 

 

£

£

Staff costs (for the above employees)

 

 

Wages and salaries

412,544

346,572

Social security costs and pension contributions

1,623

1,722

 

 

 

 

414,167

348,294

 

Directors' remuneration and transactions  

 

2019

2018

 

£

£

Directors' remuneration

 

 

 

Emoluments and fees

125,000

125,000

 

 

 

 

£

£

Remuneration of the highest paid director:

 

 

Emoluments and fees

65,000

65,000

Benefits and other fees

-

-

 

65,000

65,000

 

 

 

 

7.  Income tax expense

 

2019

2018

The tax assessed for the period is different from the standard rate of income tax, as

£

£

explained below:

 

 

Loss before tax on continuing operations

(617,067)

(595,204)

Loss before tax multiplied by the standard rate of Jersey income tax of 0%

-

-

Adjustments to tax in respect of prior periods

-

-

 

 

 

Tax (credit)/charge for period

-

-

 

8.  Earnings per share

Basic and diluted

Earnings per share is calculated by dividing the loss attributable to the equity holders of the Company by the weighted average number of Ordinary shares in issue during the period, excluding Ordinary shares purchased by the Company and held as treasury shares.

 

2019

2018

Group:

 

 

Loss attributable to equity holders of the parent (£)

(617,067)

(595,204)

Loss from discontinued operation attributable to equity holders of the parent (£)

(21,587)

(168,876)

 

 

 

Weighted average number of shares in issue (Number)

128,197,043

93,644,402

 

 

 

Loss per share (pence)

 

 

-  From continuing operations

(0.48)

(0.64)

-  From discontinued operations

(0.02)

(0.18)

 

9.  Property, plant and equipment

 

 

 

 

Equipment

Total

Group

 

 

 

£

£

Cost

 

 

 

 

 

At 1 January 2019

 

 

 

6,180

6,180

Additions

 

 

 

4,065

4,065

Transferred to assets classified as held for sale

(1,249)

(1,249)

At 31 December 2019

 

 

 

8,996

8,996

 

 

 

 

 

 

Depreciation

 

 

 

 

 

At 1 January 2019

 

 

 

(5,262)

(5,262)

Charge for the year

 

 

 

(1,979)

(1,979)

On assets reclassified as held for sale

 

955

955

At 31 December 2019

 

 

 

(6,286)

(6,286)

 

 

 

 

 

 

Net book value

 

 

 

 

 

At 31 December 2019

 

 

 

2,710

2,710

At 31 December 2018

 

 

 

918

918

 

Property, plant and equipment transferred to assets classified as held-for-sale relates to computer assets used in Stone Checker Software Limited. See note 14 for further details regarding the assets held for sale.

 

 

 

10.  Goodwill

 

 

 

 

 

  Group

 

 

 

 

  Cost

 

 

 

 

  At 1 January 2018

 

 

 

82,627

Recognised on acquisition of subsidiary - Imaging Biometrics

118,647

At 31 December 2018

 

 

 

  201,274

 

Reclassified as held for sale (see note 14)

 

 

 

(82,627)

 

Exchange differences

 

 

 

9,649

 

At 31 December 2019

 

 

 

128,296

 

         

 

The goodwill at 31 December 2019 relates to the purchase of Imaging Biometrics. The goodwill is not amortised but is reviewed on an annual basis for impairment, or more frequently if there are indications that goodwill might be impaired. The impairment review comprises a comparison of the carrying amount of the goodwill with its recoverable amount (the higher of fair value less costs to sell and value in use). No impairment was deemed necessary for the year ended 31 December 2019.

 

11.  Intangible assets - intellectual property, imaging and diagnostic software

 

 

 

 

 

  Group

 

 

 

 

  Cost

 

 

 

 

  At 1 January 2018

 

 

 

211,969

Acquisition of a subsidiary

480,340

Additions from internal development

62,147

At 31 December 2018

 

 

 

  754,456

Exchange differences

38,936

Additions from internal development

112,115

Reclassified as held for sale (see note 14)

(321,509)

At 31 December 2019

 

 

 

583,998

 

 

 

 

 

 

 

Accumulated Amortisation

 

 

 

 

 

At 1 January 2018

 

 

 

-

 

Charge for the year

 

 

 

33,187

 

At 31 December 2018

 

 

 

  33,187

 

Exchange differences

 

 

 

2,699

 

Charge for the year

 

 

 

109,012

 

At 31 December 2019

 

 

 

144,898

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

At 31 December 2019

 

 

 

439,100

 

 

 

 

 

 

 

At 31 December 2018

 

 

 

721,269

 

         

 

Intangible assets transferred to the disposal group classified as held-for-sale relates to the internally developed software 'StoneChecker' held in Stone Checker Software Limited. See note 14 for further details regarding the assets held for sale.

 

 

 

12.  Investments in subsidiaries

  Company

 

 

 

 Shares in group undertakings

 

 

 

 

 

  Cost

 

 

 

 

  At 1 January 2019

 

 

 

  783,823

  Reclassified to investments held for sale 

 

  At 31 December 2019

 

 

 

  543,823

 

 

 

 

 

  Net book value

 

 

 

 

  At 31 December 2019

 

 

 

 

 

 

 

  At 31 December 2018

 

 

 

 

During 2019, the Group consisted of a parent company, IQ-AI Limited, registered in Jersey and its two wholly owned subsidiaries. On 18 December 2019, the Directors decided to actively market Stone Checker Software Limited for sale. This subsidiary has subsequently been classified as a disposal group held for sale. See note 14.

Subsidiaries:

Imaging Biometrics LLC

 

Registered Office: 13406 Watertown Plank Road, Elm Grove, WI 53122, United States

 

Nature of business: develops ready-to-use software applications for the healthcare industry.

 

Class of share

 %

Holding

Ordinary shares

100

 

Stone Checker Software Limited

 

Registered Office: Norton Hall Cottage, The Street, Chilcompton, Radstock, BA3 4HB United Kingdom

Nature of business: supplier of technology solutions in the field of kidney stone analysis and kidney stone prevention.

 

Class of share

 %

Holding  

Ordinary shares

100

 

 

13.  Trade and other receivables 

 

Group

 

Company

 

2019

2018

 

2019

2018

 

£

£

 

£

£

 

 

 

 

 

 

Amounts owed by group undertakings

-

-

 

756,467

434,461

Trade receivables

11,657

27,797

 

-

-

Other receivables

5,564

16,254

 

-

-

Prepayments

10,809

21,517

 

5,289

15,157

 

28,030

65,568

 

761,756

449,618

In the Directors' opinion, the carrying amounts of receivables is considered a reasonable approximation of fair value. The Group monitors on a monthly basis the receivable balance and makes impairment provisions when debt reaches a certain age. There are no significant known risks as at 31 December 2019 (2018: none).

 

14.  Non-current Assets Held for Sale and Discontinued Operations

On 18 December 2019, the Directors announced their intention to actively seek a buyer for Stone Checker Software Limited. These operations, which are expected to be sold within 12 months, have been classified as a disposal group held for sale and presented separately in the balance sheet. The proceeds of disposal are expected to exceed the book value of the related net assets and accordingly no impairment loss has been recognised on the classification of these operations as held for sale. 

The results of the discontinued operations which have been included in the consolidated income statement, were as follows:

 

Year ended

31 December 2019

Year ended

31 December 2018

 

£

£

 

 

 

Revenue

4,999

-

Expenses

(26,586)

(168,876)

Loss before tax of discontinued operation

(21,587)

(168,876)

 

 

 

Tax

-

-

Loss of discontinued operations attributable to the owners of the Company

(21,587)

(168,876)

 

The major classes of assets and liabilities comprising the operations classified as held for sale are as follows:

 

 

Year ended

31 December 2019

 

 

£

 

 

 

Goodwill

 

82,627

Property, plant and equipment

 

294

Intangible assets

 

321,509

Other receivables

 

74

Total assets classified as held for sale

 

404,504

 

 

 

Trade and other payables

 

(4,948)

Loans

 

(4,000)

Total liabilities associated with assets classified as held for sale

 

(8,948)

 

 

 

Net assets of disposal group

 

395,556

 

During the year, Stone Checker Software Limited contributed to the Group's cash flows as follows:

 

 

Year ended

31 December 2019

 

 

£

 

 

 

Operating cash flows

 

78,788

Investing cash flows

 

(79,020)

Financing cash flows

 

-

Total cash flows

 

(232)

 

15.  Trade and other payables

 

Group

 

Company

 

2019

2018

 

2019

2018

 

£

£

 

£

£

Amounts owed to group undertakings

-

-

 

32,665

-

Trade payables

12,741

11,768

 

-

-

Loan from related party

57,994

62,890

 

-

-

Other creditors

-

6,976

 

-

-

Accruals and deferred income

125,698

167,352

 

70,501

105,936

Dividends payable

3,485

5,942

 

3,485

5,942

 

199,918

254,928

 

106,651

111,876

 

 

 

 

 

 

In the Directors' opinion, the carrying amount of payables is considered a reasonable approximation of fair value.

16.  Share capital

 

2019

2018

 

2019

2018

 

Number

Number

 

£

£

Allotted, called up and fully paid

 

 

 

 

 

Ordinary shares of 1p each

139,830,982

120,346,495

 

1,398,310

1,203,465

 

139,830,982

120,346,495

 

1,398,310

1,203,465

 

The movement in share capital is detailed below:

 

Number of shares issued

On 26 June 2019, the Company raised £250,000, before expenses, through a placing of 7,142,857 new Ordinary Shares at a price of 3.5 pence per share.

7,142,857

In August 2019, the Company raised £275,000, before expenses, through the placing of 4,583,333 new Ordinary Shares at a price of 6 pence per share.

4,583,333

In August 2019, the Company also issued shares in respect of the conversion of £18,750 of Convertible Loan Notes, plus accrued interest, at a price of 1.1p per ordinary share

2,202,741

On 1 October 2019, the Company raised £500,000 through the placing of 5,555,556 new Ordinary Shares at a price of 9.0 pence per share.

5,555,556

 

17.  Reserves

The Group's reserves are made up as follows:

Share capital: Represents the nominal value of the issued share capital.

Share premium account: Represents amounts received in excess of the nominal value on the issue of share capital less any costs associated with the issue of shares.

Capital redemption reserve: Reserve created on the redemption of the Company's shares

Merger reserve: Represents the difference between the nominal value of the share capital issued by the Company and the fair value of Stone Checker Software Limited at the date of acquisition.

Convertible loan note reserve: Represents the equity portion of the Convertible Loan Notes issued by the Company.

Foreign currency translation reserve: Reserve arising from the translation of foreign subsidiaries at consolidation.

Retained earnings: Represents accumulated comprehensive income for the year and prior periods.

 

 

 

18.  Share-based payments

On 1 November 2018, 6,017,500 shares in IQ-AI Limited were granted under option to David Smith. The shares are exercisable at 2.60p and the option will vest over 3 years, with 1/3rd vesting on 1 August 2019 and the remainder vesting at a rate of 1/36th per month on the last day of each month, until the shares become fully vested. The option will be exercisable for 10 years and will lapse on 1 August 2028. There are no cash settlement alternatives. 

The fair value is estimated as at the date of grant using a Black-Scholes model, taking into account the terms and conditions upon which the options were granted.  The following table lists the inputs to the model.

 

 

 

2018

 

Exercise price (pence)

2.60p

 

Shares under option

6,017,500

 

Risk free interest (%)

2

 

Expected volatility (%)

52%

 

Expected life in years

3

 

The total charge for the year relating to this scheme was £26,105 (2018: £10,877).

 

19.  Convertible loan note reserve

 

2019

2018

 

£

£

At the beginning of the year

145,033

368,933

Interest charge for the year

28,975

15,662

Loan notes converted

(24,230)

(239,562)

Loan notes issued during the year

518,500

-

 

668,278

145,033

 

The above reserve was created on the issue and conversions of the following Convertible Loan Notes ("CLNs"). The above amount relates to the equity portion of the CLNs. The capital and accrued interest are wholly repayable by the issue of shares in the Company.

On 11 March 2015, the Company raised £300,000 by the way of the issue of unsecured CLNs. The CLNs are convertible into Ordinary Shares at a price of 1.1p per Share. The CLNs accrue interest at a rate of 6.75% against the balance outstanding. By 6 August 2019, all of these notes were settled by the issue of ordinary shares.

On 18 November 2015, the Company raised £100,000 by the way of the issue of unsecured CLNs. The CLNs are convertible into Ordinary Shares at a price of 1.5p per Share. The CLNs accrue interest at a rate of 6.75% against the balance outstanding. These notes were due to be repaid by 18 November 2018. However, the Holders of the CLNs and the Company have agreed to extend the repayment date to 18 November 2020.

On 11 March 2019, the Company raised £268,500 by the way of the issue of unsecured CLNs. The CLNs are convertible into Ordinary Shares at a price of 1.5p per Share. The CLNs accrue interest at a rate of 6.75% against the balance outstanding.

On 29 May 2019, the Company raised £250,000 by the way of the issue of unsecured CLNs. The CLNs are convertible into Ordinary Shares at a price of 1.5p per Share. The CLNs accrue interest at a rate of 6.75% against the balance outstanding.

 

20.  Operating lease commitments

Financial commitments

The Group had no contracts in respect of lessee arrangements. The registered office is provided by the Company Secretary as part of their services. The contract has a cancellation policy of 3 months.

 

 

21.  Financial instruments

Financial risk management

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. 

 

The Group has exposure to the following risks from its use of financial instruments:

(a) Credit risk

(b) Liquidity risk

(c) Market risk

(d) Currency risk

(e) Interest rate risk

(f) Capital risk management

This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risks and the Group's management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

 

The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities.

 

The Group Audit Committee oversees how management monitors compliance with the Group's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.

 

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework.

(a)  Credit risk

Credit risk is the risk of financial loss to the Group if a customer fails to meet its contractual obligations. Each local entity is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered.

Trade and other receivables

The Group's exposure to credit risk is influenced by the type of customer the Group contracts with The Group has minimal trade receivables.

The immediate credit exposure of financial instruments is represented by those financial instruments that have a net positive fair value by counterparty at 31 December 2019. The Group considers its maximum exposure to be:

 

2019

2018

 

£

£

Financial instrument

 

 

Cash and cash equivalents

865,875

28,783

Loans and receivables, net of impairment

-

62,890

 

865,875

91,673

 

All cash balances and short-term deposits are held with an investment grade bank who is our principal banker (Barclays Bank PLC). Although the Group has seen no direct evidence of changes to the credit risk of its counterparties, the current focus on financial liquidity in all markets has introduced increased financial volatility. The Group continues to monitor the changes to its counterparties' credit risk.

 

 

 

21.  Financial instruments (continued)

(b) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.

The Board are jointly responsible for monitoring and managing liquidity and ensures that the Group has sufficient liquid resources to meet unforeseen and abnormal requirements. The current forecast suggests that the Group has sufficient liquid resources.

 

The following are the contractual maturities of financial liabilities:

 

Carrying

Contractual

6 months

6 to 12

1 to 2

2 to 5

31 December 2019

amount

cash flows

or less

months

years

years

£

£

£

£

£

£

Non-derivative financial liabilities

 

 

 

 

 

 

Trade and other payables

141,924

-

141,924

-

-

-

Loan from related party

57,994

-

57,994

-

-

-

 

 

 

 

 

 

 

 

199,918

-

199,918

-

-

-

 

Carrying

Contractual

6 months

6 to 12

1 to 2

2 to 5

31 December 2018

Amount

cash flows

or less

months

years

years

£

£

£

£

£

£

Non-derivative financial liabilities

 

 

 

 

 

 

Trade and other payables

225,047

-

225,047

-

-

-

Borrowings

-

-

-

-

-

-

 

 

 

 

 

 

 

 

225,047

-

225,047

-

-

-

 

Available liquid resources and cash requirements are monitored using detailed cash flow and profit forecasts which are reviewed at least quarterly, or more often as required. The Directors decision to prepare these accounts on a going concern basis is based on assumptions which are discussed in the going concern paragraph in note 1.

 

(c) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Given the Group began revenue generating operations in the year, the risk for the year was minimal.

 

(d) Currency risk

The Group is exposed to currency risk as the assets of its subsidiary, Imaging Biometrics LLC, are denominated in US Dollars. At 31 December 2019, the net foreign liabilities were £566,216 (2018: £300,728). Differences that arise from the translation of these assets from US Dollar to Pound Sterling are recognised in other comprehensive income and the cumulative effect as a separate component in equity.

 

 (e) Interest rate risk

The Group has no floating rate loans. Therefore, the Group has no exposure to interest rate risk.

 

(f) Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders as well as sustaining the future development of the business. In order to maintain or adjust the capital structure, the Group may adjust dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The capital structure of the Group consists of net debt, which includes loans, cash and cash equivalents, and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings.

 

 

21.  Financial instruments (continued)

Fair value of financial assets and liabilities

 

 

Book value

Fair value

Book value

Fair value

 

 

2019

2019

2018

2018

 

 

£

£

£

£

Financial assets

 

 

 

 

 

Cash and cash equivalents

 

865,875

865,875

28,783

28,783

Loans and receivables, net of impairment

 

-

-

62,890

62,890

 

 

 

 

 

 

Total at amortised cost

 

865,875

865,875

91,673

91,673

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

Trade and other payables

 

141,924

141,924

162,157

162,157

Borrowings and provisions

 

57,994

57,994

-

-

 

 

 

 

 

 

Total at amortised cost

 

199,918

199,918

162,157

162,157

 

22.  Related party transactions

During the year the Company was charged £77,780 (2018: £60,000) by Peterhouse Capital Limited ("Peterhouse") for the provision of corporate advisory services. The Company is connected to Peterhouse as Qu Li serves as a director of Peterhouse.

Non-Executive Chairman, Qu Li, is also a Director and major shareholder of China Ventures Limited. During the year China Ventures Limited charged the Company a total of £30,771 (2018: £30,000) in respect of services provided by Dr Li. The balance outstanding at year end was £nil (2018: £3,468).

At the year end, Trevor Brown directly and indirectly through Free Association Books, a company in which he also serves as a Director, holds 38,294,766 Ordinary Shares in the Company.

At the year-end, the amount due to Michael Schmainda in respect of a loan provided to Imaging Biometrics LLC amounted to US$75,000 (2018: US$75,000). The loan is interest free and repayable on demand.

23.  Events after the reporting period

On 13 January 2020, David Smith exercised share options of 1,000,000 Ordinary Shares at £0.026 each, totalling £26,000.

On 6 February 2020, the Company converted £60,000 convertible loan notes and the £16,875 associated interest into 5,125,000 Ordinary Shares at a price of 1.15 pence per share.  The convertible loan notes were issued on 18 November 2015 to Free Association Books Limited.

The outbreak of the coronavirus pandemic in the months after the reporting date is considered to be a non-adjusting event. As outlined in the Chief Executive Officer's Statement and Going Concern within accounting policies, to date COVID-19 has not had a significant impact on the Group's continuing activities. The unknown length of the outbreak is a source of uncertainty and the Board will continue to monitor events and provide updates as the situation develops.


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