Almirall
Annual Report 2020

Plain-text annual report

ALLIED MINDS PLC ANNUAL REPORT AND ACCOUNTS For the year ended 31 December 2020 Contents Overview Chairman’s Report Strategic Report Highlights Company Overview Portfolio Review and Developments Key Performance Indicators Financial Review Risk Management Management and Governance The Board Directors’ Report Corporate Governance Report Sustainability Directors’ Remuneration Report Audit Committee Report Financial Statements Independent Auditor’s Report Consolidated Financial Statements Notes to the Consolidated Financial Statements Company Balance Sheet Notes to the Financial Statements Company Information 3 4 7 7 9 13 19 20 24 32 32 34 42 53 62 84 89 89 98 102 154 157 161 2 Overview Allied Minds plc (Allied Minds or the Group) is an IP commercialisation company primarily focused on early stage company development within the technology sector. The Group is currently comprised of seven portfolio companies based upon a broad range of underlying innovative technologies ranging from semiconductors to wireless connectivity to space-based imagery and analytics. The ability of the Group’s portfolio companies to raise funds and continue achieving important technical and commercial milestones while building upon key partnership relationships is a key strength. The Group continues to progress as it works to execute on growing the value of its portfolio company interests for its shareholders. Allied Minds’ strategy is focused on supporting its existing portfolio companies and maximising monetisation opportunities for portfolio company interests. The Board aims to monetise the Group’s ownership positions at the appropriate time, recognising the value and benefit in achieving well-timed risk-adjusted returns for the benefit of shareholders. Upon the event of successful monetisation events from the sale of portfolio companies or portfolio company interests, Allied Minds anticipates distributing the net proceeds to its shareholders, after due consideration of potential follow-on investment opportunities within the existing portfolio and working capital requirements. Allied Minds has also implemented a significant cost reduction in its annual central costs. Accordingly, the Group currently projects that its recurring annualised HQ operating expenses will be reduced to approximately $5.7 million for 2021 (2020: $7.1 million). The Directors believe the Group’s cash balance is sufficient to continue to support Allied Minds' operations and portfolio companies in accordance with its current strategy. 3 Chairman’s Report Allied Minds started 2020 with a new Board and a recalibrated strategy focused exclusively on funding and operating our existing investment portfolio of businesses and to operate a streamlined and highly cost-efficient organisation. During 2020, the Group undertook a critical assessment of its portfolio of very early stage and pre-revenue companies. As a result of this strategic review, the Board instituted a new form of governance that is better suited to achieving value creation from its venture-like portfolio. Under the new corporate structure, announced in January 2021, the Group will be led by its Non-Executive Directors (NEDs) and the role of Chief Executive Officer will no longer be required. Throughout 2020, alongside the thorough portfolio review, Allied Minds continued to drive the strategic objectives first announced in April 2019 of focusing exclusively on supporting the existing portfolio companies and maximising monetisation opportunities for portfolio company interests. Early in 2020 we demonstrated the benefits of this approach to delivering shareholder value with the payment of a 12.62 pence per share dividend in February, which followed the sale of HawkEye 360 in the third quarter of 2019. The Board aims to monetise the Group’s ownership positions at the appropriate time, recognising the value and benefit in achieving well-timed risk-adjusted returns for the benefit of shareholders. Allied Minds remains a significant shareholder in each of its portfolio companies, and all companies in the portfolio, regardless of prior funding, are at the knee of the commercialisation curve. While seeing significant opportunities, each company also needs to manage the significant risks which are typical and customary for emerging companies, including market development and penetration, leading to revenue growth. At the end of the first quarter of 2020 the coronavirus pandemic and its impact both in the US and globally, meant we were equally focused on ensuring the wellbeing, safety, and security of our workforce across all our portfolio companies. Swift and effective actions were taken to allow all of us to continue operating safely using remote working environments and virtual meeting platforms and I would like to pay tribute to all employees for their resilience and commitment throughout this highly challenging period. Across the portfolio, several companies achieved milestone funding events and delivered strong progress in technology development, underpinned by blue-chip partnerships that were put in place or continued to thrive during the year. BridgeComm signed a JDA with Boeing HorizonX (Boeing) to collaboratively develop applications of One- to-Many (OTM) technology, and secured several additional rounds of convertible debt financing. The company also entered into a partnership with Nokia to develop ultra-high-speed throughput solutions to facilitate faster deployment of 5G networks. Federated Wireless (Federated) also delivered strong technological progress involving blue chip partnerships, launching a new Connectivity-as-a-Service (CaaS) offering that lets US enterprises buy and deploy private 4G and 5G networks with a single click through AWS(R) and Microsoft Azure(R) 4 marketplaces. Federated also raised additional funding during the year whilst its market opportunity expanded with the unlocking of an additional 100 megahertz of contiguous mid-band spectrum in the 3.45-3.55 GHz band for commercial 5G deployment. Orbital Sidekick (Orbital) was awarded a multi-year contract by the Department of the US Air Force’s commercial investment group (AFVentures) as part of its Strategic Financing (STRATFI) programme and this brought further financing and financing opportunities. Orbital then secured conditional funding, which is expected to close in Q2 2021 subject to approval by the Committee on Foreign Investments in the United States (CFIUS). The Board also made further moves to rationalise the portfolio with the acquisition of TableUp by TouchBistro, Inc. in a stock-for-stock transaction. However, COVID-19 had a negative impact on several companies in the portfolio including Federated, Spin Memory (Spin), and Spark Insights (Spark). Federated was able to mitigate against this impact and is now back on track with its strategic plan and timing, including meeting projected revenue targets for 2021. Meanwhile, Spin continues to face commercial and financing challenges that the Spin Board of Directors, with the support of the NEDs, are working to address in 2021. In the event financing is not obtained or projected revenue is not realised, Spin may need to seek alternative paths that may include filing for bankruptcy, selling its intellectual property assets, and/or other similar avenues to orderly wind down the company in the near term. Furthermore, while Spark is continuing to achieve development milestones with respect to its intellectual property, the delay in securing financing has put the company in a difficult cash position. In the event financing is not realised within the coming weeks, Spark will need to immediately resort to alternative paths that include selling its assets, filing for bankruptcy, winding down and/or similar avenues. In each case, the NEDs are working closely with the management teams at Spin and Spark, respectively, to tackle the challenges faced by these companies, including exploring all alternatives available to such companies, and to determine how to achieve the best outcome for its investors. We remain in close communication with customers, suppliers and partners, working together to navigate this changing environment. In 2020, the Group was able to demonstrate the ability of its portfolio companies to raise funds and achieve key technical and commercial milestones, despite the global challenges of COVID-19. Going forward, while the NEDs and Allied Minds will continue to support all our portfolio companies, and intend to continue providing guidance, advice, assistance with fundraising and strategic opportunities, it will be the qualified and strong management teams in place who will be running the respective businesses and responsible for advancing and progressing their respective companies forward, including leading fundraising activities and identifying and securing new investors. The NEDs believe that on balance, and taking into consideration the challenges facing some of the Group’s portfolio companies that may hinder success, the Group as a whole remains well-positioned to maximise its value and deliver additional returns to our shareholders within a reasonable timeframe. Allied Minds’ cash position will be used to strategically support those portfolio companies that will enable 5 it to further its objective of maximising value and returns for its shareholders. Harry Rein, Chairman 29 March 2021 6 STRATEGIC REPORT Highlights Investment & Financial Highlights • $27.9 million invested in portfolio companies, of which $13.7 million was raised from third-party investment • Net cash and cash equivalents at 31 December 2020: $24.5 million (FY19: $90.6 million), of which $22.3 million is held within Allied Minds (FY19: $84.1 million) • Revenues of $0.5 million (2019: $2.7 million) mainly from non-recurring engineering (NRE) and service contracts, reflecting the early stage nature of our portfolio companies • On 14 February 2020, Allied Minds paid a special dividend of 12.62 pence per ordinary share totaling £30.49 million Selected Portfolio Company Highlights • BridgeComm (consolidated subsidiary): o Joint development agreement (JDA) with Boeing HorizonX (Boeing) to collaboratively develop applications of the One-to-Many (OTM) technology o Additional $2.0 million of convertible debt financing from Allied Minds on top of the $1.0 million invested by Boeing at the end of 2019 o Secured additional $1.5 million of convertible debt financing from Boeing upon successful achievement of development milestones under the JDA, post-period end o Entered into partnership with Nokia to develop ultra-high-speed throughput solutions to facilitate faster deployment of 5G networks • Federated Wireless (equity accounted investment): o Announced new Connectivity-as-a-Service (CaaS) offering that lets U.S. enterprises buy and deploy private 4G and 5G networks with a single click through AWS(R) and Microsoft Azure(R) marketplaces o Raised $13.7 million of additional Series C funding from Allied Minds and existing investor, Pennant Investors, to accelerate expansion and adoption of its partnerships with AWS and Microsoft Azure to offer Connectivity-as-a-Service and expand into 6 GHz band for 5G services o Potential market opportunity expanded upon additional 100 megahertz of contiguous mid-band spectrum in the 3.45-3.55 GHz band unlocked for commercial 5G deployment • Orbital Sidekick (preference share investment held at fair value): o Awarded a multi-year contract by the Department of the Air Force’s commercial investment group (AFVentures) as part of its Strategic Financing (STRATFI) programme, 7 STRATEGIC REPORT under which the company received $4.0 million of non-dilutive financing and has the opportunity to receive up to $12.0 million of additional non-dilutive financing over next three years to match private funds raised o Entered into definitive agreement to secure $16.0 million in a Series A Preferred financing round expected to close in Q2 2021 subject to approval by the Committee on Foreign Investments in the United States • Spin Memory (equity accounted investment): o Raised $8.25 million of additional Series B funding from existing investors, including Abies Ventures, Applied Ventures, LLC (the venture capital arm of Applied Materials, Inc.), ARM Technology Investments Limited (“ARM”) and Allied Minds, to support continued research in MRAM, including work with its existing development partners, Applied Materials and ARM o Facing significant liquidity issues due to its inability to secure new customers coupled with the unexpected loss of a government bid in late Q4 2020. Delays of the required testing of its development chip with ARM for nearly nine months due to the work-from-home orders in the State of California due to COVID-19 has had a direct effect • TableUp (preference share investment held at fair value) acquired by TouchBistro, Inc. in stock- for stock transaction. The stock held in TouchBistro is held at fair value under IFRS9 Corporate Developments • Post-period end, Allied Minds announced additional restructuring efforts including direct management of the portfolio by the Board and elimination of the Chief Executive Officer role 8 STRATEGIC REPORT Company Overview Overview Allied Minds is an IP commercialisation company primarily focused on early stage company development within the technology sector. We have historically invested in companies at an early stage, including seed investments to build companies based on a technical breakthrough or invention. As such, our investments have significant upside potential, but also carry significant risk inherent in the early stage model. The Group is currently comprised of seven portfolio companies based upon a broad range of underlying innovative technologies ranging from semiconductors to wireless connectivity to space-based imagery and analytics. The ability of the Group’s portfolio companies to raise funds and continue achieving important technical and commercial milestones while building upon key partnership relationships across the portfolio signify the strength of the Group and demonstrates that it remains on track as it works to execute on maximising the value of its portfolio company interests and delivering well-timed, risk-adjusted returns for its shareholders. COVID-19 As we navigate the uncertainties brought by the coronavirus pandemic, Allied Minds continues to closely monitor, assess, and respond to the impacts of COVID-19 in order to ensure the continued health, safety, and security of its workforce across its portfolio companies. The Group has taken several actions to enable Allied Minds and its portfolio companies to continue operating safely and effectively, including implementing remote working environments, using virtual meeting platforms, and reducing travel. While COVID-19 has had varying degrees of commercial impact across the portfolio in the past year, the actions and mitigation put in place by the Group have enabled day-to-day operations to continue effectively across the portfolio. As highlighted in this report, while some of our companies have been impacted more negatively than others, overall, the achievements across our portfolio demonstrate that our companies are continuing to make progress against their respective commercial and strategic objectives even during this pandemic. We remain in close communication with all our customers, suppliers and partners to collaborate on how to best support each other’s needs in this new environment. Furthermore, Allied Minds continues to engage with each of its portfolio companies to help manage and mitigate against potential impacts on each company’s business, including assisting with employee support, cash management, and contingency planning. While we remain cautious and vigilant about what the coming months may bring, we continue to be optimistic and expect to be able to navigate these uncertain times whilst delivering the results of our stated strategy in the coming years. Model As a manager of a technology-focused portfolio in which we hold significant ownership positions, we seek to provide hands-on support over the life of our companies to support their growth, focusing on enabling and driving commercialisation, supporting follow-on investment rounds, and positioning for superior 9 STRATEGIC REPORT monetisation opportunities. Allied Minds offers operational and management support to each of its portfolio companies leveraging the deep domain expertise of our management team in their respective careers as entrepreneurs, operators, directors, advisors, and investors. Our employees have expertise in business strategy, sales and marketing, operations, finance, legal and transaction execution. We play an active role in developing the strategic direction of our portfolio companies and driving ongoing planning and assessment. Our executives and Non-Executive Directors serve on the boards of directors of our portfolio companies, working with them to develop and implement strategic, operating and funding plans. We evaluate on an on-going basis the progress and potential of each of the portfolio company’s businesses, and make strategic and funding decisions based on the regular review of operational and financial performance and the achievement of key milestones. Together with our management, the respective portfolio company boards of directors define the critical milestones, or inflection points, for each portfolio company and measure tangible progress towards commercialisation and the key factors for a successful monetisation event. Portfolio company management is accountable for these milestones, which are developed into annual management objectives (MBOs). As our portfolio companies meet the objectives identified for success, we will participate in subsequent capital raises to mitigate dilution, to the extent consistent with our goal to maximise risk and time- adjusted returns for our shareholders and taking into account competing uses of capital across our portfolio. Co-investors in later rounds include financial, strategic and commercial partners. Where appropriate, we seek to include partners who validate the market opportunity and can provide support and/or commercial commitments to accelerate, expand and/or de-risk the path to commercialisation. By helping our portfolio companies’ management teams remain focused on critical objectives through the provision of human, financial and strategic resources, we believe we are able to accelerate their development and success. We believe that Allied Minds’ experience and hands-on support provide our portfolio companies with significant competitive advantages within their respective markets. Strategy Allied Minds’ strategy is focused on supporting its existing portfolio companies and maximising monetisation opportunities for portfolio company interests. The Board aims to monetise the Group’s ownership positions at the appropriate time, recognising the value and benefit in achieving well-timed risk-adjusted returns for the benefit of shareholders. In general, we will hold our position in a portfolio company for as long as we believe the risk and time- adjusted value of that position is maximised by our continued ownership and effort. From time to time, we engage in discussions with other companies interested in our portfolio companies (or our interest in those companies), either in response to enquiries or as part of a process we initiate. To the extent we believe that a portfolio company’s further growth and development can best be supported by a different ownership structure or if we otherwise believe it is in our shareholders’ best interests, we may seek to sell some or all of our position in the portfolio company. These sales may take the form of privately negotiated sales of stock or assets, mergers and acquisitions, public offerings of the portfolio company’s securities and, in the case of publicly traded portfolio companies, sales of their securities in the open market. 10 STRATEGIC REPORT The value of Allied Minds is dependent upon the value of our existing portfolio companies and our ability to translate that value into cash as effectively and efficiently as possible and to deliver that cash, net of our obligations and operating cash needs, to our shareholders. Upon the event of successful monetisation events from the sale of portfolio companies or portfolio company interests, Allied Minds anticipates distributing the net proceeds to its shareholders, after due consideration of potential follow-on investment opportunities within the existing portfolio and working capital requirements. Outlook Allied Minds’ portfolio companies, led by experienced, motivated and resourceful management teams, have continued to make substantial technical and commercial progress. The milestones achieved demonstrate examples of solving difficult technical problems, developing innovative products and services across a range of large potential markets, establishing important partnerships to develop technology and go to market channels, and the creation of shareholder value. The Board believes that the shareholder returns to date and completion of successful fundraisings throughout its portfolio, together with achieving portfolio company milestones, means that Allied Minds is well positioned to maximise returns for its shareholders. Portfolio Company Valuation Of the Company’s seven active portfolio companies, three are currently majority owned and/or controlled, and therefore fully consolidated in the Company’s consolidated financial statements prepared in accordance with international financial reporting standards conformity with the requirements of the Companies Act 2016. Of the remaining four portfolio companies, the Company holds a significant minority stake in three of these companies and a small position in the fourth (TouchBistro, Inc.) as a result of the stock-for-stock sale of TableUp, Inc. In each case, where Allied Minds holds a significant minority stake, it is able to exercise significant influence over the portfolio company by virtue of its large, albeit minority, ownership stake in the portfolio company and its representation on the board of directors. The investment in preferred stock in these portfolio companies is accounted for under IFRS 9 and is classified by the Company as an investment at fair value in the Company’s consolidated financial statements. Due to the equity-like characteristics of the Company’s common stockholdings in Spin Memory and Federated Wireless, these two investments are accounted for under IAS 28 and are classified by the Company as investments in associates. Accordingly, since Allied Minds has significant influence over these entities through the voting rights/potential voting rights held at Spin Memory and Federated Wireless, it gives access to the returns associated with an ownership interest in these associates. Allied Minds provides qualitative and quantitative disclosure in relation to the commercial and financial progress of its portfolio companies, and directional commentary on valuation. In addition, where commercially possible, Allied Minds provides, for each portfolio company: (i) the date of the last equity funding round, (ii) the post-money valuation of such round, (iii) the named key co-investors in such round, and (iv) the Company’s issued and outstanding ownership, and fully-diluted ownership, of such portfolio company. 11 STRATEGIC REPORT This information is set forth in the Portfolio Review and Developments section below. The ownership interests are as of 29 March 2021. The fully-diluted percentages take into account outstanding stock options granted to employees, directors and advisors, current stock options available for grant pursuant to the company’s stock option plan, and outstanding warrants to purchase common and preferred stock. The post-money valuations disclosed for each entity below do not represent IFRS 13 fair values but rather, are based on the pre-money valuation set by the investors in the latest financing round plus the total money raised in that round. There can be no guarantee that the aforementioned post-money valuations of the portfolio companies will be considered to be correct in light of the future performance of the various companies, or that the Company would be able to realise proceeds in the amount of such valuations, or at all, in the event of a sale by it of any of its portfolio companies or its ownership interest in such portfolio companies. 12 STRATEGIC REPORT Portfolio Review and Developments ---------- BridgeComm Inc. (BridgeComm) (consolidated subsidiary) BridgeComm is developing high-speed optical wireless communications to provide fast, secure, enterprise-grade broadband service for space, terrestrial and 5G connectivity. BridgeComm’s newest technology is unique and IP protected which enables one-to-many communications via optical wireless offering efficient communication to satellites, planes and land-based networks enabling 5G equivalent performance. The technology promises higher throughput over longer distances with added security than what is available today. The technology also has the ability to solve the “last mile connectivity” challenge for 5G networks. On 15 January 2020, Allied Minds announced the next stage in BridgeComm’s relationship with Boeing HorizonX whereby the two companies were collaboratively pioneering the development of BridgeComm’s new technology for terrestrial, airborne and space systems. Together, BridgeComm and Boeing are bidding on several US government contracts requiring optical communications as they look to commercialise the development work achieved to date. It is anticipated that this process will lead to first revenue from the newly developed technology in 2021. On 28 September 2020, Allied Minds announced that BridgeComm partnered with Nokia to jointly develop high-speed optical communications to facilitate faster deployment of 5G networks. The focus of the work with Nokia is to utilise optical communications to solve the “well known” last mile connectivity problem prevalent in the fixed wireless industry. BridgeComm will need to seek additional financing to further fund its next stage of development work. Allied Minds currently has fully diluted ownership (ownership percentage including currently issued shares and potential outstanding shares to be issued) of 62.92% in BridgeComm. The $4.5 million convertible bridge invested by Boeing HorizonX and Allied Minds will convert into the next round of financing. Holdings and valuation: • Date of Last Funding Round: September 2018 • Post-Money Valuation: $38.0 million • Co-Investors: Boeing HorizonX Ventures (venture arm of Boeing Company) • Allied Minds’ Issued and Outstanding Ownership: 81.15% • Allied Minds’ Fully-Diluted Ownership: 62.92% Federated Wireless Inc. (Federated) (equity accounted investment) Federated has developed technology and products to enable the revolutionary shared spectrum model in the United States to further enable wireless communications, adoption of the Internet-of-Things (“IoT”) and edge computing. Federated also has the ability to deploy private wireless networks through its newly announced Connectivity-as-a-Service (“CaaS”) offering. CaaS is focused on enabling enterprise customers the ability to build their own private networks in a low risk and low capital expenditure manner. For the first time, enterprises will be able to control their own 13 STRATEGIC REPORT network, bypassing traditional Internet Service Providers, on the back of Federated’s Spectrum Access System (“SAS”). These networks have the ability to be more powerful than traditional WiFi while also providing more security, opening up a new market for Federated. On 18 February 2020, Federated announced that it entered into agreements with both AWS and Azure to function as channel partners to drive commercialisation of the CaaS offering through their online marketplaces. On 8 October 2020, the U.S. Department of Defense announced that Federated had been awarded the project at the Marine Corps Logistics Base Albany, GA to develop a 5G Smart Warehousing solution focused on vehicular storage and maintenance. This award represents the first CaaS-related opportunity for Federated from its previously announced new channel partners. The list of Federated partners involved in this project include GE Research, KPMG LLP, Scientific Research Corporation as well equipment suppliers, AWS and Cisco, Inc. Since the Federal Communications Commission (“FCC”) announced the authorisation of the full commercial deployment of Federated’s SAS on 27 January 2020, Federated is now able to support its customers as they deploy their new networks. A key feature of Federated’s SAS offering is that it is the only FCC authorised company with a fully deployed Environmental Sensing Capability as required by the FCC. This has allowed Federated to operate unabated, providing a significant competitive advantage. Federated’s first customers to deploy are focused on the Wireless Internet Service industry as well as Verizon’s build out of their network to add 3.5GHZ CBRS. This has led to Federated realising its recurring revenue model for the first time since it was granted authorisation. Federated expects more customers under contract to begin to deploy soon who are looking to benefit by adding access to 3.5GHz CBRS. This will further accelerate Federated’s valuable recurring revenue model into 2021. Federated expects its revenue to grow by significant multiples in 2021 compared with 2020 when it was first able to initiate its services. Federated has sufficient cash to fund its growth into 2022. Allied Minds currently owns 36.61% of Federated and expects that if the company continues to achieve its planned key milestones, it will be in a position to attract any future equity financing in an upround. Holdings and valuation: • Date of Last Funding Round: September 2019 (second closing post-period end in April 2020) • Post-Money Valuation: $215.0 million • Co-Investors: American Tower (NYSE: AMT), GIC (Singapore’s sovereign wealth fund), Pennant Investors and SBA Communications (NASDAQ: SBAC) • Allied Minds’ Issued and Outstanding Ownership: 43.11% • Allied Minds’ Fully-Diluted Ownership: 36.61% • Federated Wireless has made significant progress against its key operational objectives since its last funding round. OcuTerra Therapeutics, Inc. (consolidated subsidiary) OcuTerra (previously SciFluor Life Sciences, Inc.) is a drug development company focused on creating best- 14 STRATEGIC REPORT in-class compounds, initially targeting the field of ophthalmology. OcuTerra’s lead clinical asset, SF0166, is a topical eye droplet treatment for Age-related Macular Degeneration (AMD) and Diabetic Macular Edema (DME), both widely prevalent retinal diseases that lead to blindness if left untreated. OcuTerra has sought to raise external equity financing since 2018 to fund Phase II trials for SF0166, on the back of safety and preliminary efficacy data from the Phase I/II trials. This process has not been successfully completed to date. As a result, OcuTerra has experienced clinical delays since its last funding round and the valuation is substantially impaired due to a prolonged inability to attract new external financing. Clinical development activities at OcuTerra have been pared back, and are now focused exclusively on the toxicology studies necessary to initiate the Phase II trials for SF0166. To assist with its fundraising efforts, OcuTerra engaged Maxim Group LLC. During Q4 2019 (and completing in Q1 2020), OcuTerra raised $1.325 million of convertible debt financing from third parties. In addition, in Q3 2020 and post-period end in Q1 2021, OcuTerra raised an aggregate of $200K of debt financing from third parties, half of which was raised from Maxim Group LLC, and continues its fundraising efforts for an external equity financing to fund Phase II trials. It is uncertain if OcuTerra will be successful in securing the required funds in 2021. Holdings and valuation: • Date of Last Funding Round: November 2019 (convertible debt into next preferred equity round) • Valuation: n/a • Co-Investors: Various third parties • Allied Minds’ Issued and Outstanding Ownership: 62.67% • Allied Minds’ Fully-Diluted Ownership: 54.16% Orbital Sidekick Inc. (Orbital) (preference share investment held at fair value) Orbital has developed a proprietary analytics platform based upon its hyperspectral technology that allows it to take a proprietary “chemical fingerprint” from space. Initially, Orbital is addressing the very current and large concerns about the environment by focusing on potential energy pipeline failures. By employing its space-based technology, it is able to detect and identify natural gas, oil leaks and other failures much more rapidly than current monitoring techniques in a more cost effective way and the added benefit of helping to minimise environmental damage. Orbital’s first fully dedicated hyperspectral imagery satellite is scheduled to launch in 2021, which together with its existing on-board processing technology deployed on the International Space Station, will allow Orbital to realise revenue from its first pilot programme participants from the oil and gas pipeline industry that it has been able to convert to paying customers. On 15 October 2020, Allied Minds announced that Orbital was awarded a multi-year contract by the Department of the Air Force’s commercial investment group (AFVentures) as part of its Strategic Financing (“STRATFI”) programme. Orbital received $4.0 million of non-dilutive financing in Q4 2020 from the programme and has the opportunity to receive up to $12.0 million of additional non-dilutive financing over the next three years to match private funds raised. On 24 December 2020, Allied Minds announced that Orbital had conditionally secured $16.0 million in a Series A Preferred financing round led by Temasek, an investment company headquartered in Singapore. The Series A financing closing is subject to approval by the Committee on Foreign Investments 15 STRATEGIC REPORT in the United States (CFIUS). In March 2021, CFIUS informed Orbital that it will enter an additional 45-day investigation period regarding the transaction, which is not atypical of like transactions. Accordingly, the financing is expected to close in Q2 2021. The combined expected proceeds of $32.0 million raised from both the Series A financing and the funds available from the STRATFI programme is significant and will allow Orbital to focus on scaling its business and growing its sales pipeline to rapidly bring its products to market and enable the launch of additional satellites to support its customers. Holdings and valuation: • Date of Last Funding Round: April 2018 • Post-Money Valuation: $11.7 million • Co-Investors: 11.2 Capital • Allied Minds’ Issued and Outstanding Ownership in respect of preference shares: 33.23% • Allied Minds’ Fully-Diluted Ownership: 29.67% Spark Insights Inc. (Spark) (consolidated subsidiary) Spark is an advanced analytics company developing data products for the rapidly growing insurance analytics market. Allied Minds formed Spark in late 2018. Given the increasing prevalence of catastrophic events, including hurricanes, floods, and wildfires, property insurers are struggling to quantify the impact on their policies, both before and after a catastrophic event occurs. Spark plans to leverage the advent of unique data sets, including advances in satellite imagery and weather data, combined with proprietary analytics to transform critical workflows for these property insurers. Spark’s focus is at the intersection of several addressable markets including insurance analytics, underwriting losses, and catastrophe modeling platforms. In June 2020, Spark achieved a key technical milestone and successfully released version 1.0 of its post- catastrophe automated damage assessment product. As a result of challenges posed by COVID-19, Spark has faced delays in fundraising and is now in a difficult cash position. If Spark fails to raise additional financing in the coming weeks, Spark will need to immediately consider and execute on alternative paths that include selling its assets, filing for bankruptcy, winding down and/or similar avenues. Holdings and valuation: • Date of Last Funding Round: April 2019 • Post-Money Valuation: $3.2 million • Co-Investors: n/a • Allied Minds’ Issued and Outstanding Ownership: 70.59% • Allied Minds’ Fully-Diluted Ownership: 60.00% 16 STRATEGIC REPORT Spin Memory Inc. (Spin) (equity accounted investment) is a leader in providing magnetoresistive random-access memory (“MRAM”) Spin intellectual property. Through its collaboration with industry leaders, Spin Memory is looking to transform the semiconductor industry by addressing the biggest challenge, memory, in next-generation electronics systems such as Artificial Intelligence, Autonomous Driving, 5G Communication and Computing at the Edge. Spin represents the last remaining portfolio company from Allied Minds’ original investment platform. During 2020, Spin was able to “tape out” the demonstration chip co-developed with Arm pursuant to its joint development agreement, entered into in very late Q4 2018, representing the first time that Spin was able to demonstrate its Endurance Engine technology in silicon. Unfortunately, the work-from-home orders in the State of California due to COVID-19 delayed the required testing of the chip for nearly nine months. The testing did commence in early Q4 2020 and the initial results are promising. However, this delay has affected Spin’s ability to secure new customers. As a result, this, coupled with an unexpected loss of a government bid in late Q4 2020, Spin is now facing significant liquidity issues. Spin’s Board of Directors and management team have worked to adjust the company’s operating plan to account for the delays described above and are currently working with its shareholders to develop a funding plan that will allow it to identify and secure commercial partners for its product, expertise and intellectual property in 2021. As previously disclosed, any financing contemplated by Spin is expected to be a significantly reduced valuation and dilutive to any non-participants in the round. While this is disappointing, a down-round financing is not uncommon in early venture capital companies and the Board is hopeful that any funding raised will give Spin an opportunity to maximise net value for shareholders either through an asset sale or acquisition or securing key partners and revenue-generating customers in the coming months. In the event financing is not obtained or projected revenue is not realised, Spin may need to seek alternative paths that may include filing for bankruptcy, selling its intellectual property assets, and/or other similar avenues to orderly wind down the company in the near term. Holdings and valuation: • Date of Last Funding Round: November 2018 (date of first closing, final closing in July 2020) • Post-Money Valuation: $180.25 million • Co-Investors: Arm Technology Investments Limited, Applied Ventures, LLC, Abies Venture Fund, Woodford Investment Management (now succeeded by Schroder Investment Management Limited) and Invesco Asset Management • Allied Minds’ Issued and Outstanding Ownership: 43.01% • Allied Minds’ Fully-Diluted Ownership: 33.98% TouchBistro, Inc. (acquirer of TableUp, Inc.) (common shares in TouchBistro) On 5 August 2020, TableUp was wholly acquired by TouchBistro, Inc. in a stock-for-stock transaction. As a result of such transaction, Allied Minds received common shares of TouchBistro valued at $5.99 million. The Group made its initial investment in TableUp in April 2018. TableUp is a provider of loyalty and 17 STRATEGIC REPORT marketing solutions for the restaurant industry and is highly regarded for its proprietary guest retention solution, which is used by more than 600 restaurants throughout the U.S and will enable TouchBistro to fully integrate customer loyalty and guest marketing into its all-in-one point-of-sale (POS) and restaurant management platform. 18 STRATEGIC REPORT Key Performance Indicators The Key Performance Indicators (KPIs) selected to measure the performance of the Company in 2020 were percentage level of achievement of management by objectives (MBOs). These objectives seek to link financial, operational, technical and other performance milestones established by the Board directly to remuneration and KPIs. Performance against 2019 KPIs is set out below: KPI MBO Achievement; Percentage of Target; See Detail Below 2020 75.0% 2019 87.6% Performance Below target The MBOs set by the Board for 2020, along with the level of achievement against such MBOs, is set forth below: MBO Increase Aggregate Portfolio Value (NAV) Increase ALM Share Price Manage HQ Cash and Expenses Secure Funding and Strategic Partners at Portfolio Companies Maintain Strong Operational Support Total Percentage of Target Threshold Weightings 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Target Weightings 12.5% 12.5% 25% 25% 25% 100.0% Maximum Weightings 18.75% 18.75% 37.5% 37.5% 37.5% 150.0% Achieved Weightings 0% 0% 25% 25% 25% 75.0% Additional detail with respect to determination of such achievement is set forth on page 73. The following Key Performance Indicators (KPIs) were selected to measure the performance of the Company in 2021. These objectives seek to link financial, operational, technical and other performance milestones established by the Board directly to remuneration and KPIs. Increase Company Non-Executive Director (NED) engagement at each portfolio company 1. 2. Appoint at least one NED on each portfolio company’s board 3. Provide strategic, operational and financing support and assistance to the portfolio companies through representation on the board of each portfolio company 4. Critically evaluate and monitor portfolio company progress with objective of maximising shareholder return on investment (ROI) 5. Maintain strong shareholder engagement, including annual capital markets day 6. Manage HQ cash and expenses to maximise shareholder ROI We note that as a result of the strategic changes implemented by the Board on 15 January 2021, the portfolio shall be managed by the Board, all of whom are Non-Executive Directors, on a go-forward basis. The Board places equal importance on each of the listed KPIs. 19 STRATEGIC REPORT Financial Review During 2020, $27.9 million was invested into existing subsidiary businesses and associates. This included $14.4 million from subsidiary and associate fundraisings invested by Allied Minds, with $13.6 million coming from third-party investment, to further accelerate the development of the Group’s existing companies. Consolidated Statement of Comprehensive Profit For the years ended 31 December Revenue Cost of revenue Selling, general and administrative expenses Research and development expenses Finance (cost)/ income, net Other (expense)/ income Other comprehensive (loss)/ income Total comprehensive (loss)/ income of which attributable to: Equity holders of the parent Non-controlling interests 2020 $ '000 2019 $ '000 480 (210) (10,497) (4,712) (1,786) (38,779) (116) (55,620) 2,692 (1,433) (34,316) (16,146) 9,992 89,465 808 51,062 (53,141) (2,479) 52,143 (1,081) Revenue decreased by $2.2 million, to $0.5 million in 2020 (2019: $2.7 million). This decrease is primarily attributable to the ownership of Federated Wireless being an entity which was previously consolidated. In the second half of 2019 control of this entity was lost, and going forward has been equity accounted for under IAS28 (“deconsolidated”). The decrease is partly offset by revenue from new contracts in 2020 at BridgeComm of $0.1 million. Cost of revenue at $0.2 million (2019: $1.4 million) was lower as a percentage of revenue, when compared to the prior year, mainly due to deconsolidation of the Company’s subsidiaries and inventory write-offs at closed and dissolved companies in 2019. Selling, general and administrative (SG&A) expenses decreased by $23.8 million, to $10.5 million (2019: $34.3 million). This reduction was mainly due to the deconsolidation of one of the company’s subsidiaries in the second half of 2019, as well as cost reductions at headquarters implemented during 2019. Research and development (R&D) expenses decreased by $11.4 million, to $4.7 million (2019: $16.1 million). The decrease was primarily due to the deconsolidated and closed and dissolved subsidiaries in 2019. The remainder of the decrease reflects the net effect from R&D spend at the remaining subsidiaries. Net finance cost increased by $11.8 million in 2020 to $1.8 million (2019: income of $10.0 million). The increase reflects the impact from deconsolidation of one of the company’s subsidiaries in the second half of 2019 partly offset by net finance cost of $1.5 million from IFRS 9 fair value accounting of the subsidiary preferred shares liability balance (2019: finance income of $9.3 million), convertible note payable balance of $0.3 million (2019: $nil) and interest income, net of interest expense, of $23 thousand (2019: $0.7 million). The change was primarily from adjustments at BridgeComm. 20 STRATEGIC REPORT Other loss increased to $38.8 million (2019: income of $89.4 million) reflecting $31.9 million loss on investments held at fair value as well as the company’s share of loss of $6.8 million from its associates. As a result of these factors, total comprehensive loss increased by $106.7 million to $55.6 million (2019: income of $51.1 million). Total comprehensive loss attributed to the equity holders of the Group was $53.1 million (2019: income of $52.1 million) and $2.5 million loss (2019: $1.1 million) was attributable to the owners of non-controlling interests. Consolidated Statement of Financial Position As of 31 December Non-current assets Current assets Total assets Non-current liabilities Current liabilities Equity Total liabilities and equity 2020 $ '000 2019 $ '000 44,416 32,584 77,000 72,695 97,854 170,549 2,246 16,468 58,286 77,000 3,795 14,183 152,571 170,549 Significant performance-impacting events and business developments reflected in the Company’s financial position at year end include: Non-current assets Property and equipment increased by $0.1 million to $1.6 million (2019: $1.5 million), primarily as a result of purchases of approximately $1.0 million, mainly at BridgeComm, offset by depreciation expense of $0.5 million and $0.4 million in disposals. Intangible assets decreased by $0.2 million to $nil million (2019: $0.2 million) mainly as a result of amortisation expense of $0.2 million. Investments at fair value decreased to $39.1 million (2019: $61.9 million). As a result of the fair value accounting for investments held at fair value, Allied Minds recorded a loss of $31.9 million in the Consolidated Statements of Comprehensive (Loss)/ Income. The decrease is offset by $6.9 million in additional funding by Allied Minds in April 2020 when Federated Wireless completed the second closing of its $13.7 million Series C Preferred Stock financing, as well as $4.0 million in additional funding by Allied Minds in July 2020 when Spin Memory completed a new closing of its $8.3 million Series B-1 Preferred Stock financing. In addition, on 5 August 2020, TableUp, one of Allied Minds’ portfolio companies, was acquired by TouchBistro, Inc. (“TouchBistro”). The acquisition was structured as a stock-for-stock transaction in which TouchBistro acquired 100% of the shares of TableUp in exchange for the issuance of TouchBistro common shares to the shareholders of TableUp. A total of 2,542,662 common shares of TouchBistro was paid to Allied Minds valued at $5.99 million at the time of the transaction. Allied Minds’ share of common stock has been accounted as an investment at fair value. At 31 December 2020, the fair value of Allied Minds’ investment in TouchBistro was subsequently measured at $2.8 million. 21 STRATEGIC REPORT Investments in associates decreased to $nil million (2019: $6.8 million). As a result of the deconsolidation of Federated Wireless in the second half of 2019 and equity method accounting for remaining associate investments, Allied Minds recorded a share of loss of $6.8 million in the Consolidated Statements of Comprehensive (Loss)/ Income that reduced the investment in Federated to a zero balance. Right-of-use assets decreased to $0.6 million (2019: $1.0 million) primarily related to depreciation of $0.4 million. Current assets Cash and cash equivalents decreased by $66.0 million to $24.5 million (2019: $90.5 million). The decrease is mainly attributed to $17.8 million of net cash used in operations, $10.7 million cash used in investing activities and $37.5 million cash used in financing activities primarily reflecting $39.7 million in cash dividend payment to shareholders as a result of the sale of Allied Minds’ share in HawkEye in 2019. Trade and other receivables increased by $0.1 million due to an increase in trade receivables of $0.3 million. This increase is offset in part by a decrease in prepaid expenses of $0.2 million mainly from write off advanced payments for unfinished inventory units at BridgeComm. Other financial assets have increased by $0.7 million to $2.3 million (2019: $1.6 million) primarily due to IFRS 9 fair value accounting of TableUp’s convertible note issued to Allied Minds in 2019, offset by the issuance of a SAFE note receivable of $1.5 million by Allied Minds to Orbital Sidekick. The fair market value change of the notes was recorded as an offset to the $28.7 million loss on investments held at fair value in the Consolidated Statements of Comprehensive (Loss)/ Income. Current liabilities Subsidiary preferred shares increased by $1.5 million to $6.5 million (2019: $5.0 million) primarily driven by $1.5 million in IFRS 9 fair value adjustment for the year. Deferred revenue decreased by $0.2 million to $3.6 million (2019: $3.4 million) primarily due to revenue recognised at BridgeComm and offset by new revenue contract entered at Spark Insights in 2020. Loans increased by $3.1 million (2019: $ nil) primarily due to an increase in convertible promissory notes of $2.5 million at BridgeComm. Non-current liabilities Lease liabilities decreased by $1.0 million (2018: $2.9 million) primarily due to lease payments. Other non-current liabilities decreased by $0.5 million (2019: $1.9 million) primarily due to loan payments of convertible promissory notes at OcuTerra Therapeutics. Equity Net equity decreased by $94.3 million to $58.3 million (2019: $152.6 million) reflecting the combination of comprehensive loss for the period of $55.6 million, dividend payments to shareholders of $39.7 million and loss on non-controlling interest of $18,000 offset by $8,000 in issuance of ordinary shares and a $1.1 million charge due to equity-settled share based payments. 22 STRATEGIC REPORT Consolidated Statement of Cash Flows For the years ended 31 December Net cash outflow from operating activities Net cash (outflow)/ inflow from investing activities Net cash (outflow)/ inflow from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents in the beginning of the year Cash and cash equivalents at the end of the year 2020 $ '000 2019 $ '000 (17,057) (11,341) (37,684) (66,082) 90,571 24,489 (44,851) 21,505 13,683 (9,663) 100,234 90,571 The Group’s net cash outflow from operating activities of $17.1 million in 2020 (2019: $44.8 million, restated) was primarily due to the losses for the year of $55.5 million and the net effect from movement in working capital of $4.1 million offset by other finance charges of $1.6 million, the adjustment for non- cash items such as depreciation, amortisation, impairments and share-based expenses of $2.1 million and $38.8 million in losses due to fair value adjustments and equity method accounting. The Group had a net cash outflow from investing activities of $11.3 million in 2020 (2019: $21.5 million). This outflow predominately related to purchases of property and equipment of $0.5 million (2019: $3.6 million) and an additional investment in Federated Wireless and Spin Memory of $10.9 million made by Allied Minds in April and July 2020. The investing cash outflow was offset by $0.1 million in receipt of payments from Allied Minds’ finance sub-lease. The Group’s net cash outflow from financing activities of $37.7 million in 2020 (2019: $13.7 million) primarily reflects , in part, the cash dividend payment to shareholders of $39.7 million as a result of the sale of Allied Minds’ share in HawkEye in 2019 and $1.1 million in lease payments. The decrease was offset by $2.9 million proceeds from issuance of convertible notes and $0.2 million receipt of PPP loans. Additionally, cash inflows from financing activities in the period included proceeds from issuance of share capital at Allied Minds. The Group’s strategy is to maintain healthy, highly liquid cash balances that are readily available for investment in a manner consistent with the Board’s strategy for the Company and Group. To further minimise its exposure to risks the Group does not maintain any material borrowings or cash balances in foreign currency. The Directors have further considered the on-going viability of the Company through to December 2023, as required pursuant to the 2018 version of the UK Corporate Governance Code, in the Management and Governance section of the Annual Report and Accounts at pages 38 to 39. 23 STRATEGIC REPORT Risk Management The execution of the Group’s strategy is subject to a number of risks and uncertainties. The Board has adopted a system of continuous review in which it regularly consults with management to identify principal and emerging risks facing the Group and to assess and determine how to address and mitigate against such risks in a manner consistent with the Company’s risk appetite to achieve its strategic goals. Throughout the year, the Board considers and reviews both risks arising from the internal operations of the Group, and those arising from the business environment in which it operates. It is possible that one or more of these identified risks could impact the Group in a similar timeframe which may compound their effects. With our focus on early stage company development, commercialisation and monetisation, the Group inherently faces significant risks and challenges. The overall aim of the risk management policy is to achieve an effective balance of risk and reward, although ultimately, no strategy can provide an absolute assurance against loss. The Board has carried out a robust assessment of the principal and emerging risks facing the Group, including those that would threaten its business model, future performance, solvency and/or liquidity. The major risks and uncertainties identified by the Board are set out below, along with the consequences and mitigation strategy of each risk. 1. The science and technology being developed or commercialised by the Group’s businesses may fail and/or the Group’s businesses may not be able to develop their innovations and intellectual property into commercially viable products or technologies. There is also a risk that some of the portfolio companies may fail or not succeed as anticipated, whether as a result of technical, product, market, fund-raising or other risks, resulting in an impairment of the Group’s value. Impact: The failure of any of the Group’s portfolio companies would impact the Group’s value. A failure of one of the major portfolio companies could also impact the Group’s reputation as a builder of high value businesses and possibly make additional fund raising at the Group or portfolio company level more difficult. Mitigation: • Before making any follow-on investment in the current portfolio, extensive due diligence is carried out by the Group which covers all the major business risks including market size, strategy, adoption and intellectual property. Where appropriate, we seek validation through co- investment by other strategic and/or financial parties. • A disciplined approach to capital allocation is pursued whereby we closely monitor milestone developments before committing additional capital. Should a project fail to achieve sufficient progress or is unable to attract other co-investors, we may terminate the investment. • Dedicated leadership with deep industry or sector knowledge, and relevant technical and/or leadership experience, is recruited to management positions, and the Group ensures that each portfolio company has independent directors and/or other advisors, as appropriate for the relevant stage of development. 24 STRATEGIC REPORT • • Each portfolio company holds board of director meetings at least quarterly, with participation from the Group’s management and/or investment team, along with senior management and independent directors and/or advisors, as appropriate, of such portfolio company. The shared services model provides meaningful administrative support to our earlier stage portfolio companies, including strong budgetary and financial controls that ensure good governance. • Within the Group there is meaningful operating and investment expertise that provide direct, hands-on and strategic, operating and fund-raising support to its portfolio companies, as appropriate. • The Group actively uses third party advisors and consultants, specific to the particular domain in which a portfolio company operates, to assist on market strategy and direction. 2. The Group expects to continue to incur substantial expenditure in further research and development, product development, sales and marketing and other operational activities of its businesses. There is no guarantee that the Group or any of its individual portfolio companies will become profitable prior to the achievement of a portfolio company sale or other liquidity event, and, even if the Group or any of its individual portfolio companies does become profitable, such profitability may not be sustainable. The Group may not be able to attract other co-investors, or monetise its ownership interests in portfolio companies, during any specific time frame or otherwise on desirable terms, if at all. Impact: Allied Minds’ objective is to generate returns for its shareholders through early stage company development within the technology sector. Such value is expected to be delivered through the commercialisation and monetisation of these businesses via a sale or other liquidity event for each. The timing and size of these potential inflows is uncertain and, should liquidity events not be forthcoming, or in the event that they are achieved at values significantly less than the amount of capital invested, then it would be difficult to sustain the current levels of investment in the other portfolio companies. This would lead to reduced participation in funding rounds, which will result in a lower ownership position, or potentially impact the ability of a company to raise additional funds. Mitigation: • The Group retains sufficient cash balances in order to support its cash flow requirements, including Allied Minds’ investment requirements for each portfolio company and for corporate resources. • The Group has close relationships with a wide group of investors, including within its current shareholder base, and continues to identify and develop strategic and financial relationships for co-investing in the Group’s portfolio companies. • Senior management continually seeks to build and maintain strategic and financial relationships for the Group, and each portfolio company continually seeks to engage in strategic and financial relationships relevant to their respective markets and to maintain current information on, and awareness of, potential fund-raising and monetisation strategies. 25 STRATEGIC REPORT 3. A significant portion of the Group’s intellectual property relates to technologies which originated in the course of research conducted in, and initially funded by, US universities or other federally- funded research institutions. Although the Group has been granted exclusive licenses to use this intellectual property, there are certain limitations inherent in these licenses, for example as required by the Bayh-Dole Act of 1980. Impact: There are certain circumstances where the US government has rights to utilise the underlying intellectual property without any economic benefit flowing back to the Group. In the event that this were to happen, this could impact the financial return to the Group on its investment in the applicable portfolio companies. Mitigation: • To the Board’s knowledge, while these so called “march in” rights exist, the US government has never had cause to use them. • The Group seeks to develop dual use capabilities for the technology it licenses and generally tends to avoid use cases directly applicable to government use. • This risk is also mitigated through employing experienced technology transfer experts supported by our legal team to assess risks that may arise out of this eventuality. 4. The Group, including certain of the portfolio companies, currently has in place cooperative research and development agreements with certain US Department of Defense laboratories and other federally funded government institutions. Certain regulatory measures apply to these agreements which restrict the export of information and material that may be used for military or intelligence applications by a non-US person. Compliance with these regulatory measures may be complex and limit commercial alternatives. Impact: If the Group were to breach restrictions on the use of certain licensed technologies, particularly those derived from federally funded research facilities, this could materially impact upon the Group’s ability to license additional intellectual property from these establishments. In certain circumstances, it may also lead to the termination of existing licenses. In the event that this were to happen, this could materially affect a number of the Group’s businesses, potentially harm the reputation and standing of the Group and cause the termination of certain important relationships with federally funded research institutions. Mitigation: • Prior to licensing any technology under these agreements, the Group’s management seeks to identify the commercial and other alternatives available for products and services associated with such technology and innovations, and to ensure that there are sufficient markets available to justify the capital investment. • Prior to the commercialisation process, the Group’s management seeks to obtain all the necessary clearances from applicable regulatory bodies to ensure that the export of products based upon the licensed IP is strictly in accordance with government guidelines. 26 STRATEGIC REPORT • • 5. The Group, including certain of the portfolio companies, employs a number of individuals with experience in working with various government agencies. Senior management is fully cognisant of the regulations and sensitivities in relation to this issue, in particular with International Traffic in Arms Regulations (ITAR) which regulate the use of technologies for export, and has numerous mitigating actions available should issues arise. The Group operates in complex and specialised business domains and requires highly qualified and experienced management to implement its strategy successfully. All of the operations of the Group are located in the United States, which is a highly competitive employment market. Furthermore, given the relatively small size of the senior management at the corporate level, the Group is reliant on a small number of key individuals. Impact: There is a risk that the Group may lose key personnel, or fail to attract or retain new personnel. The loss of key personnel may negatively affect the Group’s competitive advantage. Mitigation: • The Board annually seeks external expertise to assess the competitiveness of the compensation packages of its senior management, and to ensure that the structure of compensation is designed to incentivise performance and retention properly. • Senior management continually monitor and assess compensation levels to ensure the Group remains competitive in the employment market. 6. A large proportion of the overall value of the Group’s businesses may be concentrated in a small proportion of the Group’s businesses. If one or more of the intellectual property rights relevant to a valuable business were terminated, this would have a material adverse impact on the overall value of the Group’s businesses. Impact: The termination of critical IP licenses would materially impact the value of the portfolio company and have a consequent effect on the value of the overall Group. Mitigation: • In each portfolio company, the management is specifically directed to pursue a policy of generating and patenting additional intellectual property to both provide additional protection and create direct IP ownership for the company. • Where possible, the Group seeks to negotiate intellectual property ownership rights in any research and development agreement it enters into with a network partner, such that the Group becomes a part owner of the underlying IP. 7. The US Investment Company Act of 1940 regulates companies which are engaged primarily in the business of investing, reinvesting, owning, holding or trading in securities. Securities issued by companies other than consolidated partner companies are generally considered ‘‘investment securities’’ for purposes of the Investment Company Act, unless other circumstances exist which actively involve the company holding such interests in the management of the underlying company. 27 STRATEGIC REPORT Impact: If the Company is deemed to be an ‘‘investment company’’ subject to regulation under the Investment Company Act, applicable restrictions could make it impractical for the Group to continue its business as contemplated and could have a material adverse effect on its business. If anything were to happen which would cause the Company to be deemed to be an investment company under the Investment Company Act, requirements imposed by the Investment Company Act, including limitations on capital structure, ability to transact business with portfolio companies and ability to compensate key employees, could make it impractical for it to continue its business as currently conducted. Mitigation: • The Company intends to monitor and conduct its operations so that it will not be deemed to be an investment company under the Investment Company Act. • The Company seeks to build value through its current portfolio of majority-owned or primarily controlled subsidiary companies; it is not engaged primarily in the business of investing, reinvesting, owning, holding or trading in securities and does not own or propose to acquire investment securities above prescribed thresholds under the Investment Company Act. • Currently the Company holds more than 50% of the voting securities of certain of its portfolio companies, and more than 25% of all of its other portfolio companies (except TouchBistro which acquired TableUp in a stock-for-stock transaction), and intends to continue to try to hold the majority of the voting securities in its portfolio companies, or otherwise maintain primary control. • In addition to ownership levels, the Company seeks to maintain significant influence in portfolio companies through a combination of the following: o Rights to elect representatives to the board of directors, with ability to exercise influence over the portfolio company’s business strategy, operating plans, budgets and key corporate decisions; o Legal rights, such as access to information (books and records) and financial statements, liquidation preferences, registrations rights, rights of first refusal, pre-emptive rights and co- sale rights; o Protective provisions, such as rights to block certain portfolio company actions; and o Active involvement in the management of our earlier stage portfolio companies, such as introductions, co-locating, and key shared service support, business development management recruiting. 8. As a result of the Group’s strategy, the Group’s overall success is dependent on a limited, finite portfolio of businesses. If one or more of such businesses were to fail, this would have a material adverse impact on the overall value of the Group’s businesses and the Group’s ability to return money to shareholders. Impact: The failure of one or more remaining Group businesses would materially impact the overall value of the Group’s portfolio and have a consequent effect on the returns available to shareholders. 28 STRATEGIC REPORT Mitigation: • The Board is committed to engaging and working closely with the remaining portfolio companies to provide guidance and advice as they navigate funding, operational, and other needs. • The Board continues to monitor performance, progress, and development of each portfolio company to critically assess the return prospects of the remaining portfolio and make adjustments as necessary. 9. Given its current cash and financial position, the Group expects to remain operational through December 2023. However, if the Group is unable to generate sufficient revenue, appropriately manage expenses, attract co-investors to participate in follow-on portfolio company financings, or generate a sale or other liquidity event for any of its existing portfolio companies or portfolio company interests prior to the end of such period, then the Group’s business, financial condition, results of operations, prospects and future viability could be adversely affected. Impact: Lack of capital could restrict the Group’s ability to further fund, develop and commercialise its existing businesses. In turn, this could ultimately lead to failure of individual portfolio companies and loss of investment as well as failure of the Group as a whole. Mitigation: • The Board and Senior management continually seek to build and maintain close relationships with its shareholder base and other strategic partners at the Group level, and each portfolio company continually seeks to engage in strategic relationships relevant to their respective markets and to maintain current information on and awareness of potential fund-raising and monetisation strategies. • The Company strives to maintain majority ownership and/or primary control over all of the portfolio companies and/or portfolio company board representation, so that it can seek to influence optimal capital allocation, use of cash, and fund-raising strategy. • The Company has built a valuable portfolio of companies since its inception. • The Company continuously and critically reviews the progress of its portfolio companies against pre-set milestones to ensure its financial capital and human resource is properly allocated to the more promising areas of its portfolio to help strengthen and accelerate the Group’s path to monetisation. Brexit On 23 June 2016, the UK electorate voted to leave the European Union (EU) in a so-called “Brexit” referendum. Following several delays, parliament ratified the withdrawal agreement, and the UK left the EU on 31 January 2020. This began a transition period that ended on 31 December 2020. Effective as of 1 January 2021, new rules for how the UK and EU will live, work and trade together were put in place. The UK is no longer part of the EU’s political bodies or institutions and is now free to set its own trade policy with other countries. 29 STRATEGIC REPORT It is expected that companies based in the UK and with significant UK and EU operational focus will be the most directly impacted by Brexit. All of the Group’s portfolio companies are based in the US, and substantially all of the business and operations of the Group are conducted in the US. Brexit exposes the Group to increased foreign currency risk. Foreign exchange risk is an exposure for the Group as it derives substantially all of its revenue in US dollars and the Group’s businesses borrow, account in, and are valued in, US dollars, but its shares trade in amounts denominated in pounds sterling. Any capital raised by the Group in the UK would be denominated in pounds sterling, but would be allocated to portfolio companies which operate in the US and whose functional currency is US dollars. If the Group requires and fails to obtain sufficient capital on acceptable terms, it may be forced to forego further investment in developing certain of its current businesses, and otherwise be subject to a material adverse impact on the Group’s business and financial condition. COVID-19 The ongoing spread of the coronavirus disease (COVID-19) that started in December 2019 has been declared a public health emergency of international concern by the World Health Organisation. COVID- 19 has the potential to greatly disrupt all aspects of the Group’s business. Potential impacts include the risk to the health and safety of our workforce, the ability for our businesses to operate normally, global economics, and the flow of goods and services. Our people could be at potential health risk if they come into contact with confirmed cases of COVID-19. In addition, given the mandatory health and safety restrictions across the world, including travel and quarantine restrictions, it may affect the ability of our workforce to continue working normally. There could also be disruption to operations as a result of the virus negatively impacting our suppliers, customers and partners, including cancelled contracts, suppliers and customers going out of business, and delays in performance. Finally, the virus has already caused downturn to the global economy, which may become worse as it continues to spread. This may make it difficult for our portfolio companies to raise money, enter into new strategic partnerships, retain customers, or continue operations. In order to mitigate against these risks, we are closely monitoring the health, safety and security of our workforce and complying with applicable regulatory requirements and guidelines. We have continued to implement temporary travel restrictions and have made accommodations that will allow our workforce to work remotely. We are also in close communication with all of our customers, suppliers and partners to collaborate on how to best support each other’s needs in this difficult environment. The Group is closely monitoring developments regarding COVID-19 and will continuously reassess and put in place appropriate continuity plans to mitigate against the risks faced. Furthermore, with the release and distribution of viable vaccinations for COVID-19 in January 2021, we hope that the health and safety of all will be better protected in the coming year. Corporate and Social Responsibility Details on the Group’s policies, activities and aims with regard to its corporate and social responsibilities, including diversity, are included in the Sustainability section on pages 53 to 56 and are incorporated into this Strategic Report by reference. 30 STRATEGIC REPORT This Strategic Report has been approved by the Board of Directors. ON BEHALF OF THE BOARD Harry Rein Chairman 29 March 2021 31 MANAGEMENT AND GOVERNANCE The Board Non-Executive Directors Harry Rein – Non-Executive Chairman Harry joined Allied Minds as an independent Non-Executive Director in November 2017, and has served as the Non-Executive Chairman since March 2020. Harry brings extensive experience from the venture capital sector, most recently serving as General Partner for 10 years at Foundation Medical Partners, having been instrumental in its formation. Foundation is an early stage venture capital firm focused on the healthcare sector. Prior to Foundation, Harry served as Founder and Managing Partner at Canaan Partners. Harry was responsible for life sciences investments at both Foundation and Canaan. Prior to Canaan, Harry was President and CEO of GE Venture Capital Corporation, having joined General Electric Company in 1979. He directed several of General Electric's lighting businesses before joining the venture capital subsidiary. Harry currently serves on the Board of DeliverCareRX and served on the Board of Anadigics (NASDAQ: ANAD) until 2016. He has served on the Board of over 20 public and private entrepreneurial companies, including: Cell Pathways; OraPharma; National MD; OmniSonics; GenVec (NASDAQ: GNVC); CardioNet (NASDAQ: BEAT) and Spine Wave, and was an investor in Praecis Pharmaceuticals (NASDAQ: PRCS). Harry attended Emory University and Oglethorpe College (1969) and holds a MBA from the Darden School at the University of Virginia (1973). Harry serves on each of the Audit, Nomination (Chair) and Remuneration Committees. Bruce Failing – Senior Independent Director Bruce joined Allied Minds as the Senior Independent Director in March 2020. Bruce has over 30 years of management and investment experience in the areas of media and consumer products, applied technology and logistics management. He founded and currently is the General Partner of Alerion Partners and serves on the Boards of Directors of Instadium as the Executive Chairman, Enviroscent and DeliverCareRX. Previously, he was CEO of Productivity Solutions, Electronic Retailing Systems and Actmedia, and Executive Chairman of ScentAir Technologies and Lamaze Publishing & the Newborn Channel. Bruce attended Tufts University (1971) and holds an MBA from Harvard Business School (1973). Bruce serves on each of the Audit, Nomination and Remuneration (Chair) Committees. Mark Lerdal - Independent Non-Executive Director Mark joined Allied Minds as an independent Non-Executive Director in December 2019. Mark brings more than 30 years of executive leadership to his role at Allied Minds, as well as numerous executive and non- executive board directorships at public and private companies. Mark currently serves as the executive chairman of Leaf Clean Energy Company. Previously, Mark has served as managing director of MP2 Capital, LLC, president of Hydrogen Energy California, a developer of a carbon capture and sequestration facility, and a managing director at KKR Finance in its debt securities division. Mark served on the Boards of Directors of Trading Emissions plc (LSE: TRE) until January 2019, TerraForm Global Inc. (NASDAQ: GLBL) until December 2017, and TerraForm Power (NASDAQ: TERP) until November 2015. Mark also serves on a number of private company boards, including Empower Energies, Southern Current, Cotton Plains Holding III and Canadian Breaks. Mark attended Stanford University (1981) and holds a JD from Northwestern University Pritzker School of Law (1984). Mark serves on each of the Audit (Chair), 32 MANAGEMENT AND GOVERNANCE Nomination and Remuneration Committees. Former Executive Directors Joseph Pignato – Chief Executive Officer (resigned) Joe joined Allied Minds as Chief Financial Officer in August 2015, served as Co-Chief Executive Officer and Executive Director from June 2019, served as Chief Executive Officer and Executive Director from March 2020, and resigned as Chief Executive Officer and Executive Director in January 2021. Joe continues to serve as Chief Financial Officer. Michael Turner – Co-Chief Executive Officer (resigned) Mike joined Allied Minds as General Counsel in May 2014, served as Executive Vice President and General Counsel from March 2015, served as Co-Chief Executive Officer and Executive Director from June 2019, and resigned from Allied Minds and the Board in March 2020. Upon his resignation, Joe Pignato was appointed sole Chief Executive Officer and Executive Director. Former Non-Executive Directors Jeff Rohr – Non-Executive Chairman (resigned) Jeff joined Allied Minds as an independent Non-Executive Director in April 2014, served as the Non- Executive Chairman since June 2019, and resigned from the Board in March 2020. Jeff was succeeded by Harry Rein as Non-Executive Chairman and as Chair of the Nomination Committee. Table of Board Attendance The table below summarises the attendance of the Directors at the scheduled meetings held during the year: Director Joseph Pignato(1) Harry Rein Mark Lerdal Bruce Failing(2) Michael Turner(3) Jeffrey Rohr(4) --------------- Meetings Attended Audit Committee n/a 4 of 4 4 of 4 3 of 3 n/a 1 of 1 Nomination Committee n/a 4 of 4 4 of 4 2 of 2 n/a 2 of 2 Remuneration Committee n/a 3 of 3 3 of 3 2 of 2 n/a 1 of 1 Board 10 of 10 10 of 10 10 of 10 8 of 8 2 of 2 2 of 2 1 Mr. Pignato was appointed to the Board on 10 June 2019, and resigned effective as of 14 January 2021. 2 Mr. Failing was appointed to the Board, and as a member of each of the Audit, Nomination and Remuneration Committee, on 10 March 2020. 3 Mr. Turner was appointed to the Board on 10 June 2019, and resigned effective as of 10 March 2020. 4 Mr. Rohr resigned from the Board effective as of 10 March 2020. 33 MANAGEMENT AND GOVERNANCE Directors’ Report The Directors present their report together with the audited financial statements for Allied Minds plc and its subsidiaries for the year ended 31 December 2020. The Company was incorporated on 15 April 2014 under the UK Companies Act 2006 (Companies Act). Directors The Directors of the Company as at 31 December 2020 were those listed on pages 32 to 33 and these pages are incorporated into this Directors’ Report by reference. The changes to the composition of the Board during the year were: • The resignation of Michael Turner as an Executive Director on 10 March 2020. • The resignation of Jeffrey Rohr as a Non-Executive Director on 10 March 2020. • The appointment of Bruce Failing as a Non-Executive Director on 10 March 2020. • Post-period end, the resignation of Joseph Pignato as an Executive Director on 14 January 2021. The Directors’ interests in the share capital of the Company are as shown in the Directors’ Remuneration Report on pages 75 to 76. None of the Directors were materially interested in any significant contract to which the Company or any of its portfolio companies were party during the year. Corporate Governance Information that fulfils the requirements of the corporate governance statement can be found in the Corporate Governance Report on pages 42 to 52, the Directors’ Remuneration Report on pages 62 to 83, and the Audit Committee Report on pages 84 to 88, and is incorporated into this Report of the Directors by reference. Directors’ Compensation for Loss of Office and Payments to Past Directors With the exception of payments to past directors and loss of office payments previously disclosed in our 2019 Annual Report and Accounts, no payments to past directors and no loss of office payments were made during the last financial year. Employees The Group’s policies in relation to employees are disclosed on pages 60 to 61, and these pages are incorporated into this Directors’ Report by reference. Results and Dividends During the period, the Group generated a net comprehensive loss after taxation for the year ended 31 December 2020 of $55.6 million (2019: income of $51.1 million). The Directors do not recommend the payment of an ordinary dividend for 2020 (2019: nil). However, on 16 January 2020, the Board declared a special dividend of 12.62 pence per ordinary share (Special Dividend) totalling £30.49 million. The ordinary shares went ex-dividend on 23 January 2020, and the Special Dividend was paid in cash on 14 February 2020 to holders of ordinary shares recorded on the register as at the close of business on 24 January 2020. 34 MANAGEMENT AND GOVERNANCE Strategic Report The Group’s Strategic Report can be found on pages 7 to 31, and includes information as to the Group’s activities in the field of research and development, and as to the likely future development of the Group. Financial key performance indicators can be found on page 19. The Strategic Report contains forward-looking statements with respect to the business of Allied Minds. These statements reflect the Board’s current view, are subject to a number of material known and unknown events, risks and uncertainties, and could change in the future. Factors that could cause or contribute to such changes include, but are not limited to, general economic climate and trading conditions, as well as specific factors relating to the financial or commercial prospects or performance of the Group’s individual portfolio companies, and the ability to consummate expected fundraising and other transactions. Principal and Emerging Risks and Uncertainties and Financial Instruments The Group, through its operations, is exposed to a number of risks. The Group’s risk management objectives and policies are described on pages 24 to 31 and in the Corporate Governance Report on 50 to 51 Further information on the Group’s financial risk management objectives and policies, including those in relation to credit risk, liquidity risk and market risk, is provided in note 21 to the consolidated financial statements, along with further information on the Group’s use of financial instruments. The pages referenced in this paragraph are incorporated into this Directors’ Report by reference. Significant Agreements The Group has not entered into any significant agreements which may be impacted by a change of control following a takeover bid. Share Capital Details of the structure of the Company’s share capital and the rights attaching to the Company’s shares are set out in note 14 to the consolidated financial statements. Other than the minimum share ownership policy adopted by the Board in April 2016 with respect to Executive Directors, there are no specific restrictions on the holding of securities or on the transfer of shares, which are both governed by the general provisions of the Company’s Articles of Association (Articles) and prevailing legislation. None of the ordinary shares carry any special rights with regard to control of the Company and there are no restrictions on voting rights. At the last Annual General Meeting of the Company held on 30 June 2020 (2020 AGM), authority was given to the Directors, pursuant to the relevant provisions of the Companies Act, to allot unissued relevant securities in the Company up to a maximum amount equivalent to approximately one-third of the issued ordinary share capital on 4 June 2020 at any time up to the earlier of the conclusion of the next Annual General Meeting (AGM) of the Company and 30 September 2021. In addition, at the 2020 AGM, the Directors were also given authority, effective for the same period as the aforementioned authority, to allot relevant securities in the Company up to a maximum of approximately two-thirds of the total ordinary share capital in issue on 4 June 2020 in connection with an offer by way of a fully pre-emptive rights issue. The Company did not allot any shares under these authorities during the past year. The 35 MANAGEMENT AND GOVERNANCE Directors propose to renew both of these authorities at the Company’s next AGM to be held on 12 May 2021. The authorities being sought are in accordance with guidance issued by the Investment Association. A special resolution passed at the 2020 AGM granted authority to the Directors to allot equity securities in the Company for cash without regard to the pre-emption provisions of the Companies Act, both: (i) up to a maximum of approximately two-thirds of the total ordinary share capital in issue on 4 June 2020 in connection with a fully pre-emptive rights issue; and (ii) up to a maximum of approximately 5% of the aggregate nominal value of the shares in issue on 4 June 2020. A further special resolution passed at the 2020 AGM granted authority to the Directors to allot equity securities in the Company for cash, without regard to the pre-emption provisions of the Companies Act, up to a maximum of approximately 5% of the aggregate nominal value of the shares in issue on 4 June 2020, to be used only for the purposes of financing (or refinancing, if the authority is to be used within six months after the original transaction) a transaction which the Directors determine to be an acquisition or other capital investment of a kind contemplated by the Pre-emption Group’s Statement of Principles. These authorities are exercisable at any time up to the earlier of the conclusion of the next AGM of the Company and 30 September 2021. None of these authorities were used during 2020. The Directors will seek to renew these authorities for a similar period at the next AGM to be held on 12 May 2021. Further details of such authorities are set forth in the Notice of AGM circulated with this Report and Accounts. The Directors intend to adhere to the provisions in the Pre-emption Group’s Statement of Principles, as updated in March 2015, and not to allot shares for cash on a non-pre-emptive basis: • • in excess of an amount equal to 5% of the total issued ordinary share capital of the Company (excluding treasury shares); or in excess of an amount equal to 7.5% of the total issued ordinary share capital of the Company (excluding treasury shares) within a rolling three-year period, without prior consultation with shareholders, in each case, other than in connection with an acquisition or specified capital investment which is announced contemporaneously with the allotment or which has taken place in the preceding six-month period and is disclosed in the announcement of the allotment. Under the Companies Act, the Company has the power to purchase its own shares in accordance with Part 18, Chapter 5 of the Companies Act. At the 2020 AGM, a special resolution was passed which granted the Directors authority to make market purchases of the Company’s shares pursuant to these provisions of the Companies Act up to a maximum of approximately 10% of the Company’s issued share capital on 4 June 2020 provided that the authority granted set a minimum and maximum price at which purchases can be made and is exercisable at any time up to the earlier of the conclusion of the next AGM and 30 September 2021. This authority has not been used during the year and therefore the outstanding authority is 24,156,831. While the Company has no current intention to use this authority, the Directors will seek to renew the authority within similar parameters and for a similar period at the next AGM to be held on 12 May 2021. Articles of Association The Company’s Articles may be amended by a special resolution of the shareholders. 36 MANAGEMENT AND GOVERNANCE Substantial Shareholders As at 31 December 2020, the Company had been advised of the following notifiable interests in the Company’s voting rights under DTR 5. Other than as shown, so far as the Company (and its directors) are aware, no other person holds or is beneficially interested in a disclosable interest in the Company. Shareholder Invesco Ltd. Crystal Amber Fund Limited GIC Private Limited Mark Pritchard P3 Private Equity Fund InterTrader Limited Number of Shares 50,681,998 43,189,849 19,382,360 15,197,240 7,721,846 8,245,860 Percentage 20.93% 17.83% 8.00% 6.27% 3.19% 3.40% Between the year end and 29 March 2021 (the latest practicable date prior to publication), there have been no changes to the substantial shareholders list above. Research and Development Details of the Group’s research and development activities are included in the Portfolio Review and Developments section on pages 13 to 18. Stakeholder Engagement Details of the Group’s engagement with key stakeholders, including suppliers, customer and other business relationships are included in the Stakeholder Engagement section on pages 56 to 60. Political and Charitable Donations The Group did not make any political or charitable donations in 2020 or 2021. Corporate and Social Responsibility Details on the Group’s policies, activities and aims with regard to its corporate and social responsibilities are included in the Sustainability section on pages 53 to 60, and are incorporated into this Directors’ Report by reference. Greenhouse Gas Emissions Details on the greenhouse gas emissions associated with the Group’s operations are included in the Sustainability section on pages 53 to 56. Directors’ Indemnity and Liability Insurance During the year, the Company has maintained liability insurance in respect of its directors who held office during the period. Subject to the provisions of the Companies Act, the Articles provide that every director is entitled to be indemnified out of the funds of the Company against any liabilities incurred in the execution or discharge of his or her powers or duties. 37 MANAGEMENT AND GOVERNANCE Issuance of Equity by Major Subsidiary Undertaking None of the Company’s major subsidiary undertakings (as defined in the Listing Rules) issued equity in 2020. Requirements of the Listing Rules The following table provides references to where the information required by Listing Rule 9.8.4R is disclosed: Section 1 2 4 5 6 7 8 9 10 11 12 13 14 15 Listing Rule requirement Interest capitalised Publication of unaudited financial information Details of long-term incentive schemes for an individual director Waiver of emoluments by a director Waiver of future emoluments by a director Non pre-emptive issues of equity for cash Location Not applicable Not applicable Not applicable Not applicable Not applicable Notes to the Consolidated Financial Statements, Note 15 Not applicable Non pre-emptive issues of equity for cash by any major subsidiary undertaking Not applicable Parent participation in a placing by a listed subsidiary Contract of significance with director Not applicable Contract of significance with a controlling shareholder Not applicable Not applicable Provision of services by a controlling shareholder Not applicable Shareholder waivers of dividends Not applicable Shareholder waivers of future dividends Not applicable Relationship agreements with the controlling shareholder Viability Statement While the financial statements and accounts have been prepared on a going concern basis, provision 31 of the 2018 version of the UK Corporate Governance Code (Code) requires the Directors to make a statement in the Annual Report with regard to the viability of the Group, including explaining how they have assessed the prospects of the Group, the period of time for which they have made the assessment, and why they consider that period to be appropriate. Accordingly, the Directors conducted this assessment over the three years to December 2023, taking into account the Group’s current position and capital allocation strategy. As stated in the Company Overview on pages 9 to 12, the Directors have determined to focus exclusively on supporting our seven existing portfolio companies and maximising monetisation opportunities for portfolio company interests, and not to deploy any capital into new portfolio companies. This shift in strategy, taken together with significant reductions of its central costs and the successful HawkEye 360 liquidity event, allows the Company to remain viable for the next three years. This strategy, pursued to its conclusion, would see the Group’s existing assets continue to be managed and eventually monetised, with no new investments being taken on and with a view to returning surplus proceeds to shareholders. The Directors expect this strategy to take the next three years to be fully implemented, and as a matter of good governance, will continue to keep this strategy under review 38 MANAGEMENT AND GOVERNANCE at appropriate intervals. Consequently, in terms of reporting on the viability of the Group as required under the Code, the Directors have prepared projections running out three years to December 2023 as, in their view, this remains an appropriate period, notwithstanding the eventual conclusion to the strategy as outlined. The Directors also carried out a robust assessment of the principal and emerging risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity, and the other principal and emerging risks detailed in the Strategic Report. The three-year period includes the assumption that further funding is not required by the Group in the form of proceeds from either the sale of individual portfolio companies, the sale of certain portfolio company interests in secondary market transactions, or a combination thereof. The Directors believe that a three-year assessment is most appropriate as it aligns with the Group’s normal and well-established budgeting process. In making their assessment, the Directors considered a wide range of information, including present and future economic conditions, future projections of profitability, cash flows and capital requirements, and the potential sale of certain portfolio company interests in secondary market transactions. The Group’s annual budgeting process builds into a robust three-year plan, which is the period the Directors consider as an appropriate period to be covered by the viability statement. This plan forms the basis for strategic decisions across the Group. The consolidated plan is reviewed and approved annually by the Directors at the beginning of the year. The plan is then deployed down to the portfolio companies and used to set performance metrics and objectives (MBOs). Progress against the original plan is reviewed quarterly by the Directors, and adjustments to the plan can be made if needed to address new risks or to take advantage of new opportunities. In summary, the Directors have assessed the viability of the Group over the three-year period to December 2023. They were comforted by management’s proactive steps taken in 2019 and implemented in 2020 to manage cash expenses, the retained cash proceeds from the sale of its shares of HawkEye 360, its long-term capital allocation objectives, the Group’s control over its capital allocation and how working capital requirements are met, and careful budgeting by the Group for such period. Based on this assessment, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period to December 2023. Disclosure of Information to Auditor 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 steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act. 39 MANAGEMENT AND GOVERNANCE Annual General Meeting The Annual General Meeting (AGM) will be held at 10.00 EST on 12 May 2021 at Allied Minds’ headquarters located at 374 Congress Street, Suite 308, Boston, Massachusetts 02210, USA. The Notice of AGM circulated with this Report and Accounts contains a full explanation of the business to be conducted at that meeting. Auditors In accordance with Section 489 of the Companies Act 2006, a resolution for the appointment of BDO LLP as auditor of the Company is to be proposed at the forthcoming AGM. Directors’ Responsibilities Statement The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare the group financial statements, in accordance with applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards (IFRS) as adopted by Regulation (EC) No 1606/2002 as it applies in 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 their profit or loss for that period. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and apply them consistently; • make judgements and estimates that are reasonable and prudent; • provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; • prepare the financial statements on the going concern basis unless it is inappropriate to presume the group will continue in business; and • prepare a director’s report, a strategic report and director’s remuneration report which comply with the requirements of the Companies Act 2006. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. The Directors are responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for ensuring that the annual report and accounts, taken as a whole, are fair, 40 MANAGEMENT AND GOVERNANCE balanced, and understandable and provides the information necessary for shareholders to assess the group’s performance, business model and strategy. 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 the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. Directors responsibilities pursuant to DTR4 The Directors confirm to the best of their knowledge: • the consolidated and Parent Company financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and loss of the Company and the undertakings included in the consolidation taken as a whole; and • The annual report includes a fair review of the development and performance of the business and the financial position of the group and the parent company, together with a description of the principal risks and uncertainties that they face. We consider the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position, performance, business model and strategy. ON BEHALF OF THE BOARD Harry Rein Chairman 29 March 2021 41 MANAGEMENT AND GOVERNANCE Corporate Governance Report Compliance with the UK Corporate Governance Code The Directors are committed to a high standard of corporate governance and have prepared this Annual Report with reference to the 2018 UK Corporate Governance Code (Code) which was published by the Financial Reporting Council (FRC) in July 2018. The Code is available at the FRC website at www.frc.org.uk. During the year ended 31 December 2020, the Directors consider that the Company has been in compliance with the provisions set out in the Code with the following exceptions: • Contrary to provision 34 of the Code, certain Non-Executive Directors hold restricted stock units (RSUs) that vest over time. These RSUs were granted to the Non-Executive Directors in 2016, 2017, 2018, 2019, and 2020 and do not have performance conditions. After careful consideration, given that the level of the awards are limited, do not have performance-based vesting, and effectively operate like cash remuneration, the Board does not believe that ownership of these RSUs impacts the independence of the Non-Executive Directors. • Contrary to provision 24 of the Code, the Chairman, Harry Rein, was a member of the Audit Committee in 2020. The Board believes that Mr. Rein’s professional background and experience made him a valuable member of the Audit Committee and that his membership was in the best interests of our shareholders. • Contrary to provision 20, an external search consultancy was not used to identify and recruit Mr. Failing as a Non-Executive Director. Mr. Failing was proposed as a director candidate by a Non- Executive Director on the Board. After careful consideration of Mr. Failing’s qualifications and upon recommendation by the Nomination Committee, Mr. Failing was appointed to the Board and will be up for shareholder re-election at the 2021 AGM. • Effective as of 14 January 2021, the Company no longer employs a chief executive officer. Given the strategic shift of the Group and the stated objective of the Group for the next two to three years, the Company’s Board and management determined that the most effective and efficient path to execute upon such strategy is to eliminate the chief executive officer role and to have direct participation by the Board on the boards of the portfolio companies. This is contrary to provision 9 of the Code. Further explanation as to how the provisions set out in the Code have been applied by the Company is provided in the following statements, the Directors’ Remuneration Report, the Audit Committee Report and the Strategic Report. The Board Role and Responsibilities of the Board The Board is responsible to shareholders for the overall management of the Group as a whole, providing entrepreneurial leadership within a framework of controls for assessing and managing risk; defining, challenging and interrogating the Group’s strategic aim, direction and culture; maintaining the policy and decision-making framework in which such strategic aims are implemented; ensuring that the necessary financial and human resources are in place to meet strategic aims; monitoring performance against key 42 MANAGEMENT AND GOVERNANCE financial and non-financial indicators; succession planning; overseeing the system of risk management; setting values and standards in governance matters; and monitoring policies and performance on corporate social responsibility. The Directors are also responsible for ensuring that obligations to shareholders and other stakeholders are understood and met, and a satisfactory dialogue with shareholders is maintained. All Directors are equally accountable to the Company’s shareholders for the proper stewardship of its affairs and the long-term success of the Group. The responsibility of the Directors is collective. The Directors are responsible for constructively developing and challenging proposals on strategy, scrutinising the performance of management of portfolio companies, determining levels of remuneration and for succession planning for the senior management of the company and portfolio companies. The Non-Executive Directors must also satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust. The Board reviews strategic issues on a regular basis and exercises control over the performance of the Group by agreeing on budgetary targets and monitoring performance against those targets. The Board has overall responsibility for the Group’s system of internal controls and risk management, as described on pages 50 to 52. Any decisions made by the Board on policies and strategy to be adopted by the Group or changes to current policies and strategy are made following presentations by the Directors or senior management at the Company and a detailed process of review and challenge by the Board. Once made, the Directors are fully empowered to implement those decisions. Except for a formal schedule of matters which are reserved for decision and approval by the Board, the Board has delegated the day-to-day management of the Group to the Chairman who is supported by members of the senior management team. The schedule of matters reserved for Board decision and approval are those significant to the Group as a whole due to their strategic, financial or reputational implications. This schedule is reviewed and updated regularly and currently includes those matters set forth below: • Approval and monitoring of the Group’s strategic aims and objectives, and approval of the annual operating budget. • Strategic acquisitions by the Group. • Major disposals of the Group’s assets or subsidiaries. • Changes to the Group’s capital structure, the issue of any securities and material borrowing of the Group. • Approval of the annual report and half-year results statement, accounting policies and practices or any matter having a material impact on future financial performance of the Group. • Ensuring a sound system of internal control and risk management. • Approval of all circulars, prospectuses and other documents issued to shareholders governed by the FCA’s Listing Rules, Disclosure Guidance and Transparency Rules or the City Code on Takeovers and Mergers. 43 MANAGEMENT AND GOVERNANCE • Approving Board appointments and removals, and approving policies relating to Directors’ remuneration. • Approval of terms of reference and membership of Board Committees. • Considering and, where appropriate, approving Directors’ conflicts of interest. • Approval, subject to shareholder approval, of the appointment and remuneration of the auditors. • Major changes in employee share schemes. • Insurance and litigation. The schedule of matters reserved to the Board is available on request from the Company Secretary or within the Investors section of the Group’s website at www.alliedminds.com. The Board delegates specific responsibilities to certain Committees that assist the Board in carrying out its functions and ensure independent oversight of internal control and risk management. The three principal Board Committees (Audit, Nomination and Remuneration) play an essential role in supporting the Board in fulfilling its responsibilities and ensuring that the highest standards of corporate governance are maintained throughout the Group. Each Committee has its own terms of reference which set out the specific matters for which delegated authority has been given by the Board. The initial terms of reference for each of the Committees, which are fully compliant with the provisions of the Code and which reflect both best practice and the recommendations arising from the external evaluation process undergone by the Board and its Committees in connection with the Company’s IPO, were adopted by the Board during 2014. These were reviewed in November 2020, and will be reviewed annually on an ongoing basis and updated where necessary. All of these are available on request from the Company Secretary or within the Investors section of the Group’s website at www.alliedminds.com. Board Size and Composition As at 31 December 2020, there were four Directors on the Board: the Non-Executive Chairman, one Executive Director and two Non-Executive Directors. During the year, changes to the composition of the Board were: • The resignation of Michael Turner as an Executive Director on 10 March 2020. • The resignation of Jeffrey Rohr as a Non-Executive Director on 10 March 2020. • The appointment of Bruce Failing as a Non-Executive Director on 10 March 2020. • Post-period end, the resignation of Joseph Pignato as an Executive Director on 14 January 2021. The biographies of all of the Directors are provided on pages 32 to 33. The Company’s policy relating to the terms of appointment and the remuneration of both Executive and Non-Executive Directors is detailed in the Directors’ Remuneration Report on pages 71 to 83. The size and composition of the Board is regularly reviewed by the Board, and in particular the Nomination Committee, to ensure there is an appropriate and diverse mix of skills and experience on the Board. 44 MANAGEMENT AND GOVERNANCE The Company’s Articles allow appointment of Directors by ordinary resolution and require all Directors to submit themselves for re-election by the shareholders at the Company’s AGM following their first appointment and thereafter at each AGM in respect of which they have held office for the two preceding AGMs and did not retire at either of them. In addition, each director who has held office with the Company for a continuous period of nine years or more must retire and offer themselves up for re-election at every AGM. However, in accordance with provision 18 of the Code and in line with the Company’s past practice, all Directors will submit themselves for annual re-election by shareholders at the AGM of the Company to be held on 12 May 2021. The Board recommends to shareholders the reappointment of all Directors retiring at the meeting and offering themselves for re-election on the basis that independent performance reviews demonstrated that they each contribute effectively to the Board and continue to display the appropriate level of commitment in their respective roles. Furthermore, such reviews, together with the recruitment and evaluation of new Directors that have joined the Board, highlight that the skills, experience, opinions and judgment of each Director up for re-election are important to the Company’s long-term sustainable success because they complement each other and will enable the Company to effectively execute on its strategy of delivering shareholder value by focusing on its existing portfolio and maximising monetisation opportunities for portfolio company interests. Diversity The Board is committed to a culture that attracts and retains talented people to deliver outstanding performance and further enhance the success of the Company. In that culture, diversity across a range of criteria is valued, primarily in relation to skills, knowledge and experience and also in other criteria such as gender and ethnicity. The Company will give careful consideration to issues of overall Board balance and diversity in making new appointments to the Board. In identifying suitable candidates, the Nomination Committee will seek candidates from a range of backgrounds, with the final decision being based on merit against objective criteria. In addition, the terms of reference of the Nomination Committee include a requirement for the Committee to consider diversity, including gender, age, professional background, and ethnicity, in evaluating the composition of the Board and in identifying suitable candidates for Board appointments. A breakdown of employee gender showing the percentage of persons who were Directors of the Company and senior managers during the period covered by this Annual Report can be found on page 61. Non-Executive Directors The Non-Executive Directors provide a wide range of skills and experience to the Group. They bring their own senior level of experience in each of their respective fields, robust opinions and an independent judgement on issues of strategy, performance, risk and people. They are well-placed to constructively challenge and scrutinise the performance of management at Board and Committee meetings. The Code sets out the circumstances that should be relevant to the Board in determining whether each Non- Executive Director is independent. The Board considers Non-Executive Director independence on an annual basis as part of each Non-Executive Director’s performance evaluation. Having undertaken this review and with due regard to provision 10 of the Code, the Board has concluded this year that all of the Non-Executive Directors are considered by the Board to be independent of management and free of any relationship or circumstance which could materially influence or interfere with, or affect, or appear to affect, the exercise of their independent judgement. 45 MANAGEMENT AND GOVERNANCE Non-Executive Directors are required to obtain the approval of the Chairman before taking on any further appointments and the Chairman and Executive Director require the approval of the Board before adding to their commitments. In all cases, the Directors must ensure that their external appointments do not involve excessive time commitment or cause a conflict of interest. The Role of Chairman Harry Rein is the current Non-Executive Chairman, succeeding Jeff Rohr upon his resignation on 10 March 2020. As announced post-period end, the Board and management have determined that the most effective and efficient path forward is direct management of the Group by the Board. Given the Group’s strategic objective to maximise the value of the remaining portfolio and focus on delivering returns to shareholders in the next two to three years, the Board believes that at this stage, the Non-Executive Directors have the ability to execute upon such strategy through their direct involvement with each of the Group’s portfolio. Accordingly, the Board does not intend to appoint a new chief executive officer at this time. The Chairman is responsible for the leadership and conduct of the Board, the conduct of the Group’s affairs and strategy and for ensuring effective communication with shareholders. The Chairman facilitates the full and effective contribution of Non-Executive Directors at Board and Committee meetings, ensures that they are kept well informed and ensures a constructive relationship between the Non-Executive Directors. The Chairman also ensures that the Board Committees carry out their duties, including reporting back to the Board either orally or in writing following their meetings at the next Board meeting. The Chairman was deemed to be independent of management upon his appointment to the role. The role of the Chief Executive Officer, Joe Pignato, was to lead the delivery of the strategy and the executive management of the Group and its operating businesses. He was responsible, amongst other things, for the development and implementation of strategy and processes which enable the Group to meet the requirements of shareholders, for delivering the operating plans and budgets for the Group’s businesses, monitoring business performance against key performance indicators (KPIs) and reporting on these to the Board and for providing the appropriate environment to recruit, engage, retain and develop the high quality personnel needed to deliver the Group’s strategy. Senior Independent Director Bruce Failing is the current Senior Independent Director, succeeding Harry Rein upon his assumption of the Chairman role. A key responsibility of the Senior Independent Director is to be available to shareholders in the event that they may feel it inappropriate to relay views through the Chairman or Chief Executive Officer. In addition, the Senior Independent Director serves as an intermediary between the rest of the Board and the Chairman where necessary and takes the lead when the Non-Executive Directors assess the Chairman’s performance and when the appointment of a new Chairman is considered. Further, the Senior Independent Director will lead the Board in its deliberations on any matters on which the Chairman is conflicted. Board Support The Company Secretary is responsible to the Board for ensuring Board procedures are followed, applicable rules and regulations are complied with and that the Board is advised on governance matters and relevant regulatory matters. All Directors have access to the impartial advice and services of the Company 46 MANAGEMENT AND GOVERNANCE Secretary. There is also an agreed procedure for directors to take independent professional advice at the Company’s expense. In accordance with the Company’s Articles and a contractual Deed of Indemnity, Directors have been granted an indemnity issued by the Company to the extent permitted by law in respect of liabilities incurred to third parties as a result of their office. The indemnity would not provide any coverage where a director is proved to have acted fraudulently or with willful misconduct. The Company has also arranged appropriate insurance coverage in respect of legal action against its directors and officers. Board Meetings and Decisions The Board meets regularly during the year, as well as when required by business needs. The Board had ten scheduled Board meetings in 2020. During their term of service, each of the Directors were present at the meetings during the year as set out in the table on page 33. The schedule of Board and Committee meetings each year is, so far as is possible, determined before the commencement of that year and all Directors or, if appropriate, all Committee members are expected to attend each meeting. Supplementary meetings of the Board and/or the Committees are held as and when necessary. Each member of the Board receives detailed Board packs, including an agenda based upon the schedule of matters reserved for its approval, appropriate reports and briefing papers in advance of each scheduled meeting. If a director is unable to attend a meeting due to exceptional circumstances, he or she will still receive the supporting papers and is expected to discuss any matters he or she wishes to raise with the Chairman in advance of the meeting. The Board, Chief Financial Officer and Company Secretary work together to ensure that the Directors receive relevant information to enable them to discharge their duties and that such information is accurate, timely and clear. This information includes quarterly management accounts containing analysis of performance against budget and other forecasts. Additional information is provided as appropriate or if requested. At each meeting, the Board receives information, reports and presentations from members of senior management as required. This ensures that all Directors are aware of, and are in a position to monitor effectively, the overall performance of the Group, its development and implementation of strategy and its management of risk. Any matter requiring a decision by the Board is supported by a paper analysing the relevant aspects of the proposal including costs, benefits, potential risks involved and proposed executive management action and recommendations. The majority of Board meetings are held at the Group’s offices in Boston, Massachusetts, USA, which gives members of the Company’s senior management team, as well as the senior managers of the portfolio companies, the opportunity to formally present to the Board. This assists the Board in gaining a deeper understanding of the breadth, stage of development and diversity of the Group’s portfolio companies. In 2020, due to the challenges caused by COVID-19, and in the interest of protecting the health and safety of the Board and all employees, the majority of Board meetings were held via video teleconference. Directors’ Conflicts of Interest Each director has a statutory duty under the Companies Act to avoid a situation in which he or she has or can have a direct or indirect interest that conflicts or may potentially conflict with the interests of the Company. This duty is in addition to the continuing duty that a director owes to the Company to disclose to the Board any transaction or arrangement under consideration by the Company in which he or she is 47 MANAGEMENT AND GOVERNANCE interested. The Company’s Articles permit the Board to authorise conflicts or potential conflicts of interest. The Board has established procedures for managing and, where appropriate, authorising any such conflicts or potential conflicts of interest. It is a recurring agenda item at all Board meetings and this gives the directors the opportunity to raise at the beginning of every Board meeting, any actual or potential conflict of interests that they may have on the matters to be discussed, or to update the Board on any change to a previous conflict of interest already declared. In deciding whether to authorise any conflict, the directors must have regard to their general duties under the Companies Act and their overriding obligation to act in a way they consider, in good faith, will be most likely to promote the Company’s success. In addition, the directors are able to impose limits or conditions when giving authorisation to a conflict or potential conflict of interest if they think this is appropriate. The authorisation of any conflict matter, and the terms of any authorisation, may be reviewed by the Board at any time. The Board believes that the procedures established to deal with conflicts of interest are operating effectively. Induction, Awareness and Development A comprehensive induction process is in place for new directors. The programme is tailored to the needs of each individual director and agreed with him or her so that he or she can gain a better understanding of the Group and its businesses. This will generally include an overview of the Group and its businesses, structure, functions and strategic aims; site visits to the Group’s head office in Boston, Massachusetts, USA; and, upon request, site visits to a number of the Group’s portfolio companies, which will include meeting with such companies’ management and a presentation from them on their businesses. In addition, the Company facilitates sessions as appropriate with the Group’s advisers, in particular its corporate broker, Numis Securities Limited, as well as with appropriate governance specialists, to ensure that any new directors are fully aware of and understand their responsibilities and obligations as a director of a listed company and of the governance framework within which they must operate. A new director may also seek to meet major shareholders. In order to ensure that the Directors continue to further their understanding of the issues facing the Group, the Board is also exposed to the early-stage opportunities in which the Group has invested through presentations at Board meetings by relevant members of the Group’s staff. In addition, other members of senior management present to the Board to enhance the Board’s awareness of how the Group operates on a day-to-day basis and how such functions operate so as to assist in the execution of the Group’s strategy of maximising total returns to all shareholders through monetisation of its existing portfolio. As a further aspect of their ongoing development, each Director also receives feedback on his or her performance following the Board’s performance evaluation in each year and, through the Company Secretary, access is facilitated to relevant training and development opportunities including those relevant to the Non-Executive Directors’ membership on the Board’s Committees. Board Effectiveness and Performance Evaluation A performance evaluation of the Board and its Committees is carried out annually to ensure that they continue to be effective and that each of the Directors demonstrates commitment to his or her respective role and has sufficient time to meet his or her commitment to the Company. The Board conducts an internally facilitated Board evaluation led by the Chairman, assisted by the Company Secretary, and covering the effectiveness of the Board as a whole, its individual Directors and its Committees. This review 48 MANAGEMENT AND GOVERNANCE includes each of the Board and Committee members completing a detailed questionnaire. A summary of the results of the questionnaire and review, together with the Chairman and Company Secretary’s observations and recommendations, are prepared and shared with members of the Board. The Board engages in a discussion of these results, provides feedback on the observations and recommendations, and develops a list of proposed improvements and actions, as deemed necessary. In addition to the aforementioned annual reviews, the performance of the Executive Director is reviewed by the Board on an ongoing basis, as deemed necessary. During the 2020 financial year, the Board assessed its own effectiveness through an internal Board evaluation process. This process was based on: a review of documentation including Board and Committee terms of reference, the completion of a survey to Directors comprising quantitative and qualitative questions; and discussions with all Board members and a number of stakeholders who regularly interact with the Board, including the Company Secretary. The results were analysed by the Chairman and the Company Secretary, and a detailed discussion was facilitated with the Board to outline the observations and recommendations. Overall it was concluded that the Board continues to work effectively. The changes to the Board composition in recent years have resulted in a well-balanced Board with a range of skills and experience. The size of the Board continues to be appropriate given the Group’s current position and capital allocation strategy to focus exclusively on supporting our seven existing portfolio companies and maximising monetisation opportunities for portfolio company interests, and not to deploy any capital into new portfolio companies. The Board did not recommend any changes it considered necessary. Committees of the Board The composition of the three Committees of the Board and the attendance of the members throughout the year is set out in the table on page 33. The terms of reference of each Committee are available on request from the Company Secretary or within the Investors section of the Group’s website at www.alliedminds.com. Remuneration and Audit Committees Separate reports on the role, composition, responsibilities and operation of the Remuneration Committee and the Audit Committee are set out on pages 63 to 64, and pages 84 to 85, respectively, and are incorporated by reference into this Corporate Governance Report. Nomination Committee The Nomination Committee leads the process for Board appointments, re-election and succession of directors and the Chairman. Its key objective is to ensure that the Board is comprised of individuals with the necessary skills, knowledge and experience to ensure that it is effective in discharging its duties. It is responsible for making recommendations to the Board and its Committees concerning the composition and skills of the Board including any changes considered necessary in the identification and nomination of new directors, the reappointment of existing directors and the appointment of members to the Board’s Committees. It also assesses the roles of the existing directors in office to ensure there continues to be a balanced Board in terms of skills, knowledge, experience and diversity. In addition, the Nomination Committee reviews the senior leadership needs of the Group to enable it to compete effectively in the marketplace. The Nomination Committee also advises the Board on succession planning for Executive 49 MANAGEMENT AND GOVERNANCE Director appointments, although the Board itself is responsible for succession generally. The Committee was chaired by Jeff Rohr (until his resignation as of 10 March 2020) and Harry Rein (as Mr. Rohr’s successor for the remainder of the financial year) and its other members as at 31 December 2020 were Bruce Failing and Mark Lerdal, being a majority of independent Non-Executive Directors as prescribed by the Code. The Nomination Committee meets as and when required or as requested by the Board. The Nomination Committee met four times during 2020 to review the structure, size and composition of the Board, following which it discussed the conclusions with the Chairman and the Chief Executive Officer. Messrs. Rein, Failing, and Lerdal, along with former Director, Mr. Rohr, were present at all meetings during the year, as applicable. Before selecting new appointees to the Board, the Nomination Committee shall consider the balance, skill, knowledge, independence, diversity (including gender) and experience on the Board to ensure that a suitable balance is maintained. The Committee shall adopt a formal, rigorous and transparent procedure for the appointment of new directors to the Board. Consideration shall always be given as to whether identified candidates have sufficient time available to devote to the role. When searching for appropriate candidates, the Committee shall give consideration to using an external search company, but may also consider candidates who are proposed by existing Board members or employees of the Group. When the Committee has found a suitable candidate, the Chairman of the Committee will make a proposal to the whole Board. The appointment of a candidate is the responsibility of the whole Board following recommendation from the Committee. The Committee did not use the services of an external search company in 2020. As part of its annual duties in 2020, the Committee and the full Board fulfilled its duties which resulted in the appointment of Bruce Failing as a Non-Executive Director in March 2020. The Committee did not openly advertise or use an external search firm to identify and recruit Mr. Failing, who was recommended by existing Directors, and was deemed by the Board to possess the skill, knowledge and experience to enhance the effectiveness of the Board. In the year ahead, the Nomination Committee will continue to assess the Board’s size and composition and how it may be enhanced. Internal control The Board fully recognises the importance of the guidance contained in Guidance on Risk Management, Internal Control and Related Financial and Business Reporting (FRC). The Group’s internal controls and risk management systems, which are Group wide, were in place during the whole of 2020, were reviewed by the Board and Audit Committee. After careful consideration and discussion of the Group’s financial statements and underlying control systems by the Board and Audit Committee, including extensive review and collaboration with the Company’s executive team to remedy issues identified, the Group’s internal controls and risk management systems were considered to be effective throughout the year ended 31 December 2020 and up to the date of approval of the Annual Report and Accounts. The Board and Audit Committee are responsible for establishing and monitoring internal control systems and for reviewing the effectiveness of these systems. The Board views the effective operation of a rigorous system of internal control as critical to the success of the Group; however, it recognises that such systems are designed to manage rather than eliminate risk of failure and can provide only reasonable and not absolute assurance against material misstatement or loss. The key elements of the Group’s internal control system, all of which have been in place during the financial year and up to the date these financial 50 MANAGEMENT AND GOVERNANCE statements were approved, are as follows: Control environment and procedures The Group has a clear organisational structure with defined responsibilities and accountabilities. It adopts the highest values surrounding quality, integrity and ethics, and these values are documented and communicated clearly throughout the whole organisation. Detailed written policies and procedures have been established covering key operating and compliance risk areas. These are reviewed and updated at least once a year. The effectiveness of the systems of internal control is reviewed at least annually by the Board. The Board reviews and evaluates the internal control policies and procedures in place against the nature of the Group’s business, the size of its workforce and the competing risks and interests being managed. Through these actions and considerations, the Board has satisfied itself that the controls been effective for the year ended 31 December 2020. Identification and evaluation of risks The Board actively identifies and evaluates the risks inherent in the business, and ensures that appropriate controls and procedures are in place to manage these risks. The Board obtains an update regarding the portfolio companies on a regular basis, and reviews the performance of the Group and its portfolio companies on a quarterly basis, although performance of specific investments may be reviewed more frequently if deemed appropriate. The Board also obtains a risk management report from members of senior management on a regular basis. The key risks and uncertainties faced by the Group, as well as the relevant mitigations, are set out on pages 24 to 31. Information and financial reporting systems The Group evaluates and manages significant risks associated with the process for preparing consolidated accounts by having in place systems and controls that ensure adequate accounting records are maintained and that transactions are recorded accurately and fairly to permit the preparation of financial statements in accordance with IFRS. The Board approves the annual operating budgets and each quarter receives details of actual performance measured against the budget. Principal and emerging risks and uncertainties The operations of the Group and the implementation of its objectives and strategy are subject to a number of key risks and uncertainties. Risks are formally reviewed by the Board and Audit Committee at least annually and appropriate procedures are put in place to monitor and, to the extent possible, mitigate these risks. Were more than one of the risks to occur together, the overall impact on the Group may be compounded. A summary of the key risks affecting the Group and the steps taken to manage these is set out on pages 24 to 31. Relations with shareholders The Company is committed to a continuous dialogue with shareholders as it believes that this is essential to ensure a greater understanding of and confidence amongst its shareholders in the medium and longer term strategy of the Group. It is the responsibility of the Board as a whole to ensure that a satisfactory dialogue does take place. 51 MANAGEMENT AND GOVERNANCE The Board’s primary shareholder contact is through the Chairman. The Senior Independent Director and other Directors, as appropriate, make themselves available for contact with major shareholders and other stakeholders in order to understand their issues and concerns. The Chairman, Chief Executive Officer, and the other Directors met with major shareholders, IP commercialisation sector brokers and analysts, and other stakeholders, on numerous occasions throughout the year in order to discuss the Company and its business as well as to receive feedback on the Company’s remuneration programme and other related matters. The Company uses the AGM as an opportunity to communicate with its shareholders. Notice of the AGM, which will be held at 10.00 ET on Wednesday, 12 May 2021 at the Company’s headquarters located at 374 Congress Street, Suite 308, Boston, MA 02210 USA, is enclosed with this Report and Accounts. In accordance with the Code, the Notice of AGM is sent to shareholders at least 20 working days before the meeting. Details of the resolutions and the explanatory notes thereto are included with the Notice. To ensure compliance with the Code, the Board proposes separate resolutions for each issue and proxy forms which allows shareholders who are unable to attend the AGM to vote on each resolution. The results of all proxy voting shall be published on the Group’s website after the meeting and at the meeting itself to those shareholders who attend. Shareholders who attend the AGM will have the opportunity to ask questions and the Chairman and the Directors are expected to be available to take questions. The Group’s website at www.alliedminds.com is the primary source of information on the Group. The website includes an overview of the activities of the Group, details of its portfolio companies, and details of all recent Group and portfolio company announcements. Political expenditure It is the Board’s policy not to incur political expenditure or otherwise make cash contributions to political parties and it has no intention of changing that policy. Going concern The Directors acknowledge that the ongoing spread of the coronavirus disease (COVID-19) that started in December 2019 has the potential to greatly disrupt all aspects of the Group’s business, including potential negative impacts on the Group’s financial position. However, the Directors are closely monitoring the disease with Group management in order to mitigate against such impact, including careful financial planning to allow for continued operations. The Directors confirm that, after taking all applicable factors into consideration, including the impact of COVID-19, they have a reasonable expectation that the Group will have adequate resources to continue operations for a period of not less than 12 months from the date of approval of the financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements. For further explanation, see note 1 of the financial statements on page 102. ON BEHALF OF THE BOARD Harry Rein Chairman 29 March 2021 52 MANAGEMENT AND GOVERNANCE Sustainability Policy Statement Allied Minds aims to conduct its business in a socially responsible manner, to contribute to the communities in which it operates and to respect the needs of its employees and all of its stakeholders. The Group is committed to operating the business while ensuring a safe environment for employees as well as minimising the overall impact on the environment. Allied Minds endeavours to conduct its business in accordance with established best practice, to be a responsible employer and to adopt values and standards designed to help guide staff in their conduct and business relationships. Greenhouse Gas (GHG) Emissions Given the overall size of the Group, we consider the direct environmental impact of the Group as relatively low. However, we firmly recognise our responsibility to ensure that our business operates in an environmentally responsible and sustainable manner. The Group complies with all current regulations on emissions including GHG emissions, where such regulation exists in our markets. Though the Group’s day-to-day operational activities have a relatively limited impact on the environment, we do recognise that the more significant impact occurs indirectly through the nature and operations of the companies that we choose to support with human and financial capital. The Group therefore considers it important to establish and nurture businesses that comply with existing applicable environmental, ethical and social legislation. It is also important that these businesses can demonstrate that an appropriate strategy is in place to meet future applicable legislative and regulatory requirements and that these businesses can operate to specific industry standards, striving for best practice. The section below includes our first year of reporting under the new Streamlined Energy & Carbon Reporting requirements. The reporting period is the same as the Group’s financial year, 1 January 2020 to 31 December 2020. Organisation Boundary and Scope of Emissions We have reported on all of the emission sources required under the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2018. These sources fall within the Group’s consolidated financial statement. An operational control approach has been used in order to define our organisational boundary. This is the basis for determining the Scope 1 and 2 emissions for which the Group is responsible. Methodology For the Group’s reporting, the Group has employed the services of a specialist adviser, Verco, to quantify and calculate the Greenhouse Gas (GHG) emissions associated with the Group’s operations. The following methodology was applied by Verco in the preparation and presentation of this data: 53 MANAGEMENT AND GOVERNANCE • the Greenhouse Gas Protocol published by the World Business Council for Sustainable Development and the World Resources Institute (the “WBCSD/WRI GHG Protocol”); • application of appropriate emission factors to the Group’s activities to calculate GHG emissions; • • scope 2 reporting methods – application of location-based and market-based emission factors for electricity supplies; inclusion of all the applicable Kyoto gases, expressed in carbon dioxide equivalents, or CO2e; and • presentation of gross emissions as the Group does not purchase carbon credits (or equivalents). Absolute Emissions The total Scope 1 and 2 GHG emissions from the Group’s operations in the year ending 31 December 2020 were: • 18.7 tonnes of CO2 equivalent (tCO2e) using a ‘location-based’ emission factor methodology for Scope 2 emissions; and • 18.9 tonnes of CO2 equivalent (tCO2e) using a ‘market-based’ emission factor methodology for Scope 2 emissions. Scope 1 emissions from onsite combustion of natural gas and refrigerant gas losses have been included in the reporting scope, although there were no consumption and therefore none reported. Scope 2 emissions included purchased electricity using the location-based and market-based method. Intensity Ratio As well as reporting the absolute emissions, the Group’s GHG emissions are reported below on the metrics of tonnes of CO2 equivalent per full-time (FTE) employee, excluding remote workers, and of tonnes of CO2 equivalent per square foot of occupied office space. These were decided as the most appropriate metrics for the Group. The intensity metrics have been calculated as follows: • 0.720 tCO2e per full-time employee (FTE) using the location-based method and 0.727 tCO2e per full- time employee (FTE) using the market-based method; and • 0.002 tCO2e per ft2 using the location-based method and 0.002 tCO2e per ft2 using the market-based method. Target and Baselines The Group’s objective is to maintain or reduce its GHG emissions per FTE and per square footage of occupied office space each year and will report each year whether it has been successful in this regard. 54 MANAGEMENT AND GOVERNANCE Key Figures Allied Minds plc - Breakdown of emissions by scope 2020 (market-based) 0.0 2020 (location-based) 0.0 18.9 18.7 Scope 1 Scope 2 0% 20% 40% 60% 80% 100% GHG emissions Scope 11 Scope 22 Scope 23 Total GHG emissions (Location-based Scope 2) Total GHG emissions (Market-based Scope 2) Tonnes CO2e - 18.7 18.9 18.7 18.9 2020 tCO2e / emp. 4 - 0.720 0.727 0.720 tCO2e / sq. ft. 5 - 0.002 0.002 0.002 0.727 0.002 1 Scope 1 being emissions from the Group’s combustion of fuel and operation of facilities. 2 Scope 2 being electricity (from location-based calculations), heat, steam and cooling purchased for the Group’s own use. 3 Scope 2 being electricity (from market-based calculations), heat, steam and cooling purchased for the Group’s own use. 4 Employee numbers (FTE excluding remote workers): 26 5 Occupied office space: 9,866 ft2 Total Energy Use Electricity (kWh) 70,532 Energy Use 2020 Gas (kWh) - Total Energy Use (kWh) 70,532 55 MANAGEMENT AND GOVERNANCE Energy Efficiency Actions The Group did not implement any new energy efficiency actions during the reporting year. Each of the businesses have had its employees working from home for a large portion of the year. Understanding the Indirect Environmental Impacts of our Business Activities The Group’s day-to-day operational activities have a limited impact on the environment. The Group does recognise that the more significant impact occurs indirectly, through the investment decisions made and the operation of the companies that the Group choose to invest in. The Group therefore considers it important to establish and invest in businesses that comply with existing applicable environmental, ethical and social legislation. It is also important to the Group that these businesses can demonstrate that an appropriate strategy is in place to meet future applicable legislative and regulatory requirements and that these businesses can operate to specific industry standards, striving for best practice. Our Business Ethics and Social Responsibility The Group seeks to conduct all of its operating and business activities in an honest, ethical and socially responsible manner. We are committed to acting professionally, fairly and with integrity in all our business dealings and relationships wherever we operate, and for the Group’s directors and staff to have due regard to the interest of all of its stakeholders including investors, partners, employees, customers, suppliers and the businesses in which the Group invests. We expect our entire workforce to maintain high standards in accordance with our internal policies on conduct. The Company has in place avenues through which employees can raise matters confidentially or anonymously and the Board, through the Audit Committee, regularly reviews whistleblowing reports provided by the whistleblowing officer and the Chairman of the Audit Committee. We take a zero tolerance approach to bribery and corruption and implement and enforce effective systems to counter bribery. The Group is bound by the laws of the UK, including the Bribery Act 2010, and has implemented policies and procedures to address such laws, as well as the laws in each jurisdiction where the Group operates, including the US. The Group’s management and employees are fundamental to our success and as a result we are committed to encouraging the ongoing development of our staff with the aim of maximising the Group’s overall performance. Emphasis is placed on staff development through work-based learning, with senior members of staff acting as coaches and mentors. Allied Minds has continued to employ regular all-staff update meetings as the main source of employee communication. Stakeholder Engagement Section 172 of the Companies Act requires Directors to take into consideration the interests of stakeholders in their decision making. The Board is committed to understanding and engaging with all key stakeholder groups of the Company in order to maximise value and promote long-term Company success in line with its strategic objectives. The Board recognises its duties under Section 172 and continuously has regard to the likely consequences of any decision for the long term, how the Company’s activities and decisions will impact employees, those with which it has a business relationship, the community and environment, and its reputation for high standards of business conduct. In weighing all of the relevant factors, the Board, acting in good faith and fairly between members of the Company, 56 MANAGEMENT AND GOVERNANCE makes decisions and takes actions that it considers will best lead to the long-term success of the Company in accordance with its strategy. The Board strives to be a good employer to its workforce, responds to shareholder feedback, supports its communities and focuses on maintaining strong partner relationships. During the year, the Board assessed its current activities between the Board and its stakeholders through direct conversations with investors, receiving reports from the executive team regarding workforce feedback, direct engagement with portfolio company management teams, and review of key partners at Board meetings throughout the course of the year, all of which demonstrated that the Board actively engages with its stakeholders and takes their various objectives into consideration when making decisions. Furthermore, in its decision-making, the Board evaluates and considers the long-term effects and consequences resulting from such decisions. For example, in line with the Group’s strategy to focus exclusively on funding and operating its existing portfolio companies with the objective of maximising value for its shareholders, the Board considers how a present decision such as investing additional capital in Federated Wireless and protecting its ownership percentage in such company was an appropriate action after considering the interests of its shareholders, impact to the rest of the portfolio, partnership relationships, and other long-term operational impact. This statement also focuses on how the Directors have had regard during the year to the matters set out in Section 172(1)(a) through (f) of the Act as considered further below. The Board identified that its key stakeholders include shareholders, employees, portfolio companies, partners, advisors and communities. Specifically, actions the Board has taken to engage with its stakeholders in 2020 include: SHAREHOLDERS (Companies Act 2006, sections 172(1)(a) and (f)) Why they matter to us What matters to them How the Board engaged How they influenced the Board’s decision making They are our investors and we measure success through delivering value to our shareholders. Our shareholders play an important role in monitoring and safeguarding the governance of the Group. Broad range of issues spanning from financial and operational performance, strategic execution, investment plans and capital allocation. Engaged with our major shareholders and discussed their via teleconference and email correspondence throughout the year. viewpoints and concerns, including Attended the 2020 AGM to answer questions and receive additional feedback from investors. Met with larger shareholders to discuss additional feedback in changes to the remuneration programme after the 2020 AGM. Chairman and CEO actively contact and make themselves available to shareholders who have questions, issues or concerns to raise. Shareholder feedback, opinions and concerns are taken into consideration throughout the year as the Board makes decisions on the Company’s strategy, 57 MANAGEMENT AND GOVERNANCE EMPLOYEES (Companies Act 2006, section 172(1)(b)) Why they matter to us What matters to them How the Board engaged How they influenced the Board’s decision making investment decisions, capital allocation, remuneration and other key matters. The Board actively engages with shareholders for such feedback ahead of making key decisions when appropriate and in accordance with regulatory requirements. Our talented, dedicated and experienced workforce is a key asset to the Group and critical for the Group’s success. Opportunities for career development, culture of inclusion and diversity, compensation and benefits, acknowledgement for high performance and ability to meaningfully contribute to the Group’s success. Monitored company culture, including NEDs visiting and interacting with the Company’s employee base, and received reports from senior executives on morale throughout the year. Received feedback and viewpoints from the workforce for consideration from the Chief Executive Officer, who was the workforce representative director as the method of workforce engagement with the Board. For additional information on employee retention, rewarding our workforce and diversity, please see page 61. The Board is committed to creating a positive working environment in line with the Company’s culture that retains and rewards our workforce. For additional information on steps taken, please see page 60. PORTFOLIO COMPANIES (Companies Act 2006, sections 172(1)(a) and (c)) Why they matter to us What matters to them How the Board engaged The success of our portfolio companies is what enables us to bring value to our shareholders. We are invested in supporting our portfolio companies, the management teams at those companies, and helping them achieve their operational and strategic goals. Achieving strategic objectives, meeting performance milestones, fundraising, growth, and overall company success. Met with executive teams of multiple portfolio companies in person or via video teleconference to better understand such companies’ objectives, strategies, and goals and provide feedback and offer ongoing assistance to help further such companies’ progress and growth. Active engagement through representation on portfolio company boards to assist companies with fundraising activities and partnership opportunities. 58 MANAGEMENT AND GOVERNANCE How they influenced the Board’s decision making Understanding the various objectives of our portfolio companies allows the Board to make informed and thoughtful decisions regarding the portfolio as a whole for the overall benefit of the Group. PARTNERS AND CUSTOMERS (Companies Act 2006, sections 172(1)(c) and (e)) Why they matter to us Strategic partners throughout the portfolio help the Group succeed as a whole. Their points of view provide unique perspectives in the various markets in which our portfolio companies operate. What matters to them How the Board engaged How they influenced the Board’s decision making Key customer relationships through the portfolio are critical to our portfolio companies’ success and ability to generate revenue. Customer satisfaction, demands and requirements help define success for our companies. These partners have invested in our portfolio companies and/or have strategic partnerships in place with our portfolio companies. They want our companies to succeed and for their partnership arrangements to be well-executed. Customers want products and services that will bring them value and fulfill their business needs. Successful relationships with our companies will in turn bring success to such customers. Direct engagement with key partners of the Company and its portfolio companies by Executive Director participation and interaction on strengthening relationships and understanding objectives. Working with portfolio company management teams to understand customer needs that in turn dictate certain aspects of how to further develop or grow such company’s technology and products. The Board routinely considered the interests of our various partners to ensure that they are aligned with the Company’s strategy, values and objectives. The Board considers the needs and interests of key customers to better understand the portfolio company businesses and to influence key strategic decisions through its representation on the portfolio company boards of directors. ADVISORS (Companies Act 2006, sections 172(1)(c) and (e)) Why they matter to us What matters to them Independent and third party perspectives allow the Board to make better decisions on behalf of all of its stakeholders. Good communication and the ability to work closely with the Company to enable them to provide strategic 59 MANAGEMENT AND GOVERNANCE How the Board engaged How they influenced the Board’s decision making and thoughtful advice and excellent service to help guide the Board and provide support to the Group across its operations. Direct engagement with advisors and key service providers to discuss Company strategy and to receive advice and recommendations from such advisors on a variety of matters. The Board considers and values the objective input and advice provided by its trusted advisors and relies on such advice in various aspects of decision making when determining how to navigate the various transactions, issues, strategic shifts, regulatory matters, and other matters facing the Board. COMMUNITIES / ENVIRONMENT (Companies Act 2006, section 172(1)(d)) Why they matter to us What matters to them How the Board engaged How they influenced the Board’s decision making We are committed to maintaining strong ethical and corporate responsibility principles. We care about doing business responsibly. Sustainability and environmental impact resulting from operations. Through the Group’s sustainability strategy, aimed to make a positive contribution to the community and environment by reducing our carbon footprint and energy use. Please see pages 53 to 56 for additional information. The Board aims to reduce the direct environmental impact of the Group’s operations. The Board believes that appropriate steps and considerations have been taken during the year so that each Director has an understanding of the various key stakeholders of the Company. The Board recognises its responsibility to contemplate all such stakeholder needs and concerns as part of its discussions, decision-making, and in the course of taking actions and will continue to make stakeholder engagement a top priority in the coming years. Focus on Culture The Company is committed to maintaining a dynamic culture focused on bringing value to its shareholders by taking a hands-on approach in supporting its portfolio companies, and in particular, working directly with the management teams at such companies to help them achieve milestones, accelerate growth and realise monetisation opportunities. Our workforce maintains the appropriate balance of skills, capabilities, experience and training that allows it to effectively execute on its strategy. Our Non- Executive Directors have decades of experience in venture capital investing and are well-positioned to assist our portfolio companies towards achieving successful exits. Our culture is critical to our success and we strive to align our workforce through the way we conduct our business. Over the course of the year, we have continued to embed our values by offering career development opportunities throughout our workforce, providing direct access and engagement between executives and senior management with the rest of the workforce, and rewarding high performance, all of which encourages our employees to be 60 MANAGEMENT AND GOVERNANCE engaged and invested in the execution of our strategy. Employee Diversity and Employment Policies The Group seeks to operate as a responsible employer and has adopted standards which promote corporate values designed to help and guide employees in their conduct and business relationships. The Group seeks to comply with all laws, regulations and rules applicable to its business and to conduct the business in line with applicable and established best practice. The Group’s policy is one of equal opportunity in the selection, training, career development and promotion of employees, regardless of age, gender, sexual orientation, ethnic origin, religion and whether disabled or otherwise. The Group is committed to recruitment and retention of the talent required to execute on maximising shareholder value, as described above. Specifically, in line with company culture, the Group is committed to providing a working environment that allows its workforce to succeed, including providing career advancement opportunities internally within the Group and providing flexible work arrangements that allow employees to earn additional degrees. The Group engages with its workforce throughout each year to receive feedback and evaluate whether practices and behaviour throughout the business are aligned with the Group’s purpose, values and strategies. When issues are identified, the Group takes corrective actions such as revising policies and implementing changes collaboratively with its workforce to improve alignment and overall culture. Allied Minds and its consolidated portfolio companies had 31 employees as at 31 December 2020. A breakdown of employees by gender as at 31 December 2020 can be seen in the illustrations below. Allied Minds supports the rights of all people as set out in the UN Universal Declaration of Human Rights and ensures that all transactions the Group enters into uphold these principles. Total Employees Senior Management Directors 19% 14% 0% 81% 86% 100% Female Male 61 MANAGEMENT AND GOVERNANCE Directors’ Remuneration Report Statement by Chairman of the Remuneration Committee I am pleased to present, on behalf of the Board, the Directors’ Remuneration Report for the year ended 31 December 2020. What’s in this report? The Directors’ Remuneration Report sets out: (i) an annual statement by the Chairman of the Remuneration Committee on pages 62 to 65; (ii) the current Remuneration Policy for the Company on pages 66 to 70, and an Annual Report on Remuneration on pages 71 to 83 which describes the implementation of the current Remuneration Policy during 2020, and expected implementation in 2021. It has been prepared in accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, as amended. The current Remuneration Policy was developed taking into account the principles of the UK Corporate Governance Code 2018, the Listing Rules and shareholders’ executive remuneration guidelines. The Statement by Chairman of the Remuneration Committee on pages 62 to 65, together with the Annual Report on Remuneration on pages 71 to 83, will be subject to an advisory vote at the 2021 AGM. Remuneration Overview Our current Remuneration Policy received 85.13% shareholder support at our 2019 AGM, took effect from that date, and will operate for up to three years. The Remuneration Committee reviewed the approach to remuneration for the Executive Directors and senior management to assess whether it continues to (i) meet its design objectives, (ii) support the ongoing business strategy, and (iii) balance good governance practice in the UK-listed company environment with the ability to attract and retain US-based management and employees of the highest calibre to execute on this business strategy. The Company believes that remuneration should be weighted toward rewarding entrepreneurial achievement and the creation of value over time. In 2019, after engaging in extensive discussions with its major shareholders, the Remuneration Committee approved a number of changes to the remuneration programme, as detailed in our 2019 Annual Report and Accounts, to better align remuneration with the Company’s revised strategy focused on supporting its existing portfolio companies and maximising monetisation opportunities. During 2020, we continued to execute upon such strategy and evaluate the appropriateness of the remuneration programme as such changes came into effect in 2020. The 2019 Directors’ Remuneration Report received a 62.75% vote in favour at the 2020 AGM, as detailed on page 82. While this resolution was passed, the Committee was disappointed that there was a significant minority of votes against the advisory resolutions. including the changes Overall, the Committee considered that the remuneration programme, implemented in 2019 that came into effect for 2020, continued to be broadly appropriate and aligned with the Company’s revised strategy while balancing typical UK-listed market practice with US practice in our market for talent. In line with our commitment to maintaining an open and transparent dialogue with shareholders, the Company consulted with its major shareholders in the second half of 2020 to gain their input. 62 MANAGEMENT AND GOVERNANCE After extensive engagement with its major shareholders, the Board noted that shareholder concerns were primarily focused on remuneration schemes in place for 2019 and prior which have since been addressed through the substantial amendments the Company made to its remuneration programme for 2020 and onwards, as described on pages 66 to 69 and further detailed in the Group’s 2019 Annual Report and Accounts. The Committee believes that such changes have and continue to appropriately address shareholder concerns while supporting the Company’s strategy and aligning Executive Directors’ interests directly with shareholders. The Committee will continue to monitor the alignment and effectiveness of the Remuneration Policy and its implementation in light of the Company’s current strategy and developments in the UK remuneration environment. The Committee remains conscious of the current external economic environment, and will be mindful of this when determining 2021 out-turns. Resignation of Joseph Pignato With effect from 14 January 2021, Mr. Pignato resigned as Chief Executive Officer and as an Executive Director of the Company. He shall continue to serve as Chief Financial Officer of the Company for an interim period until 14 April 2021 or such other date as mutually agreed by the Company and Mr. Pignato. Performance and Reward for 2020 Following strong achievement against a number of the management by objectives (MBOs) set at the start of 2020, including: • managing headquarter cash and expenses; • • maintaining strong operational support in furtherance of the Company’s revised strategy, securing funding and strategic partners for our portfolio companies; and a cash incentive bonus award of 50% of the maximum opportunity, or 75% of target opportunity, was made to the Executive Director. Additional detail regarding the metrics used to determine such achievement are set forth on page 73. The Committee considered this annual bonus outcome appropriately reflected overall performance in the period. No performance-based LTIP awards vested to the Executive Director in 2020. The Work of the Remuneration Committee The Remuneration Committee has responsibility for setting the Remuneration Policy for, and determining remuneration of, the Executive Directors and senior management, and reviewing pay and conditions of the wider workforce. The Committee met on three occasions during the year. Reflecting the meetings for which each member was then appointed to the Committee, all members were present at all meetings during the year. In addition, Bruce Failing, the Chairman of the Committee, met several times during the year with the Chief Executive Officer as well as other members of senior management in order to review all elements of remuneration and their operation. The Committee also received professional advice from Deloitte LLP where appropriate. During the year, the key activities carried out by the Committee were: 63 MANAGEMENT AND GOVERNANCE Review of Remuneration Programme • Conducted a review of all elements of remuneration for the Executive Director and senior management to determine their alignment and effectiveness in light of the Company’s strategy; • Obtained and reviewed feedback received from major shareholders and shareholder advisory services, in connection with each of the implementation of the current Remuneration Policy and the subsequent changes to the remuneration programme in late 2019; Remuneration for 2020 • Determined the 2020 cash incentive bonus and prior LTIP award outcomes for employees; • Reviewed the remuneration reporting regulations in connection with the review of the Group’s Remuneration Policy and preparation of the Directors’ Remuneration Report; • Reviewed remuneration and related policies for the wider workforce, including taking into consideration the impact of COVID-19; • Approved the delivery of a proportion of 2020 fees to Non-Executive Directors in the form of equity-based payments (subject to time-based vesting only); Remuneration for 2021 • Determined base salaries of the Executive Director and senior management, for the period starting 1 January 2021; • Determined the 2021 cash incentive bonus award performance targets; • Reviewed and approved the remuneration elements of the resignation of Joseph Pignato, details of which are provided on pages 80 to 81. As set out elsewhere in the Annual Report, effective as of 14 January 2021, Mr. Pignato stepped down as an Executive Director. In furtherance of its focused strategy, the Company’s Board and management determined that the most effective and efficient path forward is for the Company to be a Non-Executive Board-led company. The Company does not have any current intention of appointing a new Chief Executive Officer. The scope of the Directors’ Remuneration Report going forward will therefore be limited to reporting on the remuneration of non-executive directors and details of any payments to past executive directors. Exercise of Discretion No discretion has been exercised in relation to the formulaic outturns under the Company’s incentive plans for Executive Directors. Alignment to the UK Corporate Governance Code Principles When reviewing the appropriateness of the Remuneration Policy and determining its operation for 2021, the Committee took into consideration, and feels it has appropriately addressed, the following design principles set out in the revised Corporate Governance Code: 64 MANAGEMENT AND GOVERNANCE Clarity Simplicity • The Committee welcomes open and frequent dialogue with shareholders on the approach to remuneration. • We have sought to clearly explain how we have implemented the Remuneration Policy in • the year and how the Committee intends to operate it for the year ahead. Incentive Bonus Awards are subject to clearly defined MBOs which are aligned with the Company’s key strategic priorities. • Following the cancellation of all outstanding performance awards and the future operation of the LTIP for Executive Directors, in addition to the Executive Directors voluntarily forfeiting their interests in the MIP and outstanding stock options awards, the only performance-based incentive plans in operation for the Executive Director are the annual Incentive Bonus Awards and the Phantom Plan. • The remuneration approach taken for our Executive Director is cascaded down the organisation as appropriate. Risk • The Committee considers that the structure of incentive arrangements does not encourage inappropriate risk-taking. • Under the Incentive Bonus Awards, discretion may be applied where formulaic outturns are not considered reflective of overall performance. • No bonus payments arising under the Phantom Plan will be made to participants until the Company has generated $109.2 million of gross proceeds (plus any future additional invested capital made after October 1, 2019) in one or more future liquidity events. • Malus and clawback provisions apply to the Incentive Bonus Awards. Predictability • Our Remuneration Policy contains details of threshold and maximum opportunity levels under our Incentive Bonus Awards, with actual outcomes dependent on performance achieved against predetermined measures and target ranges. Proportionality • The Committee’s ability to apply discretion ensures appropriate outcomes in the context of long-term performance. Alignment to culture • The Committee is satisfied that the Remuneration Policy does not reward poor performance. Our performance measures and target ranges under the Incentive Bonus Awards, and the construct of the Phantom Plan, are aligned to Company strategy. • Our reward arrangements are designed to reward delivery of the Group’s strategy which is focused on supporting our seven existing portfolio companies and maximising monetisation opportunities for portfolio company interests. This is achieved through our Incentive Bonus Award MBOs and the operation of the Phantom Plan. • Our remuneration structure for Executive Directors cascades as appropriate throughout the Company. We continue to appreciate any feedback shareholders may have. Bruce Failing Chairman of the Remuneration Committee 29 March 2021 65 MANAGEMENT AND GOVERNANCE Remuneration Policy (pages 66 to 70) This section sets out relevant extracts from the Remuneration Policy for the Executive and Non-Executive Directors (Policy) which was approved by shareholders at the 2019 AGM and took formal effect from that date. The complete copy of the Remuneration Policy can be found on pages 73 to 82 of the Company’s 2019 Annual Report and Accounts, which is available on the Company’s website. The Committee will consider the Policy annually to ensure that it continues to align with the Company’s strategic objectives; however, it is intended that the Policy will apply for three years from the 2019 AGM. Where appropriate, commentary has been added to the Policy to reflect the changes to the remuneration programme in late 2019 as described in the Company’s 2019 Annual Report and Accounts. The Remuneration Policy Table for Executive and Non-Executive Directors The table below sets out the Policy for each element of remuneration for Executive and Non-Executive Directors and how they support the Company’s short- and long-term strategic objectives. Element of remuneration and how it supports the Company’s objectives Salary Provides an appropriate level of salary in order to be competitive and to maintain the ability to recruit and retain Executive Directors of the required calibre. Benefits Provides a benefits package in line with US employment market practice. Operation Opportunity Performance metrics There is no prescribed maximum annual salary or increase, however annual increases will normally be in line with those of the wider workforce. More significant increases may be made from time to time, for example to recognise an increase to the individual’s role and responsibilities, or a significant increase in the scale or size of the Company. There are no performance conditions attached to the payment of salary, although there are a number of performance-based factors both at the individual and Company level that influence the level of salaries provided to Executive Directors. The cost of benefits provided varies from year to year in accordance with market conditions, therefore there is no prescribed monetary limit. N/A An Executive Director’s basic salary is considered by the Committee on appointment and normally reviewed once per year or when there is a significant change to role or responsibility. Salary will normally be paid twice per month in cash. In exceptional circumstances, part of the salary may be deferred at the request of the individual and become payable at a later date. Salaries and salary increases are set taking into consideration a number of factors including (but not limited to): • scale, scope and responsibility of the role; • skills and experience of the individual; • individual and Company performance; • the impact on other remuneration elements and the total remuneration package; • the individual’s marketability; • pay and conditions across the Company; • the wider economic environment; and • market-appropriate pay positioning against relevant US and UK listed peers and other companies of a similar size and complexity. The main benefits provided to Executive Directors include (but are not limited to): • life insurance; • disability insurance; • medical benefits and dental care; • a car allowance; and • an annual payment to cover personal legal and tax advice. Executive Directors may also participate in any all-employee share plans that may be operated by the Group from time to time on the same terms as other employees. Additional benefits, which may include relocation expenses, housing allowance or other benefits-in-kind, may be provided in certain circumstances if considered appropriate and reasonable by the Committee, for example on recruitment. 66 MANAGEMENT AND GOVERNANCE Element of remuneration and how it supports the Company’s objectives Pension Provides pension benefits in line with US employment market practice. The Company is not required to provide pension benefits in order to be competitive and to ensure its ability to recruit and retain Executive Directors. Incentive Bonus Awards Incentivises the achievement of pre- determined strategic goals – management by objectives (MBOs) – over a single year period. Allied Minds Long Term Incentive Plan (LTIP) Incentivises and rewards the achievement of the Company’s long-term strategic objectives. Provides alignment with shareholders through long-term time horizons and the facilitation of share ownership. Operation Opportunity Performance metrics A consistent pension policy operates for all employees across the Company, creating alignment between Executive Directors and the wider workforce. N/A N/A In line with US market practice, no element of the Executive Directors’ remuneration is pensionable, and the Company does not operate any pension scheme or other scheme providing retirement or similar benefits. However, in line with the approach taken for all employees, the Company offers a retirement plan in accordance with subsection 401(k) of the Internal Revenue Code in which Executive Directors may make voluntary pre-tax contributions toward their own retirement. The Company does not make any payments or contributions to such 401(k) Plan. Annual MBOs and their respective weightings and targets, are set at or around the start of each financial year. An Executive Director’s incentive bonus award is considered by the Committee upon completion of each financial year. The decision to provide any award and the amount and terms of any such award, are determined based on the level of achievement against the MBOs set at the start of the year. The Committee may exercise its discretion and make adjustments to the formulaic payout level (both upwards and downwards, including a reduction to zero) if the formulaic outcome is not considered to be appropriate. When making this judgement, the Committee will consider a number of factors, including (but not limited to) the overall shareholder experience, underlying business performance (including financial, operational and technical performance) and individual performance during the year. An award over Company stock is typically made to Executive Directors annually, subject to pre-determined performance measures which are typically tested over a period of three years. The specific performance measures, weightings and targets are set at or around the start of each financial year. Performance will normally be tested after three years, subject to the Committee’s assessment of the extent to which the performance measures have been met. This assessment may take into account any additional relevant factors, at the Committee’s discretion. A further two-year holding period will typically apply to awards, giving a total period between the date of the initial award was made and the end of the holding period of five years. Awards are subject to malus and clawback provisions, as described in the notes to this Policy table. Operation for 2020 onwards: the LTIP has been retired for Executive Directors, senior management and other employees, with no further awards to be made under this plan to these persons. In addition, the Executive Directors voluntarily agreed to forfeit the performance-based LTIP awards made to them in 2017 and 2018, and no LTIP awards were made in 2019 to them. 67 Incentive Bonus opportunities are capped at 225% of salary per annum, which is only achieved if performance significantly exceeds expectations across all MBOs set for the year. The level of annual bonus payable for on-target performance is set at a level significantly below the maximum opportunity, and will be disclosed each year in the Annual Report on Remuneration. The Committee and senior management review the Group’s MBOs annually prior to the start of each financial year to ensure the detailed performance measures and weightings are appropriate and continue to support the business strategy. MBOs may include financial, operational, technical and other performance targets. Operation for 2020 onwards: Incentive Bonus opportunities will be capped at 150% of salary per annum. The MBOs will be weighted primarily towards Group, and not individual, MBO performance. LTIP awards are normally granted to an individual each financial year and are capped at 300% of salary. The award will only vest in full if performance significantly exceeds expectations over the performance period. The proportion of the award that will vest for threshold performance will be 16.67%. When attracting a new executive director of the required calibre, an additional LTIP award of up to 300% of salary may be granted in the executive’s first year of appointment if deemed appropriate by the Committee. Thereafter, LTIP awards granted to the executive would be made under the normal policy maximum above. The Committee may vary specific measures and targets applicable to LTIP awards from year to year, to ensure they continue to support the achievement of the Company’s strategy and to ensure that the target range remains sufficiently stretching. In respect of the LTIP awards to be granted in 2019, 60% of vesting will be based on the Company’s relative total shareholder return (rTSR) performance in respect of a three-year performance period, and 40% of vesting will be based upon the monetisation of portfolio companies over such period. MANAGEMENT AND GOVERNANCE Operation Opportunity Performance metrics Element of remuneration and how it supports the Company’s objectives Allied Minds Phantom Plan Rewards participants for a successful portfolio company liquidity event, a key strategic objective of the Group and its shareholders, thereby providing alignment between the interests of participants and shareholders. Operation of such plans is common practice amongst our peers in the venture creation / IP commercialisation sectors, therefore the Phantom Plan allows the Company to provide a market- competitive remuneration offering within the relevant market for talent across this industry. The Phantom Plan is a performance-based, cash settled bonus plan for Allied Minds’ Executive Directors and management. The Plan is triggered by a successful portfolio liquidity event, including (i) a portfolio company IPO, (ii) the sale of all or substantially all of a portfolio company’s assets, (iii) the sale of at least two-thirds of the outstanding shares of a portfolio company’s voting equity, (iv) the merger or consolidation of a portfolio company with or into another entity, or (v) a portfolio company’s liquidation. Upon a liquidity event, Allied Minds will deduct the amount it invested in such portfolio company and deduct the accrued interest in respect of such investment, and will then allocate 10% of the remaining net proceeds to the Phantom Plan account for allocation among the participants. Participants receive “units”, which equates to a pro-rata share of the Phantom Plan pool. Vesting of units is determined at the time of grant of the units. Operation for 2020 onwards: the Phantom Plan will not be available to any new unitholders nor will any companies be added to the Plan. The maximum aggregate number of units that may be awarded under the Phantom Plan is 200,000 units. Awards to Executive Directors under the Phantom Plan may not exceed 30,000 units. Upon a liquidity event Allied Minds will distribute 80% of the Phantom Plan account to the participants based on their pro rata share of all vested units on the date of the applicable liquidation event, and the remaining 20% of the Phantom Plan account will be distributed to participants at the discretion of the Committee. Operation for 2020 onwards: Executive Directors are subject to a cap of 25% of any allocated proceeds in connection with a specific liquidity event. No amounts accrue under the Phantom Plan, and no amounts are distributed to participants, until and unless a successful portfolio company liquidity event occurs, and the cash generated in such liquidity event exceeds the amount Allied Minds invested in such portfolio company, plus accrued interest and expenses in respect of such investment. No other performance metrics apply. Operation for 2020 onwards: an additional underpin has been introduced, such that no payments arising under the Phantom Plan will be made to participants until the Company has generated $109.2 million of gross proceeds (plus any future additional invested capital) in one or more future liquidity events. N/A Share ownership requirement Executive Directors are required to acquire and maintain a minimum ownership level of ordinary shares in the Company. N/A Encourages Executive Directors to build a meaningful shareholding in the Company, providing alignment between the long-term interests of Executive Directors and shareholders. Non-Executive Directors’ Fees Provides an appropriate level of fees in order to be competitive and to maintain the ability to recruit and retain Non-Executive Directors of the required calibre and experience. Partial delivery in Company stock encourages alignment of interests with shareholders. This minimum level is set at the equivalent of 400% of salary for the CEO. Non-Executive Directors receive an annual fee, with additional fees paid to reflect additional time commitment and responsibilities for certain roles, e.g. Chairmanship of a Board Committee / the Board. Non-Executive Directors’ fee levels are typically reviewed annually, taking into consideration a number of factors, including (but not limited to): • scale, scope and responsibility of the role; • relevant skills and experience required; and • market-appropriate pay positioning against relevant US and UK listed peers and other companies of a similar size and complexity. Non-Executive Directors are not entitled to participate in any Company pension scheme or to receive benefits, other than the reimbursement of reasonable and properly documented expenses incurred in performing the duties of their office (and any associated taxes). 68 There is no prescribed maximum fee or increase, however total fees payable are subject to the limits set out in the Articles of Association. N/A MANAGEMENT AND GOVERNANCE Operation Opportunity Performance metrics Element of remuneration and how it supports the Company’s objectives Non-Executive Directors do not receive any performance- related awards. Given the US-based nature of the Group’s business, and the need to attract and retain independent directors with significant US business and leadership experience, a proportion of the fees are paid in stock (with the remainder paid in cash). The stock element is subject to time-based vesting over a three-year period, however no performance conditions are applied. Careful consideration has been given as to whether including an equity component would affect the independence of the Non-Executive Directors, and the conclusion was reached that it would not, given the level of the awards and the fact that they are not performance-related. Remuneration Policy on payment for loss of office The Directors believe the policy on payments for loss of office detailed below are aligned with UK corporate governance expectations and local market practice, and appropriate to attract and retain senior management of the highest calibre. The Committee reserves the right to make payments where they are made in good faith in discharge of an existing obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of any claim arising in connection with the termination of a Director’s office or employment where they are in the best interests of Allied Minds and its shareholders and reflecting the directors’ contractual and legal rights. If an Executive Director’s employment is terminated by the Company for “Cause”, the Director shall only be entitled to amounts that are accrued or owing but not yet paid and reimbursement of any properly incurred business expenses but excluding any bonus payments or other compensation provided pursuant to the Company’s incentive compensation plan (such amounts, the “Standard Benefit”). If the Executive Director terminates the service contract for “Good Reason” or the Company terminates the service contract without Cause, the Executive Director shall be entitled to: • payment of twelve (12) months’ base salary in accordance with regular payroll; • an annual incentive award equal to the product of: (A) the Executive Director’s average bonus for the prior three (3) years; and (B) a fraction based on the number of days in which the Executive Director was employed during that year; • payment of the portion of the premiums paid by the Company at the time of such termination under COBRA for medical, dental, hospitalisation and other employee welfare benefit plans, programmes and arrangements covered by COBRA, for a period of twelve (12) months for the Director and eligible dependents; and • payment of the Standard Benefit. 69 MANAGEMENT AND GOVERNANCE In the event of death or disability, similar payments will be made as those payable as a termination for Good Reason save that the payment of base salary shall only continue for 90 days after the death of the Executive Director and/or until the commencement of long term disability payments in the case of termination due to disability. If the Executive Director terminates employment with Allied Minds without Good Reason (and not because of death or due to disability), the Executive Director shall be entitled solely to payment of the Standard Benefit. LTIP participants who cease to be employees, directors or service providers to the Group will normally forfeit any unvested awards. However, if a participant leaves as a result of death, disability, dismissal other than for cause or any other reason determined by the Committee, awards will normally vest on the normal vesting date on a pro-rata basis taking into account performance and the period of time during the applicable performance measurement period in which the participant continuously provided services. The Committee may in its discretion determine that there are exceptional circumstances justifying vesting to a greater or lesser extent. The Committee also has discretion to determine that awards will vest at the time of cessation of employment, taking into account performance up to that time, and pro-rated to reflect the time worked in the performance period (with discretion to determine vesting to a greater or lesser extent). Impact of change of control on awards under LTIP If there is a change of control of the Company, the number of ordinary shares over which awards will vest will be calculated on the basis of the extent to which the performance criteria applicable to those awards have been satisfied as at the date of the change of control. The resulting number of shares will then be reduced on a pro rata basis to reflect the reduced period between the date the award was made and the date of the change of control, unless the Committee decides otherwise. In exceptional circumstances, the Committee may recommend full vesting with respect to a change of control. This discretion to accelerate vesting upon a change of control is included in the LTIP to meet the expectations of a US-based workforce. 70 MANAGEMENT AND GOVERNANCE Annual Report on Remuneration (pages 71 to 83) The Annual Report on Remuneration will be subject to an advisory vote at the AGM. Single Total Figure of Remuneration for Each Director (audited information) The following table sets out the single total figure for remuneration for Directors for the financial years ended 31 December 2020 and 2019. Base salary/ fees(1) Benefits(2) Incentive Bonus(3) Phantom Plan(4) EBP(5) Pension(6) Total Fixed Total Variable Total In $’000 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Executive Directors Joe Pignato(7) Michael Turner(8) Non-Executive Directors Harry Rein(9) Mark Lerdal(10) Bruce Failing(11) Jeff Rohr(12) Notes: 500 96 150 95 69 31 281 281 81 4 ― 131 43 8 ― ― ― ― 23 23 ― ― ― ― 375 ― 369 369 ― ― ― ― ― ― ― ― ― ― ― ― ― ― 870 870 105 ― ― ― ― ― 14 ― ― ― ― ― 18 ― ― 20 ― ― ― ― ― ― ― ― ― ― ― ― 543 104 150 95 69 31 304 304 81 4 ― 131 480 1,239 1,023 1,543 ― 1,239 104 1,543 14 ― ― ― 18 164 ― ― 20 95 69 31 99 4 ― 151 (1) Actual Executive Directors’ and Non-Executive Directors’ fees, pro-rated for the portion of the year they served on the Board. (2) Includes, where applicable, car allowance and/or Company contribution to medical, dental and other insurance premiums, pro-rated for the portion of the year they served on the Board. (3) Incentive bonus includes annual cash incentive bonus awards, pro-rated for the portion of the year serving as Executive Directors. (4) The Phantom Plan is a performance-based, cash settled bonus plan which is triggered by a successful portfolio company liquidity event. Amounts for 2019 include the allocation made to Executive Directors during the period in connection with the distribution triggered by the sale of the Company’s shares of HawkEye 360, Inc. No payments were triggered in 2020. (5) Equities based payments for Non-Executive Directors represent the portion of the fees paid in stock and granted to the Non-Executive Directors in 2015, 2016, 2017, 2018, and 2019 which vested in 2019 and 2020 (based on the value on the date the awards vested (on a time- 71 MANAGEMENT AND GOVERNANCE only basis) and the shares were issued). The amount of these awards which is attributable to share price appreciation is nil (2020) (2019: nil). (6) No payments for pension entitlements were made to Directors during the last financial year. The Company offers a retirement plan in accordance with subsection 401(k) of the Internal Revenue Code in which Executive Directors may make voluntary pre-tax contributions toward their own retirement. The Company does not make any payments or contributions to such Plan. (7) Mr. Pignato was appointed as Co-Chief Executive Officer and Executive Director on 10 June 2019; and appointed sole Chief Executive Officer and Executive Director on 10 March 2020. Post-period end, Mr. Pignato resigned as Chief Executive Officer and Executive Director on 14 January 2021. Details of the effect of his resignation on outstanding payments and benefits are given on pages 80 to 81. (8) Mr. Turner was appointed as Co-Chief Executive Officer and Executive Director on 10 June 2019. Mr. Turner resigned as Co-Chief Executive Officer and Executive Director on 10 March 2020. Details of payments in respect of the year are in line with those included within the 2019 Annual Report and Accounts. (9) Mr. Rein was appointed as Chairman on 10 March 2020. (10) Mr. Lerdal was appointed as a Non-Executive Director on 11 December 2019. (11) Mr. Failing was appointed as a Non-Executive Director on 10 March 2020. (12) Mr. Rohr resigned as Chairman on 10 March 2020. 72 MANAGEMENT AND GOVERNANCE Individual Elements of Remuneration Base Salary and Incentive Bonus Awards during 2020 In conjunction with the Company’s year-end compensation review process, including an analysis of the traditional elements of executive pay (base salary, annual incentive bonus, long-term equity incentives and total direct compensation), and based upon a review of Company performance in 2019, the Remuneration Committee recommended to the Board the following for 2020: for Joe Pignato, that base salary remain constant at $500,000, and that maximum incentive bonus award remain constant at 150% base salary (100% at target). The Remuneration Committee determined that the base salary and incentive bonus award continued to reflect its policy to emphasise the variable component of compensation, by allocating a significant percentage of cash compensation to the incentive bonus award and not base salary. As described in the Remuneration Policy, the Remuneration Committee and senior management review the Group’s management by objectives (MBOs) annually prior to the start of each financial year to ensure the detailed performance measures and weightings are appropriate and continue to align with business strategy. Annual MBOs, including financial, operational, technical and other performance targets and their weightings for the upcoming year are set at or around the start of each financial year. An Executive Director’s incentive bonus award is considered by the Remuneration Committee upon completion of each financial year. The decision to provide any incentive bonus award and the amount and terms of any such award, are determined solely by the level of achievement against the MBOs set by the Remuneration Committee at the start of the financial year. In keeping with the emphasis on the variable component of compensation and strong management incentives, the Remuneration Committee set the threshold payout for incentive bonus awards at nil. The 2020 MBOs set by the Remuneration Committee, along with the level of achievement against such MBOs, is set forth below: MBO Increase Aggregate Portfolio Value (NAV) Increase ALM Share Price Manage HQ Cash and Expenses(1) Secure Funding and Strategic Partners at Portfolio Companies(2) Maintain Strong Operational Support(3) Total Percentage of Target Threshold Weightings 0.0% 0.0% 0.0% 0.0% Target Weightings 12.5% 12.5% 25% 25% Maximum Weightings 18.75% 18.75% 37.5% 37.5% Achieved Weightings 0% 0% 25% 25% 0.0% 0.0% 25% 100.0% 37.5% 150.0% 25% 75.0% Notes: (1) The Company executed on its revised strategy to focus exclusively on existing portfolio companies, enforcing careful cash management and capital allocation plans, and significant cost reductions to annual central costs at HQ. In line with its stated objective of significantly reducing recurring central annual costs, HQ operating expenses in 2020 were $7.1 million, reduced from $11.4 million in 2019. 73 MANAGEMENT AND GOVERNANCE (2) Successful funding rounds were raised at Federated Wireless, Inc., raising $13.7 million, and Spin Memory, Inc., raising $8.25 million. Orbital Sidekick, Inc. was awarded up to $16.0 million U.S. Air Force STRATFI contract and entered into definitive agreements to secure $16.0 million in additional private funding (closing subject to conditions precedent, primarily approval by the Committee on Foreign Investments in the United States). BridgeComm, Inc. secured additional $3.5 million of convertible debt financing, in part from the successful achievement of development milestones. In addition, strategic relationships were secured and/or expanded upon with key third parties by all portfolio companies. (3) The Company continues to support its consolidated companies with comprehensive operational support, including accounting, cash management and financial modeling, payroll, IT, legal, and human resources. Based on the above, the Remuneration Committee determined that the MBO percentage achievement for 2020 was 75.0% of target percentage, or 50.0% of the maximum opportunity. The Remuneration Committee reviewed this outcome in light of individual and Company performance and considered them appropriate, and therefore, did not exercise any discretion. As amended with effect for 2020, the maximum bonus opportunity for the Executive Director (Mr. Pignato) in 2020 was set at 100% of base salary, with maximum award set at 150% of base salary. Based upon the MBO achievement, the incentive bonus award to the Chief Executive Officers was set at 75.0% of base salary, resulting in a 2020 incentive bonus of $375,000 with respect to such period. Share awards made during 2020 (audited information) In June 2019, the Board determined to retire the LTIP for Executive Directors, senior management and other employees, and to make no future awards to these persons. No LTIP awards were made to Executive Directors in 2020. As set out on page 75, a proportion of the Non-Executive Director fees for 2020 was paid in stock, subject to time-based vesting based upon time of service in equal instalments over a three-year period. No performance conditions apply. The level of these awards was determined by the Committee after giving due consideration to the US-based nature of the Group’s business, and the need to attract and retain independent directors with significant US business and leadership experience. These awards were delivered under the LTIP, as set out in the table below: Basis of award Number of shares Face value of award ($’000) % of value to vest at threshold % of value to vest at target Vesting conditions See below See below See below 165,856 110,571 110,571 $75 $50 $50 n/a n/a n/a n/a n/a n/a Based on service, annually over three years to June 2023 Non-Executive Directors Harry Rein Bruce Failing Mark Lerdal Type RSU RSU RSU Notes: (1) At 5 June 2020, the annual LTIP awards above for 165,856, 110,571, and 110,571 shares were granted to the Non-Executive Directors (Messrs. Rein, Failing, and Lerdal, respectively). The total value of the 74 MANAGEMENT AND GOVERNANCE award was calculated using the closing share price of 36.0p on such date. (2) Between the year end and 29 March 2021 (the latest practicable date prior to publication), no other awards were delivered under the LTIP. Long Term Incentive Plan Vesting during 2020 (audited information) Executive Director Awards No performance LTIP awards vested to the Executive Directors in 2019 or 2020. In connection with the Board’s review of the remuneration programme in late 2019, Mr. Pignato voluntarily agreed to forfeit all of his 745,045 performance-based LTIP awards made in 2017 and 2018. Mr. Pignato does not have any additional performance-based LTIP awards outstanding. Non-Executive Director Awards Equity-based awards were granted to the Non-Executive Directors in 2015, 2016, 2017, 2018, and 2019, subject to time-based vesting in three equal instalments over a three year period. The LTIP was used as the mechanism to grant these awards, however they are not subject to performance conditions. These awards partially vested in 2019 and 2020. As a result of such vesting in 2019, ordinary shares were allotted and issued to Mr. Rohr (22,913) and Mr. Rein (24,170). As a result of such vesting in 2020, ordinary shares were allotted and issued to Mr. Rein (36,154). Payments to Past Directors and Loss of Office Payments (audited information) With the exception of payments to past directors and loss of office payments previously disclosed in our 2019 Annual Report and Accounts, no payments to past directors and no loss of office payments were made during the last financial year. Total Pension Entitlements (audited information) No payments for pension entitlements were made to Directors during 2020. The Company offers a retirement plan in accordance with subsection 401(k) of the Internal Revenue Code (401(k) Plan) in which Executive Directors may make voluntary pre-tax contributions toward their own retirement. The Company does not make any payments or contributions to such 401(k) Plan. Statement of Directors’ Shareholding and Share Interests (audited information) Share ownership plays a key role in the alignment of our executives with the interests of shareholders, therefore the Committee operates a share ownership policy for Executive Directors. The policy currently requires Executive Directors to acquire and maintain a minimum ownership level of ordinary shares in the capital of the Company equal to 400% of base salary. At 31 December 2020, the Executive Director was making progress against this requirement. Given the changes to the management structure of the Company, it was considered appropriate that no post-cessation shareholding requirements policy should be developed. 75 MANAGEMENT AND GOVERNANCE The table below sets out the number of shares held by Directors as at 31 December 2020. Shares held outright Shares conditional on performance Shares conditional on service Options to purchase shares (US Stock Plan) 962,033 731,674 122,824 - 80,000 161,798 - - - - - - - - 179,588 213,992 110,571 110,571 - - - - - - - Total 962,033 911,262 336,816 110,571 190,571 161,798 Executive Director Joe Pignato(1) Michael Turner(2) Non―Executive Directors Harry Rein Mark Lerdal Bruce Failing Jeffrey Rohr Notes: (1) In late 2019, Mr. Pignato voluntarily agreed to forfeit all of his 745,045 performance-based LTIP awards made in 2017 and 2018. In addition, as previously noted, the Committee has determined that no further awards will be made under the LTIP to Executive Directors, senior management or other employees. (2) The shares held by Mr. Turner are as of 10 March 2020, the date of his resignation. Performance Graph The graph below illustrates the Company’s Total Shareholder Return (TSR) performance relative to the constituents of the FTSE 250 index excluding investment companies and the FTSE All Share index, from the Admission date of 25 June 2014 to 31 December 2020. These indices were chosen since the Company was / is a constituent for a significant proportion of the relevant period. The graph shows performance of a hypothetical £100 invested and its performance over that period. 76 MANAGEMENT AND GOVERNANCE Historical CEO remuneration outcomes The table below summarises the Chief Executive Officer single total figure for total remuneration, annual incentive bonus award, LTIP vesting as a percentage of maximum opportunity, payments made under the Phantom Plan, if any, and US Stock Plan share award vesting as a percentage of maximum opportunity, for the last seven financial years. As the company listed in 2014, the comparative begins with the 2013 period. CEO single total figure for remuneration ($’000) (1) Joe Pignato(2) Michael Turner(2) Annual incentive bonus award pay-out (% of maximum)(3) LTIP award vesting (% of maximum)(4) US Stock Plan award vesting (% of maximum)(5) Notes: 2018 $1,192 2017 $1,328 2016 $9,178 2015 $1,067 2014 $15,942 2013 $1,236 2020 2019 $1,543 $1,023 $104 $1,543 50.0% 58.40% 42.67% 87.33% 74.13% 0.00% n/a 0.00% n/a 33.00% n/a 94.33% n/a n/a n/a n/a n/a n/a n/a n/a n/a 100% n/a 100% (1) With respect to 2019, the figures represent the remuneration to each of Joseph Pignato and Michael Turner after their appointments as Co-CEOs on 10 June 2019. With respect to 2020, the figures represent the remuneration for Joseph Pignato for the full year and Michael Turner for the period through to stepping down from the Board. (2) The 2019 figures for Mr. Pignato and Mr. Turner include the payments made to them under the Phantom Plan resulting from a successful portfolio company liquidity event in 2019 (as further described on page 86 of the 2019 Annual Report and Accounts). As illustrated on in the 2019 Annual Report and Accounts, the single total figure of remuneration excluding the Phantom Plan payment for each such individual was $673,000. (3) With respect to 2015, 2014 and 2013, the percentage of maximum is not applicable because the Company did not have any cap on incentive bonus award payments in those financial years. As a percentage of base salary, the award was 65.7% in 2013, 125.0% in 2014 and 105.0% in 2015. (4) No performance-based equity awards vested to the CEO under the LTIP during 2020, 2019, 2016, 2015, 2014 or 2013. (5) All equity awards, including stock options and restricted stock, under the US Stock Plan became vested and fully exercisable, or vested and fully transferable, in connection with the IPO. 77 MANAGEMENT AND GOVERNANCE Change in remuneration of Chief Executive Officer compared to US Group employees The table below sets out the increase in total remuneration of the Chief Executive Officer (Mr. Pignato), Non-Executive Directors and that of our US Group employees (excluding Directors) from 2019 to 2020. Our US Group employees were chosen since they are exposed to the same economic factors as the Chief Executive Officer, who is also US-based. Executive Directors Joe Pignato Michael Turner(1) Non-Executive Directors Harry Rein(2) Mark Lerdal(3) Bruce Failing(4) Jeff Rohr(5) Average of all US Group employees Salary/fees 2019 to 2020 Taxable benefits Incentive Bonus 0.00% (80.77)% 17.58% (65.22)% 1.63% (100.00)% 84.75% 2,107.54% ― (76.75)% (3.59)% ― ― ― ― 34.15% ― ― ― ― 11.25% *Note, the percentages in the chart above are calculated based on actual fees paid to each individual. There have been several changes to the Board of Directors and management team as set forth below. The base salary for the Executive Director and the NED fees for 2019 and 2020 remain constant, as further detailed on page 78 below. (1) Mr. Turner resigned as an Executive Director effective as of 10 March 2020. (2) Mr. Rein was appointed Chairman of the Board effective as of 10 March 2020. (3) Mr. Lerdal was appointed as a Non-Executive Director effective as of 11 December 2019. (4) No comparative data available for Mr. Failing as he was first appointed to the Board during the year on 10 March 2020. (5) Mr. Rohr resigned from the Board effective as of 10 March 2020. Relative importance of spend on pay The chart below shows the total employee costs, and change in share price from 2019 to 2020. The information shown in this chart is based on the following: • Total employee pay: Total US Group employee staff costs from note 5 to the consolidated financial statements, including salaries and wages, payroll taxes, healthcare benefit, and share-based payments. • Returns to shareholders: Since the Group does not currently pay an annual dividend, returns to shareholders are represented by the change in the Group’s share price over the period from 31 December 2019 to 31 December 2020. • On 16 January 2020, the Board declared a special dividend of 12.62 pence per ordinary share (Special Dividend) totalling £30.49 million. The ordinary shares went ex-dividend on 23 January 2020, and the Special Dividend was paid in cash on 14 February 2020 to holders of ordinary shares 78 MANAGEMENT AND GOVERNANCE recorded on the register as at the close of business on 24 January 2020. 51.5 39.7 27.4 32.5 8.5 Total employee costs ($) Share Price (p) 2020 Special dividend (-69.0%) (-36.9%) 2020 2019 Statement of implementation of remuneration policy in the following financial year (2021) The Committee reviewed the remuneration approach in the year, including the implementation of the changes to the operation of the remuneration programme made in 2019 and their continued appropriateness, and input was received from the Executive Director while ensuring that conflicts of interest were suitably mitigated. The approach to operation for 2021 has been set out below. Executive Director Given the announced departure of the Executive Director, no changes were made to the individual’s remuneration in 2021. Details of the resignation arrangements for the Executive Director are set out on pages 80 to 81. Chairman and Non-Executive Directors The 2021 fee arrangements of the Chairman and Non-Executive Directors remain unchanged from 2020: Cash Component Non-Executive Director Annual Fee Audit Committee Chair Annual Fee Remuneration Committee Chair Annual Fee Nomination Committee Chair Annual Fee Chairman of the Board Annual Fee Equity Component Non-Executive Director LTIP Award Value Chairman of the Board LTIP Award Value 2020 $75,000 $25,000 $10,000 $10,000 $75,000 $50,000 $75,000 The additional fee for serving as Chairman shall only be payable where the Chairman is a Non-Executive Director. Given the US-based nature of the Group’s business, and the need to attract and retain 79 MANAGEMENT AND GOVERNANCE independent directors with significant US business and leadership experience, the fees above include an equity component, which is subject to time-based vesting over three years. Service Contracts and Letters of Appointment Mr. Pignato entered into an amended and restated service contract on 10 June 2019 in connection with his appointment as Co-Chief Executive Officer and Executive Director. Mr. Pignato was appointed sole Chief Executive Officer and Executive Director upon Mr. Turner’s resignation on 10 March 2020. Post- period end, Mr. Pignato resigned as Chief Executive Officer and Executive Director effective on 14 January 2021. Full details on his remuneration arrangements upon stepping down are set forth below. Mr. Pignato will continue to serve as Chief Financial Officer until 14 April 2021 or such other date as mutually agreed by the Company and Mr. Pignato. The Executive Director’s contracts do not provide for extended notice periods or compensation in the event of a change of control. Details on the treatment of remuneration on loss of office or on a change of control are provided in the Remuneration Policy. The Non-Executive Directors have letters of appointment, which are for an initial fixed term of three years. The letters are reviewed and may be extended, and are terminable on one months’ notice by either party. The letters of appointment do not provide for any compensation on termination, other than payment of fees accrued or owing but not yet paid. The letters of appointment and service contracts are available for inspection at the Company’s registered office. In accordance with the Code, all Directors submit themselves for election at the first AGM following their appointment to the Board, and for annual re-election by shareholders at each AGM. Resignation of Joseph Pignato As previously noted, with effect from 14 January 2021, Mr. Pignato resigned as Chief Executive Officer and as an Executive Director of the Company. He shall continue to serve as Chief Financial Officer of the Company for an interim period until 14 April 2021 or such other date as mutually agreed by the Company and Mr. Pignato (Resignation Date). The Remuneration Committee approved the arrangements below which are in line with the terms of the agreements with Mr. Pignato and the Company’s Remuneration Policy approved by the Company’s shareholders at the 2019 AGM, and as disclosed in full in the Company’s Section 430(2B) announcement on 15 January 2021. Pursuant to the terms of Mr. Pignato’s service contract, he will be entitled to: • payment of one year’s salary equal to $500,000 based on his rate of annual base salary; • an annual incentive award for 2021 which will be equal to the product of: (A) $373,360 (his average annual bonus for the three full years preceding his resignation) and (B) a fraction, the numerator of which is the number of days he was employed by the Company during 2021 and the denominator of which is the number of days in such year; and 80 MANAGEMENT AND GOVERNANCE • participation at the Company’s expense under COBRA for six months for him and each of his eligible dependents in all medical, dental, hospitalization and other employee welfare benefit plans, programmes and arrangements covered by COBRA. Prior to the Resignation Date, Mr. Pignato had outstanding awards in the form of units (“Phantom Units”) granted under the Allied Minds Phantom Plan (“Phantom Plan”), details of which are set out in the Company’s Annual Report and Accounts for the year ended 31 December 2019. The Phantom Units are settled in cash. As set out in the Annual Report and Accounts for the year ended 31 December 2019, during 2019, Executive Directors and all current employees voluntarily agreed to introduce an underpin that $109.2 million of gross proceeds (plus any future additional invested capital) must be generated from one or more liquidity events prior to any future allocations of proceeds in connection with an individual liquidity event under the Phantom Plan and to a personal cap (set at 25% for Executive Directors) of any allocated proceeds in connection with an individual liquidity event under the Phantom Plan. As of the date hereof, Mr. Pignato’s total units would entitle him to his capped amount of 25% of any allocated bonus proceeds. In accordance with the terms of his Phantom Units, for the period ending on the date falling 24 months after his Resignation Date, Mr. Pignato will remain entitled to a proportion of the payment he would have received on a Liquidity Event had he remained an employee. That proportion is 90% if the Liquidity Event occurs within 6 months after his Resignation Date, 75% if 7-12 months after his Resignation Date; 50% if 13-18 months after his Resignation Date; 25% if 19-24 months after his Resignation Date, and 0% if later than 24 months after his Resignation Date. No further payments will be made to Mr. Pignato in connection with his resignation. Limits on the number of shares used to satisfy share awards (dilution limits) All of the Group’s incentive schemes that contain an element that may be satisfied in Allied Minds plc shares incorporate provisions that in any ten-year period (ending on the relevant date of grant), the maximum number of the shares that may be issued or issuable under all such schemes shall not exceed 10% of the issued ordinary share capital of the Company from time to time (excluding shares issued pursuant to awards granted prior to IPO under the US Stock Plan). The Committee regularly monitors the position and prior to the making of any share-based award, considers the effect of potential vesting of outstanding awards to ensure that the Company remains within these limits. Any awards which are required to be satisfied by market purchased shares are excluded from such calculations. No treasury shares were held or utilised in the year ended 31 December 2020. Remuneration Committee: details and governance The full terms of reference of the Committee, which are reviewed annually, are available on the Group’s website at www.alliedminds.com. In summary, the Remuneration Committee has specific responsibility for advising the Board on the remuneration and other benefits of the Executive Director and senior management, an overall policy in respect of remuneration of other employees of the Group and establishing the Group’s policy with respect to employee incentivisation schemes. The Remuneration Committee is currently comprised of the following independent Non-Executive Directors, whose backgrounds and experience are summarised on pages 32 to 33: 81 MANAGEMENT AND GOVERNANCE • Bruce Failing (Chair) • Harry Rein • Mark Lerdal Messrs. Rein and Lerdal served during the entire financial year. Mr. Rohr resigned from the Board and Mr. Failing was appointed as a Director (replacing Mr. Rohr) and replaced Mr. Rein as the Chair of the Committee, in each case, effective as of 10 March 2020. Committee meetings are administered and minuted by the Company Secretary. In addition, the Committee received assistance from the Chief Executive Officer, who attend certain meetings by invitation, except when matters relating to their own remuneration were being discussed. Key activities carried out by the Committee were during 2020 are set out in the Committee Chairman’s statement on pages 63 to 64. External advisers The Remuneration Committee is authorised, if it wishes, to seek independent specialist services to provide information and advice on remuneration at the Company’s expense, including attendance at Committee meetings. During the year, the Remuneration Committee continued its review of executive remuneration and took into consideration professional advice from Deloitte LLP and Ropes and Gray LLP. Fees paid to Deloitte LLP in connection with advice to the Remuneration Committee in 2020 were $30,242 (2019: $61,500) and fees paid to Ropes and Gray LLP were $29,725 (2019: $52,398). Deloitte provided no other services or advice to the Group during the year. The Remuneration Committee is satisfied that the advice given is objective and independent. Deloitte LLP is a founding member of the Remuneration Consultants Group and adhere to its Code of Conduct in relation to executive remuneration consulting in the UK. Statement of voting at general meeting The table below sets out the proxy results of the vote on the Group’s Remuneration Report at the Group’s 2020 AGM and the Remuneration Policy at the Group’s 2019 AGM: Remuneration Report Remuneration Policy Votes for Votes against Number 104,798,226 129,448,525 % of cast votes 62.75% 85.13% Number 62,200,421 22,612,862 % of cast votes 37.25% 14.87% Votes withheld Votes cast 166,998,647 4,220 152,061,387 19,409,374 As set out in the Statement of the Committee Chairman, the Committee was disappointed that there was a significant minority of votes against the Remuneration Report at the 2020 AGM. including the changes Overall, the Committee considered that the remuneration programme, implemented in 2019 that came into effect for 2020, continued to be broadly appropriate and aligned with the Company’s revised strategy while balancing typical UK-listed market practice with US practice in our market for talent. In line with our commitment to maintaining an open and transparent dialogue with shareholders, the Company consulted with its major shareholders in the second half of 2020 to gain their input. 82 MANAGEMENT AND GOVERNANCE After extensive engagement with its major shareholders, the Board noted that shareholder concerns were primarily focused on remuneration schemes in place for 2019 and prior which have since been addressed through the substantial amendments the Company made to its remuneration programme for 2020 and onwards. The Committee believes that such changes have and continue to appropriately address shareholder concerns while supporting the Company’s strategy and aligning Executive Directors’ interests directly with shareholders. Approval This Directors’ Remuneration Report, including both the Remuneration Policy and Annual Report on Remuneration has been approved by the Board of Directors. Bruce Failing Chairman of the Remuneration Committee 29 March 2021 83 MANAGEMENT AND GOVERNANCE Audit Committee Report The Audit Committee plays an integral role in assisting the Board in fulfilling its oversight responsibilities, and as a whole, has the competence relevant to the sector in which the Company operates. In performing its duties, the Committee strives to maintain effective working relationships with the Board, the Company’s management and the external auditors. The Committee reviews the integrity of the financial statements of the Group, reviews all proposed half-yearly and annual results, and advises the Board whether it believes the annual report and accounts, taken as a whole, fairly present the Company’s financial position and provide the necessary information to the shareholders of the Company to assess the Company’s position and performance, business model, and strategy. Membership The Committee comprises three independent Non-Executive Directors. Members of the Committee are appointed by the Board. The CFO, General Counsel and external auditors also participate in Committee meetings by invitation. As Chair of the Audit Committee, Mr. Lerdal has relevant, recent financial experience with over thirty years of senior management and executive experience. Messrs. Rein and Lerdal served on the Audit Committee during the entire financial year. Effective 10 March 2020, Mr. Rohr resigned from the Board and Bruce Failing was appointed as a Director and served on the Audit Committee (replacing Mr. Rohr) for the remainder of the financial calendar year. The Committee met four times in 2020, and the external auditors participated in three of these meetings (KPMG LLP for one and BDO LLP for two). Reflecting the meetings for which each member was then appointed to the Committee, all members were present at all meetings during the year during their term of service. Responsibilities The Committee’s main responsibilities are to monitor the integrity of the financial statements of the Company, including its annual and half-yearly reports and accounts and any other formal announcement relating to its financial performance; and reviewing and reporting to the Board on significant financial reporting issues and judgements made and matters communicated to it by the auditor. The roles and responsibilities of the Audit Committee additionally include to: • Review the Company’s internal financial controls and the Company’s internal control and risk management systems; • Advise on the need for and monitor and review the effectiveness of the Company’s internal audit function; • Make recommendations to the Board, for it to put to the shareholders for their approval in general meeting, in relation to the appointment of the external auditor and to approve the remuneration and terms of engagement of the external auditor; • Review and monitor the external auditor’s independence and objectivity and the effectiveness of into consideration relevant UK professional and regulatory the audit process, taking requirements; 84 MANAGEMENT AND GOVERNANCE • Develop and implement policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm; and to report to the Board, identifying any matters in respect of which it considers that action or improvement is needed, and making recommendations as to the steps to be taken; • Conduct a performance evaluation of the Committee annually, including review of Committee member experience and background, and discussion by the Board of each Committee member as further described on pages 32 to 33, to ensure that it continues to be effective and that each of the Directors on the Committee demonstrates commitment to his or her respective role and has sufficient time to meet his or her commitment to the Company; and • Report to the Board on how it has discharged its responsibilities. As a whole, the Committee has the relevant experience and skills necessary to effectively execute its responsibilities. The Committee carries out these duties for the Company, major subsidiary undertakings and the Group as a whole, as appropriate. In 2020, the Committee discharged all such duties as further described below, including, without limitation, completing an annual review of its internal controls and risk management systems with its external auditors and reviewing the Financial Position, Prospects and Procedures of the Company on an ongoing basis throughout the year to enable the Board to make proper judgements. Activities during the year The Committee’s activities for the year ended 31 December 2020 included the responsibilities set forth above, as well as the items set forth below: Financial reporting • Reviewed and approved the appropriate audit plan, before the start of the annual audit cycle; • Reviewed and provided comments and recommendations in respect of the financial statements in the half-yearly report for the period ended 30 June 2020, and the financial statements in the Annual Report and Accounts for the year ended 31 December 2020; • Reviewed the Company’s approach and methodology for determining the fair value of investments and the preferred share liability. Considered and recommended the involvement of an external valuation specialist firm to assist management and the Board in deriving the fair value of the subsidiary undertakings; and • Considered significant matters, risk areas, and areas of judgement in relation to the Group’s financial statements taking into account the areas highlighted by the external auditors in their presentations to the Committee, and challenged where necessary. The Committee is satisfied with the integrity of the financial statements of the Company in all material aspects, including the application of significant accounting policies, the methods used to account for significant transactions, use of judgements and estimates made by management, including those made in deriving the fair value of the subsidiary undertakings, and the quality and completeness of the disclosures in the financial statements of the Company. 85 MANAGEMENT AND GOVERNANCE The Committee is satisfied that this Annual Report as a whole is fair, balanced and understandable, and provides the information necessary for a reasonable shareholder to assess the Company’s position and performance, business model and strategy. Internal controls and risk management systems • Reviewed the principal elements of the Company’s risk management framework as set out on pages 24 to 31 of this Annual Report. The Committee gives consideration and provides guidance on enhancing the internal controls and risk management framework, as needed; • Reviewed the established procedures, which provide a reasonable basis for the Board to make proper judgements on an ongoing basis as to the Financial Position, Prospects and Procedures (FPPP) of the Company following the adopted risk approach; and • Reviewed the whistleblower policy that was established and approved by the Board in 2014, which has been communicated to employees. The Audit Committee is satisfied that the policy has been designed to encourage staff to report suspected wrongdoing as soon as possible, provide staff with guidance on how to raise those concerns, and ensure staff that they should be able to raise genuine concerns without fear of reprisals, even if they turn out to be mistaken. Significant areas reported to the Board Fair value of financial assets and liabilities held under IFRS9 Significant judgements are made in valuing the assets and liabilities and complex models are used to give a fair value, which present a high risk for the financial statements. Accounting treatment of investments under IFRS10 It has been determined that the Group no longer has control as defined in IFRS 10 but has maintained significant influence over some of its former subsidiaries and due to the fact that the Group holds a variety of instruments in these entities, which have varying risks and rights, there is significant judgement in relation to the accounting for these instruments. The valuation of these financial assets also includes a significant level of judgement and external valuation specialists are utilised in this process. The Committee believes that the Group considered the pertinent terms and accurate accounting of each of the financial instruments (and sought external expertise as well). Viability The Committee reviewed the Company’s viability as further stated in the Overview on pages 38 to 39. As previously reported, the Company’s strategic objective is to focus exclusively on its existing portfolio companies and to maximise total returns to all shareholders from monetisation of such portfolio. In line with this strategy, the Board anticipates delivering such returns within the next three years. After careful assessment of the Company’s cash position and projections through such period, the Committee reasonably expect the Group to continue in operation and meet its liabilities as they fall due in order to execute on this strategy during such period. Impact of COVID-19 and Going concern There is judgement relating to whether the Group and Company have sufficient financial resources to 86 MANAGEMENT AND GOVERNANCE continue as a going concern based on the Group and Company’s business model and other applicable factors that may impact such determination. As previously noted, the ongoing spread of COVID-19 has the potential to negatively impact the Group’s and the Company’s financial position. However, the Group continues to closely monitor the pandemic, its impact on its workforce, the global economy and its suppliers, customers and partners in order to make decisions and take meaningful actions to mitigate against disruption to operations across the portfolio and the potential negative financial impact. Taking all factors into consideration, management have assessed that the Group and Company continue to be a going concern and the Committee is satisfied with the assessment made. External audit • Engaged in competitive process for determining the Group’s new independent auditor, including assessing and performing diligence on various independent audit firms. • Recommended the appointment of BDO LLP to the Board as the Group’s independent auditor for the financial year ending 31 December 2020. • Reviewed and approved the scope of the external audit procedures over the half-yearly report for the period ended 30 June 2020, and the Annual Report and Accounts for the year ended 31 December 2020; • Discussed with management and agreed upon the terms of the engagement of the external auditors and the auditors’ remuneration for audit and non-audit services. In assessing independence, the Audit Committee received the auditor’s presentation and confirmation that in its professional judgment, KPMG LLP (through 29 July 2020) and BDO LLP (from its engagement on 29 July 2020), are independent within the meaning of regulatory and professional requirements and the objectivity of the partner and audit staff is not impaired. The Committee was satisfied that throughout the year that the objectivity and independence of KPMG LLP and BDO LLP, as applicable, was not in any way impaired by the non-audit services they provided to the Group during the year, by the amounts of non-audit fees, or by any other factors; • Assessed the independence, objectivity and qualifications of BDO LLP as the external auditor and evaluated the quality and effectiveness of the audit procedures. In doing so, the Committee reviewed the audit plan and monitored performance against the plan, reviewed the periodic reports of BDO LLP to the Committee that highlighted key areas of focus during the audit and the applied audit approach, and obtained feedback from the finance department in respect to quality and status of BDO LLP work in the course of the audit. The Committee concluded that the audit process during the year was effective; and • Reviewed and discussed the principal areas of financial reporting risk, as highlighted above, and reported to the Board. KPMG LLP was the external auditor of the Group from the first audit of the consolidated financial statements of Allied Minds plc in 2014 through 29 July 2020, after completion of the audit for the financial year ending 31 December 2019. In 2020, the Committee engaged in a competitive process for determining the Group’s next independent auditor and performed diligence and assessed various independent audit firms. After careful consideration and deliberation, the Committee determined that BDO LLP is a reputable and highly qualified firm that would be best suited to serve as the Group’s new independent 87 MANAGEMENT AND GOVERNANCE auditor. Accordingly, upon recommendation by the Committee, which was free from influence by any third party, the Board approved the appointment of BDO LLP as the Company’s auditor for the financial year ending 31 December 2020. No contractual term of the kind under the Audit Regulations was imposed on the Company. The total fees to BDO LLP for the year ended 31 December 2020 were $0.5 million (see note 5 of the consolidated financial statements, which includes the breakdown of audit and non-audit related fees). The Audit Committee has considered the recent audit reforms in terms of tendering and auditor’s tenure. Given the new appointment of BDO LLP in 2020, the next anticipated requirement to tender audit will be for the 2030 calendar year. As such, the Company is complying with the Statutory Audit Services Order. Internal audit Given the size and composition of the Group, taking into account relevant significant matters, risk areas, areas of judgement in relation to the Group’s financial statements, and that all Group financial systems, transactions, and processes are conducted at the central office, the Board did not consider it necessary to have an internal audit function during the year. The Board will keep this decision under annual review. Mark Lerdal Chairman of the Audit Committee 29 March 2021 88 FINANCIAL STATEMENTS Independent auditor’s report to the members of Allied Minds Plc Opinion on the financial statements In our opinion: • • • • • the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2020 and of the Group’s loss for the year then ended; the Group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; the Group financial statements have been properly prepared in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union; the Parent Company financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the Group financial statements, Article 4 of the IAS Regulation. We have audited the financial statements of Allied Minds Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2020 which comprise the consolidated statement of comprehensive income/ (loss), consolidate statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows, company balance sheet, company statement of changes in equity, 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 accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, and as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit opinion is consistent with the additional report to the audit committee. Independence Following the recommendation of the audit committee, we were appointed by the Directors on 4 August 2020 to audit the financial statements for the year ending 31 December 2020 and subsequent financial periods. The period of total uninterrupted engagement including retenders and reappointments is 1 year, covering the year ending 31 December 2020. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have 89 FINANCIAL STATEMENTS fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services prohibited by that standard were not provided to the Group or the Parent Company. Conclusions relating to going concern In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group and the Parent Company’s ability to continue to adopt the going concern basis of accounting included: • a detailed audit of forecasts prepared by management for a period of at least 12 months from the date of approval of the financial statements; • a review of stressed forecasts, as prepared by management, which detailed the changes of key assumptions which would lead to the business no longer being a going concern. As part of this we reviewed the likelihood of these changes against documentation provided by management and from external sources; • we have assessed the accuracy of management’s forecasts by confirming the accuracy of historic forecasts, corroborating the inputs to supporting documentation and agreeing expected changes from historic actuals; and • we carried out discussions with management and board members to challenge the future outlook and cash commitments of the group and how these had been included within the forecasts reviewed and further potential impacts on the forecasts. Further details of the Directors’ assessment of going concern is provided in note 1. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group and company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In relation to the Parent Company’s reporting on how it has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. Overview Coverage 100% of Group loss before tax 100% of Group revenue 98.7% of Group total assets 90 FINANCIAL STATEMENTS Key audit matters KAM 1 KAM 2 Valuation of share liabilities investments and preference Consolidation accounting and judgement of the group not meeting the criteria for an investment entity Materiality £1.166m based on 2% of net assets. An overview of the scope of our audit Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement. In establishing the overall approach to the group audit, we assessed the audit significance of each component in the group by reference to both its individual financial significance to the group or other specific nature or circumstances. We identified four individually significant components, which makes up 100% of Group loss before tax and also covers 98.7% of the total assets of the group. Separate to the four significant components we carried out audit procedures on the two investments which are equity accounted for, to group materiality. The significant components were located in the UK and the USA. The significant component in the UK was audited by the group audit team, with those located in the USA, audited by our network member firm in the USA, noting that all the group’s finance team and information for both territories is based within the USA. For components of the group not considered to be significant components we performed limited audit procedures over areas considered to be significant risks to the group audit. Furthermore, the Group auditor has been responsible for directing all the audit work completed, the audit risks identified and the contents of the annual report and disclosures accompanying the financial statements. Our involvement with component auditors For the work performed by component auditors, we determined the level of involvement needed in order to be able to conclude whether sufficient appropriate audit evidence has been obtained as a basis for our opinion on the Group financial statements as a whole. Our involvement with component auditors included the following: We provided instructions to the component auditor setting out the risks and procedures to be performed as part of their full scope audit, reporting to us on the significant components and equity investments accounted for in this territory, and determined appropriately scoped risks, procedures and agreed responses to those risks with the component audit team. 91 FINANCIAL STATEMENTS We held planning meetings with the component team to discuss the component risk assessment including materiality, and overall reporting process that was then communicated formally in group audit instructions. Our instructions required a number of reporting deliverables including the component auditor opinion that was received and reviewed. We took an active part in reviewing the work performed; this was performed remotely but with the component auditor in attendance. This, together with the additional procedures performed at Group level over the consolidation process gave us the evidence we needed for our opinion on the financial statements as a whole. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter Financial instruments measured at fair value Note 1 – Financial instruments and Fair value measurement policies, Note 11 and 16 The financial statements include significant investment assets and liabilities which are held at fair value under IFRS9. Due to the number of significant judgements and estimates made by management in valuing the assets and liabilities, as well complexity of the models used to give a fair value, there is a high risk of material misstatement. This was identified as a significant risk as part of the audit planning and a key audit matter to be included in the audit report. How the scope of our audit addressed the key audit matter The work carried out in the risk identified was a follows: • • • • Use of an auditor’s expert in valuations prepared under IFRS9 to review the models used to value the investments and preference share liability in order to determine whether they were aligned with recognised valuation models and that they were appropriate for valuing the underlying investment or liability. A re-performance of the numerical and arithmetic accuracy of the model compared with the inputs used to ensure the final output value was accurately calculated. A review of the inputs into the models and agreement to supporting evidence to corroborate whether the inputs were reasonable and appropriate. Challenged management on all judgemental or estimated inputs into the models to determine whether they appear reasonable in respect of corroborating information from management and third party sources. Carried out sensitivity analysis in respect of the key and judgemental inputs into the models to understand potential impacts on the valuation of the underlying instruments. Reviewed the disclosure in the annual report to understand if this was aligned with the underlying calculation from the models used and that all information of importance to the in users of the accounts was adequately disclosed accordance with the accounting standards. We have also agreed the disclosure is aligned to the accounting policy as disclosed in the annual report. • • Key observations: Based on the work performed we consider that investments and the preference share liability have been valued appropriately and in accordance with the Group’s accounting policy for these financial statement areas. 92 FINANCIAL STATEMENTS Consolidation accounting Note 1 – Basis of consolidation and Use of Judgements and Estimates The group consolidates a number of subsidiary investments whilst other investments are held under IFRS9 at fair value through the profit and loss. Management make a judgement in respect of the appropriate accounting treatment for their investments and to material lead this misstatement financial the in statements. could The work carried out in the risk identified was a follows: • We have agreed the share holdings and overall control held by the group in each of its investments to supporting documentation to understand which investments are accounted for under IFRS9 or IFRS10. • We have challenged and reviewed management’s judgements in respect of each of the investments and confirm that it is aligned with the understanding gained in respect of ownership and control exercised over the investments. • We have reviewed management’s judgements with the accounting standard to consider whether the group meets the criteria to be considered an investment entity. Key observations: Based on our audit work performed, we concur with the judgements made by management in categorising the group’s investments. Our application of materiality We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows: Materiality Basis for determining materiality Rationale benchmark applied the for Group financial statements 2020 $’000 1,166 Parent company financial statements 2020 $’000 37 2% of net assets 2% of net assets The parent company benchmark was set in line with that of the group for the individual parent entity. of the The performance of the group is measured by management based on the performance underlying investments. Further, as noted above, one of the significant risk areas is the valuation and preference share liabilities in the group. These two balances make up the majority of the statement of financial investments of 93 FINANCIAL STATEMENTS Performance materiality Basis for determining performance materiality position, indicating net assets as the appropriate benchmark. 700k 22k materiality Performance was determined to be 60% of materiality in our work. This level was chosen based on this being the first year BDO had audited the group and therefore, a lower level of performance materiality was used to ensure sufficient audit work is completed to provide an ongoing understanding of the group. Performance materiality was determined to be 60% of materiality in our work. This level was chosen based on this being the first year BDO had audited the company and therefore, a lower level of performance materiality was used to ensure sufficient audit work is completed to provide an ongoing understanding of the company Component materiality We set materiality for each component of the Group based on a percentage of between 20% and 90% of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component. Component materiality ranged from £233k to £1,166k. In the audit of each component, we further applied performance materiality levels of 60% of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated. Reporting threshold We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £61k. We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Corporate governance statement The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the parent company’s compliance with the provisions of the UK Corporate Governance Statement specified for our review. 94 FINANCIAL STATEMENTS Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit. Going concern and longer- term viability Other provisions Code • The Directors' statement with regards the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified, set out on page 104; and • The Directors’ explanation as to its assessment of the entity’s prospects, the period this assessment covers and why they period is appropriate, set out on page 38. • Directors' statement on fair, balanced and understandable set out on page 40; • Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 24; • The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 50; and • The section describing the work of the audit committee set out on page 84. Other Companies Act 2006 reporting Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below. Strategic report Directors’ report and Directors’ remuneration Matters on which we are to required report by exception In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the Strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements. • In the light of the knowledge and understanding of the Group and Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report. In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or 95 FINANCIAL STATEMENTS • • the Parent Company financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Responsibilities of Directors As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: • We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant frameworks which are directly relevant to specific assertions in the financial statements are those that relate to the reporting framework, the Companies Act 2006 and UK Corporate Governance Code, the Listing Rules of the UK Listing Authority and the relevant tax compliance regulations. • We understood how the Group is complying with those legal and regulatory frameworks by making enquiries to management, internal legal counsel, those responsible for legal and compliance procedures and other individuals outside management. We corroborated our enquiries through our review of board minutes and papers provided to the Audit Committee and through review of legal correspondence. 96 FINANCIAL STATEMENTS • We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by meeting with management from various parts of the business to understand where it is considered there was a susceptibility of fraud. • We also considered performance targets and their propensity to influence on efforts made by management to manage earnings. We considered the programs and controls that the Group and components have established to address risks identified, or that otherwise prevent, deter and detect fraud; and how senior management monitors those programs and controls. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk. These procedures included testing manual journals and were designed to provide reasonable assurance that the financial statements were free of fraud or error. • We communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it. A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Iain Henderson (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor London, UK Date: 29 March 2021 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 97 FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME/ (LOSS) For the year ended 31 December Note Revenue Operating expenses: Cost of revenue Selling, general and administrative expenses Research and development expenses Operating loss Other income: Gain on disposal of assets Gain on deconsolidation of subsidiary (Loss)/ gain on investments held at fair value (net) Gain on dissolution of subsidiaries Other (expense)/ income Finance income Finance cost Finance (cost)/ income from IFRS9/ fair value accounting Finance (loss)/ income, net 3 4,5 4,5 4,5 11 11 11,20 4,15 7 7 7 Share of net loss of associates accounted for using the equity method 11 Taxation (Loss)/ income before taxation (Loss)/ income for the period Other comprehensive income: Items that may be reclassified subsequently to profit or loss: Foreign currency translation differences Other comprehensive (loss)/ income, net of taxation Total comprehensive (loss)/ income for the period (Loss)/ income attributable to: Equity holders of the parent Non-controlling interests Total comprehensive (loss)/ income attributable to: Equity holders of the parent Non-controlling interests (Loss)/ income per share Basic Diluted 23 15 15 8 8 98 2020 $ '000 2019 $ '000 480 2,692 (210) (10,497) (4,712) (14,939) — — (31,934) — (31,934) 291 (314) (1,763) (1,786) (6,845) (55,504) — (55,504) (116) (116) (55,620) (53,025) (2,479) (55,504) (53,141) (2,479) (55,620) $ (0.22) (0.22) (1,433) (34,316) (16,146) (49,203) 165 69,828 41,194 7,128 118,315 1,008 (267) 9,251 9,992 (28,850) 50,254 — 50,254 808 808 51,062 51,335 (1,081) 50,254 52,143 (1,081) 51,062 $ 0.21 0.21 FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION As of 31 December Note 2020 $ '000 2019 $ '000 Non-current assets Property and equipment Intangible assets Investment at fair value Investment in associate Right-of-use assets Other financial assets Total non-current assets Current assets Cash and cash equivalents Trade and other receivables Other financial assets Total current assets Total assets Equity Share capital Translation reserve Accumulated profit Equity attributable to owners of the Company Non-controlling interests Total equity Non-current liabilities Lease liabilities Other non-current liabilities Total non-current liabilities Current liabilities Trade and other payables Deferred revenue Loans Preferred shares Lease liabilities Total current liabilities Total liabilities Total equity and liabilities 9 10 11,20 11 19 20 12 13 20 14 14 14 14,15 19 17,18 17 3 18 16 19 1,596 — 41,588 — 651 581 44,416 24,489 5,816 2,279 32,585 77,000 3,767 1,343 55,440 60,550 (2,264) 58,286 806 1,440 2,246 2,101 3,697 3,149 6,497 1,024 16,468 18,714 77,000 1,485 197 61,895 6,845 1,016 1,257 72,695 90,571 5,702 1,581 97,854 170,549 3,759 1,459 147,238 152,456 115 152,571 1,830 1,965 3,795 4,685 3,457 ― 5,017 1,024 14,183 17,978 170,549 Allied Minds plc Registered number: 08998697 The financial statements on pages 98 to 153 were approved by the Board of Directors and authorised for issue on 29 March 2021 and signed on its behalf by: Harry Rein Non-Executive Chairman 99 FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2020 Note Share capital Share Merger Translation Accumulated Total parent Non-controlling Shares Amount $' 000 premium $' 000 reserve $' 000 reserve $' 000 Profit/(Deficit) $' 000 equity $' 000 interests $' 000 Total equity $' 000 651 — 808 808 — — — — — — 1,459 — (116) (116) — — — — 1,343 (325,635) 102,296 18,484 120,780 51,335 — 51,335 — 423,537 — — — (1,999) 147,238 (53,025) — (53,025) — — 51,335 808 52,143 16 — — — — (1,999) 152,456 55,440 (116) (53,141) 8 — (39,707) (39,707) 934 55,440 934 60,550 (1,081) — (1,081) — — 1,550 (7,128) (12,050) 534 115 (2,479) — (2,479) — (18) — 118 (2,264) 50,254 808 51,062 16 — 1,550 (7,128) (12,050) (1,465) 152,571 (55,504) (116) (55,620) 8 (18) (39,707) 1,052 58,286 Balance at 31 December 2018 Total comprehensive income for the year Income from continuing operations Foreign currency translation Total comprehensive income for the year Issuance of ordinary shares Gain/(loss) arising from change in non – controlling interest Capital reduction Deconsolidation of subsidiaries Dissolution of subsidiaries US subsidiary distribution to shareholders Equity-settled share based payments Balance at 31 December 2019 Total comprehensive loss for the year Loss from continuing operations Foreign currency translation Total comprehensive loss for the year Issuance of ordinary shares Loss arising from change in non-controlling interest Dividend payment Equity-settled share based payments Balance at 31 December 2020 240,314,745 3,743 160,170 263,367 — — 1,248,378 — — — — — — — 16 — — — — — 241,563,123 3,759 — — 624,862 — — — — — 8 — — — 242,187,985 3,767 14 15 15 15 6 6 14 15 14 6 — — — — — — (160,170) (263,367) — — — — — — — — — — — — — — — — — — — — — — — — 100 FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December Cash flows from operating activities: Income/(loss) for the year Adjustments to reconcile net loss to net cash used in operating activities: Depreciation Amortisation Impairment losses on property and equipment Impairment losses on intangible assets Share-based compensation expense Gain on disposal of assets Loss/ (gain) on investments held at fair value Gain on deconsolidation of subsidiary Gain on dissolution of subsidiaries Share of net loss of associate Changes in working capital: Decrease in trade and other receivables (Increase)/decrease in other assets Increase in trade and other payables Decrease in other non-current liabilities Increase in deferred revenue (Decrease)/increase in other liabilities Unrealised loss/(gain) on foreign currency transactions Other finance expense/(income) Net cash used in operating activities Cash flows from investing activities: Purchases of property and equipment, net of disposals Purchases of intangible assets, net of disposals Purchase of investments at fair value Proceeds on disposal of assets Receipt of payment for finance sub-lease Proceeds on disposal of other investments Cash derecognised upon loss of control over subsidiary Net cash (used in)/ provided by investing activities Cash flows from financing activities: Proceeds from issuance of convertible notes Receipt of PPP loan Payment of lease liability Dividend payment US Subsidiary distributions to shareholders Proceeds from issuance of share capital Proceeds from issuance of preferred shares in subsidiaries Net cash (used in)/ provided by financing activities Net decrease in cash and cash equivalents, and restricted cash Cash and cash equivalents, beginning of the period Cash and cash equivalents, end of the period 101 Note 2020 $ '000 2019 $ '000 (55,504) 50,254 9,19 10 9 10 5,6 4 11,20 11 4 11 13 17 17 3 7 9 10 11 11 19 11 11 18 18 19 14 6,14 16 819 197 — — 1,052 — 31,934 — — 6,845 (114) (874) (876) (1,643) 240 (780) (116) 1,763 (17,057) (564) — (10,855) — 78 — — (11,341) 2,981 184 (1,150) (39,707) — 8 — (37,684) (66,082) 90,571 24,489 2,273 551 421 250 (1,465) (165) (41,194) (69,828) (7,128) 28,850 (429) (2,412) (1,042) (2,929) 1,136 6,182 808 (8,984) (44,851) (3,604) (71) (7,500) 65 61 65,605 (33,051) 21,505 1,965 — (1,540) — (12,050) 16 25,292 13,683 (9,663) 100,234 90,571 FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2020 (1) Accounting Policies Basis of Preparation Allied Minds plc (“Allied Minds” or the “Company”) is a company incorporated and domiciled in the UK. The Annual Report and Accounts of Allied Minds and its subsidiaries (together referred to as the “Group”) are presented for the year ended 31 December 2020. The Group financial statements have been prepared and approved by the directors in accordance with international accounting standard in conformity with the requirements of the Companies Act of 2006 and in accordance with International Financial Reporting Standards, International Accounting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union for the year ended 31 December 2020. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these consolidated financial statements. Basis of Measurement The consolidated financial statements have been prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: investments held at fair value and financial instruments classified as fair value through the profit or loss. Use of Judgments and Estimates In preparing these consolidated financial statements, management has made judgments, estimates and assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to estimates are recognised prospectively. The effects on the amounts recognised in the consolidated financial statements, or on other alternative performance measures, is included in the following notes: Significant estimates made include: • Note 11 and 17 – Valuation of financial instruments measured at fair value through profit/loss: There is uncertainty in estimating the fair value of subsidiary note payables, subsidiary preferred shares, and convertible note assets and investments carried at fair value through profit and loss (FVTPL) according to IFRS 9 at initial recognition and upon subsequent measurement. This includes determining the appropriate valuation methodology and making certain estimates including future earnings potential of the subsidiary businesses, appropriate discount rate and earnings multiple to be applied, marketability, the probability weighting of the scenarios and other industry and company specific risk factors. Significant judgements made include: • Note 11 – there is judgement in considering when the power to control the subsidiary exists or retaining significant influence as it is dependent on certain factors including the voting power the 102 FINANCIAL STATEMENTS entity exercises over the company, the proportion of seats the company controls on the board and the investees dependence on the investor for funding, knowledge and its operations. . Further to the above the group has considered its position under IFRS10 in respect of whether it is an investment entity for the purposes of this standard. Management have reviewed the operations of the group in line with the standard, and whilst there are characteristics which indicate the group could be considered an investment company, the underlying measurement of success for the consolidated portfolio investments is progress in relation to key strategic milestones in bringing their products to market and not the fair value of the business. Based on this management have judged the business to not be an investment entity and consolidate its subsidiaries under IFRS10. • Note 11 – as the entities in the group progress they require further external funding which in some scenarios reduces the Group’s shareholding to an extent that it loses control under IFRS 10 which results in them no longer being able to consolidate the entity. There is a significant judgement in relation to whether the shares are accounted for as an investment in associate per IAS 28 or as a financial asset per IFRS 9 and therefore held at fair value. This judgement includes, among others, an assessment of whether the Company has representation on the board of directors of the investee, whether the Company participates in the policy making processes of the investee, whether there is any interchange of managerial personnel, whether there is any essential technical information provided to the investee and if there are any transactions between the Company and the investee. • Note 17 and 20 – financial instrument liability classification: when determining the classification of financial instruments in terms of liability or equity. These judgements include an assessment whether the financial instrument include any embedded derivative features, whether they include a contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party, and whether that obligation will be settled by the Company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. Further information about these critical judgments is included below under Financial Instruments. • Note 11 and 17 – financial instrument valuations and investment at fair value valuations: when determining the appropriate valuation methodology. Other estimates and judgments: • Note 3 – revenue recognition: in determining the correct amount of revenue to be recognised, the Directors make estimates of the fair values of each component of a contract to be able to allocate the overall consideration to each component based on the relative fair value method or make estimates of future costs when applying the inputs method. • Note 3 – timing of revenue recognition: making certain judgements when determining the appropriate accounting treatment of key customer contract terms in accordance with the applicable accounting standards and in determining whether revenue should be recognised at a point in time or over a period of time. 103 FINANCIAL STATEMENTS • Note 19 – discount rate used in lease treatment: in determining the appropriate discount rate to calculate the present value of lease payments. These judgements include an assessment whether the Group will use the rate implicit in the lease, or if that rate was not readily determinable, to use the Group’s incremental borrowing rate. This is because both rates, as they have been defined in IFRS 16, take into account the credit standing of the lessee, the length of the lease, the nature and quality of the collateral provided and the economic environment in which the transaction occurs. Changes in Accounting Policies There are no new standards impacting the Group that have been adopted in the annual financial statements for the year ended 31 December 2020, which have given rise to material changes in the Group's accounting policies. Going Concern The Directors have taken proactive cost management measures that include reduction in expenses of the management function of the head office at the parent level. They have also decided to focus exclusively on supporting the seven existing portfolio companies and maximising monetisation opportunities for portfolio company interests, and not to deploy any capital into new portfolio companies. In the event of successful monetisation events from the sale of portfolio companies or portfolio company interests, the Directors anticipate distributing the net proceeds to shareholders, after due consideration of potential follow-on investment opportunities within the existing portfolio and working capital requirements. The Directors expect this strategy to take at least three years to be fully implemented, and as a matter of good governance, will continue to keep this strategy under review at appropriate intervals. They have prepared trading and cash flow forecasts for the parent covering the period to 31 December 2023 after taking into account the $39.7 million dividend paid to shareholders in February 2020 after the successful disposal of its ownership in Hawkeye 360. Reflecting this revised strategy, although the Group is currently loss making and is likely to continue to be so, at least in the short term, after making enquiries and considering the impact of risks and opportunities on expected cash flows, and given the fact that the Group has $24.4 million of available funds in the form of cash and cash equivalents as at 31 December 2020, the Directors have a reasonable expectation that the Group has adequate cash to continue in operational existence for a period of not less than 12 months from the date of approval of the financial statements. Furthermore, the directors have considered the timeline of when it plans to dispose of, divest or reinvest in its portfolio companies and there is no intention to cease trading or liquidate the business for the period under the going concern review. The Directors have also put in measures to mitigate against the risks to the business due to the impact of COVID-19. Specifically, these include closely monitoring the health, safety and security of our workforce; complying with applicable regulatory requirements and guidelines; implementing temporary travel restrictions; making accommodations to allow our workforce to work remotely; and remaining in close communication with all of our customers, suppliers and partners to collaborate on how to best support each other’s needs in this new environment. Despite all of this, any impact from COVID-19 will not affect Allied Minds from a going concern perspective. In fact, the impact of COVID-19 is adding cost savings during 2020 as a result of suspension of all travel for 104 FINANCIAL STATEMENTS board meetings, investor meetings and the 2020 Annual General Meeting. These savings have a positive impact on Allied Minds as a going concern. For this reason, they have adopted the going concern basis in preparing the financial statements. Basis of Consolidation Allied Minds plc was formed on 15 April 2014 and the consolidated financial statements for each of the years ended 31 December 2020 and 2019 comprises the financial statements of Allied Minds plc and its subsidiaries. Subsidiaries The financial information of the subsidiaries is prepared for the same reporting period as the parent Company, using consistent accounting policies. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Where the Group loses control of a subsidiary, the assets and liabilities are derecognised along with any related NCI and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost. Associates Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity. Associates are accounted for using the equity method (equity accounted investees) and are initially recognised at cost. The Group’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group’s share of the total comprehensive income and equity movements of equity accounted investees, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the Group’s carrying amount is reduced to $nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an investee. To the extent the Group holds interests in associates that are not providing access to returns underlying ownership interests and are more akin to debt like securities, the instrument held by Allied Minds is accounted for in accordance with IFRS 9. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra- group 105 FINANCIAL STATEMENTS transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Changes of non-controlling interests Non-controlling interests (‘‘NCI’’) are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Changes of non-controlling interests that do not result in a change of control are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result of such transactions. The adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary. Any difference between the price paid or received and the amount by which non-controlling interests are adjusted is recognised directly in equity and attributed to the owners of the parent. Functional and Presentation Currency These consolidated financial statements are presented in US dollars, which is the functional currency of most of the entities in the Group. All amounts have been rounded to the nearest thousand unless otherwise indicated. Foreign Currency Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the consolidated statement of comprehensive loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to the Group’s presentational currency (US dollar) at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an average rate for the year where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from this translation of foreign operations are reported as an item of other comprehensive income and accumulated in the translation reserve or non- controlling interest, as the case may be. When a foreign operation is disposed of, such that control, joint control or significant influence (as the case may be) is lost, the entire accumulated amount in the translation reserve, net of amounts previously attributed to non-controlling interests, is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while still retaining control, the relevant proportion of the accumulated amount is reattributed to non-controlling interests. When the Group disposes of only part of its 106 FINANCIAL STATEMENTS investment in a subsidiary or an associate that includes a foreign operation while still retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid instruments with original maturities of three months or less. Financial Instruments Classification – Financial Assets IFRS 9 contains a classification and measurement approach for financial assets that reflects the business model, in which assets are managed, and their cash flow characteristics. IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income (“FVOCI”) and fair value through profit or loss (“FVTPL”). Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the hybrid as a whole is assessed for classification. Cash and cash equivalents: Represent basic cash balances in banks used to fund operations. These are classified as assets at amortised cost under IFRS 9. Trade Receivables: Under IFRS 9 trade receivables that do not have a significant financing component have to be initially recognised at their transaction price rather than at fair value. The Group initially recognises receivables and deposits on the date that they are originated at their transaction price, which is the same as their fair value. As such, Trade and other receivables are classified as assets at amortised cost under IFRS 9. Security and other deposits: These generally represent security deposits paid by the Group to landlords as part of operating lease commitments. As the Company’s objective is that those deposits will be collected back, they are classified as assets at amortised cost under IFRS 9. Investments at fair value: Reflect investments made by the Group in non-derivative instruments of the investees that are designated in this category or not classified in any other category. These financial assets are initially measured at fair value and subsequently re-measured at fair value at each reporting date, and on derecognition. The Company elects if the gain or loss will be recognised in the Consolidated Statements of Comprehensive Income/ (Loss) in Other Comprehensive Income/(Loss) or through the profit and loss on an instrument by instrument basis. Investments at fair value are presented in the Consolidated Statements of Financial Position as non-current assets, unless the Group intends to dispose of them within 12 months after the end of the reporting period. If the investments at fair value continue to be held for the same long-term strategic purposes, per the application of IFRS 9, the Group may elect then to classify them as FVOCI or FVTPL. The Group classifies them as FVTPL. In the former case, all fair value gains and losses would be reported in other comprehensive income, no impairment losses would be recognised in profit or loss and no gains or losses would be reclassified to profit or loss on disposal. In the latter case, all fair value gains and losses would be recognised in profit or loss as they arise, increasing volatility in the Group’s profits. These financial assets do not have exposure to credit risk and are not considered credit- impaired. As a result, there are no adjustments considered for movement in credit risk as this is not 107 FINANCIAL STATEMENTS applicable within the specific valuation frameworks utilised for the fair values of the Group’s preferred stock assets. To the extent the Group holds interests in associates that are not providing access to returns underlying ownership interests and are more akin to debt like securities, the instrument held by Allied Minds is accounted for in accordance with IFRS 9. Classification – Financial Liabilities Under IFRS 9 all fair value changes of liabilities designated as at fair value through profit or loss are generally presented in profit or loss. The Group designates the subsidiary preferred shares liability at FVTPL under IFRS 9. Hence, any gains and losses on the preferred shares liability are recognised in profit or loss, unless they relate to changes in the entity’s own credit risk for financial liability designated as at fair value through profit or loss. The effect of changes in the entity’s own credit risk in the fair value of the financial liabilities are presented in other comprehensive income. For the underlying financial instruments no adjustments are considered for movement in credit risk as this is not applicable within the specific valuation frameworks utilized for the fair values of the Group’s preferred share liability. Trade and other payables and loans are designated at amortised cost under IFRS 9. Impairment IFRS 9 includes a ‘forward looking expected credit loss’ (“ECL”) model. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. Financial Instruments Issued by the Group Under IAS 32, financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions: • they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Group; and • where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the financial instrument is classified as a financial liability. Where the instrument so classified takes the legal form of the Company’s own shares, the amounts presented in the financial information for share capital and merger reserve account exclude amounts in relation to those shares. Where a financial instrument that contains both equity and financial liability components exists, these components are separated and accounted for individually under the above policy. 108 FINANCIAL STATEMENTS Share Capital Ordinary shares are classified as equity. The Group considers its capital to comprise share capital, share premium, merger reserve, translation reserve, and accumulated deficit. Property and Equipment Property and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. Assets under construction represent machinery and equipment to be used in operations, R&D activities, or to be leased to customers once completed. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets: 3 years Computers and electronics 5 years Furniture and fixtures 5 -20 years Machinery and equipment Not depreciated until transferred into use Under construction Leasehold improvements Shorter of the lease term or estimated useful life of the asset Right-of-Use Assets Shorter of the lease term or estimated useful life of the asset Depreciation methods, useful lives and residual values are reviewed at least annually and adjusted if appropriate. The Directors have considered the value of fixed assets without revaluing them. The Directors are satisfied that the aggregate value of those assets at the time in question is or was not less than aggregate amount at which they are or were for the time being stated in the company's accounts Intangible Assets Licenses (or Options to License) and Purchased In Process Research & Development Licenses or options to license represent licenses or such options provided by universities, federal laboratories, and scientists in exchange for an equity ownership in the entities or cash. Purchased in process research & development (‘‘IPR&D’’) represents time and expertise already invested by the scientist and provided in exchange for an equity interest in the entity. Licenses or options to license and purchased IPR&D are valued based on the amount of cash directly paid to acquire those assets or based on the amount of cash contributed by Allied Minds, at inception of the subsidiary, and the proportionate amount of equity ascribed to Allied Minds. The licenses or options to license and purchased IPR&D are capitalised only when they meet the criteria for capitalisation, namely separately identifiable and measurable and it is probable that economic benefit will flow to the entity. Capitalised Development Costs Research and development costs include charges from universities based on sponsored research agreements (“SRAs”) that the subsidiaries of Allied Minds enter into with universities. Under these agreements, the universities perform research on the technology that is being licensed to the subsidiaries. 109 FINANCIAL STATEMENTS Research and development costs also include charges from independent research and development contractors, contract research organisations (“CROs”), and other research institutions. Expenditure on research activities is recognised in profit or loss as incurred. Development expenditure is capitalised only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, the Group intends to and has sufficient resources to complete development and to use or sell the asset, and if the Group can measure reliably the expenditure attributable to the intangible asset during its development. The point at which technical feasibility is determined to have been reached is when regulatory approval has been received, where applicable. Management determines that commercial viability has been reached when a clear market and pricing point have been identified, which may coincide with achieving recurring sales. Development activities involve a plan or design for the production of new or substantially improved products or processes. The expenditure considered for capitalisation includes the cost of materials, direct labour and an appropriate proportion of overhead costs. Otherwise, the development expenditure is recognised in profit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses. Software Software intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses. Finite-lived intangible assets are amortised on a straight-line basis over their estimated useful lives, from the date that they are available for use. Intangible assets which are not yet available for use (and therefore not amortised) are tested for impairment at least annually. Amortisation Amortisation is charged to the consolidated statement of comprehensive loss on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use. Amortisation methods, useful lives and residual values are reviewed at least annually and adjusted if appropriate. The estimated useful lives of the Group’s intangible assets are as follows: Licences and Options to License Purchased IPR&D Software Leases Over the remaining life of the underlying patents Over the remaining commercial viability has been achieved 2 years life of the underlying patents, once IFRS 16 is a single, on-balance sheet lease accounting model for lessees and requires leases to be accounted for using a right-of-use model, which recognises that, at the date of commencement, a lessee has a financial obligation to make lease payments to the lessor for the right to use the underlying asset during the lease term. The lessee recognises a corresponding right-of-use asset related to this right. 110 FINANCIAL STATEMENTS Upon adoption, the Group applied the following practical expedients: • excluding initial direct costs from the right-of-use assets; • use hindsight when assessing the lease term; • not reassessing whether a contract is or contains a lease; and • not separating the lease components from the non-lease components in lease contracts. The Group accounts for lease payments as an expense on a straight-line basis over the life of the lease for: • • Leases with a term of 12 months or less and containing no purchase options; and Leases where the underlying asset has a value of less than $5,000. The lease liability is initially measured at the present value of the lease payments that are not paid at the transition date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group used its incremental borrowing rate. The right-of-use asset is depreciated on a straight-line basis and the lease liability will give rise to an interest charge. Finance leases will continue to be treated as finance leases. In November 2019 the Company has relocated its corporate headquarters as part of management’s initiative to minimise headquarters expenses. As a result, starting November 2019, the Company entered into a sublease for the remaining period of the head lease. Under IFRS 16, a sublease leads to the de-recognition of the right of use asset and the recognition of an investment receivable in respect of this sublease. The lease liability remains in respect of the head lease as a lease liability on the balance sheet. The Group recognised lease liabilities of $1.8 million and $0.6 million in lease assets at 31 December 2020. Those rights and obligations are primarily related to operating leases for office and laboratory space. No new leases were entered into in 2020. Further information regarding the right of use asset and lease liability can be found in Note 19. On 28 May 2020, the IASB issued final amendments to IFRS 16 related to Covid-19 rent concessions for lessees. The amendments modify the requirements of IFRS 16 to permit lessees to not apply modification accounting to certain leases where the contractual terms have been affected due to Covid-19 (e.g. rent holidays or other rent concessions). The amendments are effective for periods beginning on or after 1 June 2020, with earlier application permitted. The Group did not adopt this standard as no such concessions were applicable. Taxation Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current Income Tax 111 FINANCIAL STATEMENTS Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred Income Tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities where the Group intends to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. Deferred taxes are recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income. Impairment Impairment of Non-Financial Assets Non-financial assets consist of property and equipment and intangible assets, including licences, purchased IPR&D, capitalised development cost, with finite lives and such intangible assets which are not yet available for use. The Group reviews the carrying amounts of its property and equipment and finite-lived intangibles at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Intangible assets which are not yet available for use are tested annually for impairment. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash- generating units (‘‘CGUs’’). The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognised in profit and loss if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are allocated to reduce the carrying amounts of assets in a CGU on a pro rata basis. 112 FINANCIAL STATEMENTS Impairment of Financial Assets The company recognises loss allowances for expected credit losses (ECLs) on financial assets measured at amortised cost. The company measures loss allowances at an amount equal to lifetime ECL, except for other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition, which are measured as 12-month ECL. Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECL. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the company’s historical experience and informed credit assessment and including forward-looking information. Share-based Payments Share-based payment arrangements in which the Group or its subsidiaries receive goods or services as consideration for their own equity instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the Group or its subsidiaries. Grants of equity instruments under the subsidiary stock option incentive plans are accounted for as equity-settled in the consolidated accounts of the parent and are reflected in equity as a credit to Non- Controlling Interest. The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The fair value of the options granted is measured using an option pricing valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with market or non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. Employee Benefits Short-term Employee Benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. Defined Contribution Plans 113 FINANCIAL STATEMENTS A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an employee benefit expense in the periods during which related services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Phantom Plan The Phantom Plan is a cash settled bonus plan. Expense is accrued when it is determined that it is probable that a payment will be made and when the amount can be reasonably estimated. Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability. Revenue Recognition The Group recognises revenue to depict the transfer of promised goods to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods. In order to achieve this, the Group uses the five step model outlined in IFRS 15: 1) to identify the contract with the customer; 2) identify the performance obligation(s) in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligation(s); and 5) recognise revenue when (or as) we satisfy the performance obligation(s). IFRS 15 implements a uniform method of recognising revenue based on the actual contract and performance obligation. Under IFRS 15, revenue is recognised when the Company satisfies a performance obligation by transferring a promised good or service to its customer. As such, the amount of revenue recognised is the amount allocated to the satisfied performance obligation. A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer). Determining the timing of the transfer of control – at a point in time or over time – requires judgement. Based on Group’s assessment, it was concluded that the majority of the Company’s projects that: • Render a service is performed on a time and materials basis and revenue is recognised as services are provided based on actual hours worked for a set period. The performance obligations identified within these projects are distinct and meet the criteria resulting in transfer of control over time. • Sell goods, revenue is recognised when the control of the products were transferred to the customer. The performance obligations identified within these projects are distinct and meet the criteria resulting in transfer of control at a point in time. Refer to Note 3, "Revenue Recognition," for additional information related to the net revenue recognised in the consolidated statements of operations. 114 FINANCIAL STATEMENTS Finance Income and Finance Costs Finance income mainly comprises interest income on funds invested and foreign exchange gains. Finance costs mainly comprise fair value movements on preferred share liabilities, loan interest expense and foreign exchange losses. Interest income and interest payable are recognised as they accrue in profit or loss, using the effective interest method. Fair Value Measurements A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. The carrying amount of cash and cash equivalents, accounts receivable, deposits, accounts payable, accrued expenses and other current liabilities in the Group’s Consolidated Statements of Financial Position approximates their fair value because of the short maturities of these instruments. Operating Segments Allied Minds determines and presents operating segments based on the information that internally is provided to the executive management team, the body which is considered to be Allied Minds’ Chief Operating Decision Maker (‘‘CODM’’). An operating segment is a component of Allied Minds that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Allied Minds’ other components. The operating segment’s operating results are reviewed regularly by the CODM to make decisions about resources to be allocated to the segment, to assess its performance, and for which discrete financial information is available. Newly adopted standards New standards and interpretations adopted in the current year that did not have a material impact on the Company’s financial statements were as follows: 115 FINANCIAL STATEMENTS Effective date 1 January 2020 New standards or amendments Amendments to References to Conceptual Framework in IFRS Standards Definition of a Business (Amendments to IFRS 3) Definition of Material (Amendments to IAS 1 and IAS 8) Amendments to IFRS 9, IAS 39 and IFRS 17: Interest Benchmark reform (2) New Standards and Interpretations not yet effective There are a number of new standards, amendments to standard, and interpretations which have been issued by the IASB that are effective in future periods that the group has decided not to adopt early. The following amendments are effective for the period beginning 1 January 2022: • • • • Onerous contracts – Cost of Fulfilling a Contract (Amendments to IAS 37); Property, Plant and Equipment: Proceeds before Intended Use (amendments to IAS16; Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and References to Conceptual Framework (Amendments to IFRS 3). In January 2020, the IASB issued amendments to IAS 1, which clarify the criteria used to determine whether liabilities are classified as current or non-current. These amendments clarify that current or non- current classification is based in whether an entity has a right at the end of the reporting period. The amendments also clarify that ‘settlement’ includes the transfer of cash, goods, services, or equity instruments unless the obligation to transfer equity instruments arises from a conversion feature classified as an equity instrument. The amendments were originally effective for annual reporting period beginning on or after 1 January 2022. However, in May 2020, the effective date was deferred to annual reporting periods beginning on or after 1 January 2023. Allied Minds Plc is currently assessing the impact of these new accounting standard and amendments. The Group does not believe that the amendments to IAS 1 will have a significant impact on the classification of its liabilities, as the conversion feature in its convertible debt instrument is classified as an equity instrument and therefore, does not affect the classification of its convertible debt as non-current liability. The Group does not expect any other standard issued by the IASB, but not yet effective, to have a material impact on the group. (3) Revenue Revenue recorded in the statement of comprehensive income/ (loss) consists of the following: 116 FINANCIAL STATEMENTS For the year ended 31 December: 2020 $'000 2019 $'000 Product revenue Service revenue Total revenue in consolidated statement of (loss)/ income — 480 480 61 2,631 2,692 Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control over a good or service to a customer. The Group disaggregates contract revenue based on the transfer of control of the underlying performance obligations: For the year ended 31 December: Transferred at a point in time Transferred over time Total revenue in consolidated statement of (loss)/ income 2020 $'000 2019 $'000 ― 480 480 ― 2,692 2,692 Product revenue includes license revenue of $nil and $61,000 during 2020 and 2019, respectively. Contract Balances Contract liabilities represent the Group’s obligation to transfer products or services to a customer for which consideration has been received. When applicable, contract assets and liabilities are reported on a net basis at the contract level, depending on the contracts position at the end of each reporting period. Contract liabilities are included within deferred revenue on the Consolidated Statement of Financial Position. As of 31 December: Deferred revenue, current (4) Operating Segments Basis for Segmentation 2020 $'000 (3,697) 2019 $'000 (3,457) For management purposes, the Group’s principal operations are currently organised in three types of activities: (i) (ii) Early stage companies – subsidiary businesses that are in the early stage of their lifecycle characterised by incubation, research and development activities; Later stage companies – subsidiary businesses that have substantially advanced with or completed their research and development activities, are closer lifecycle to commercialisation, and/or have a potential of realising material return on investment through a future liquidity event; in their 117 FINANCIAL STATEMENTS (iii) Minority holdings companies – reflects the activity related to portfolio companies other than consolidated subsidiary businesses where the Group has made a minority investment and does not control or exercise joint control over the financial and operating policies of those entities. Minority holdings: As of year-end 2019, as a result of its investment activities in 2018, Allied Minds captured its minority and deconsolidated portfolio companies within the minority holdings segment. The Group did not have any companies that were deconsolidated during the year ending 31 December 2020. This operating segment included the following: • Spin Memory, Inc., one of the company’s subsidiaries that was deconsolidated during the second half of 2018 as a result of financing events at the company; • Orbital Sidekick, Inc., a company in which Allied Minds holds a significant minority stake. • TouchBistro, Inc. a company in which Allied Minds holds a minority stake. • Federated Wireless, Inc., one of the company’s subsidiaries that was deconsolidated during the second half of 2019 as a result of financing events at the company The Group’s CODM reviews internal management reports on these segments at least quarterly in order to make decisions about resources to be allocated to the segment and to assess its performance. Other operations include the management function of the head office at the parent level of Allied Minds. Information about Reportable Segments The following provides detailed information of the Group’s reportable segments as of and for the years ended 31 December 2020 and 2019, respectively: Early stage Later stage 2020 $'000 Minority Holdings Other operations Consolidated Statement of Comprehensive Loss Revenue Cost of revenue Selling, general and administrative expenses Research and development expenses Other expense Finance cost, net Share of net loss of associates accounted for using the equity method Loss for the period Other comprehensive loss Total comprehensive income loss ― ― (526) (1,420) ― (20) ― (1,966) ― 480 (210) (2,788) (3,292) ― (5,241) ― (11,051) ― (1,966) (11,051) Total comprehensive loss attributable to: Equity holders of the parent Non-controlling interests 58 (2,024) (10,596) (455) Total comprehensive loss (1,966) (11,051) ― ― ― ― ― ― ― ― ― ― ― ― ― ― ― (7,183) ― (31,934) 3,475 (6,845) (42,487) (116) (42,603) 480 (210) (10,497) (4,712) (31,934) (1,786) (6,845) (55,504) (116) (55,620) (42,487) ― (53,025) (2,479) (42,487) (55,504) 118 FINANCIAL STATEMENTS Statement of financial position Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Net assets/(liabilities) 320 502 822 (105) (3,756) (3,861) (3,039) 1,288 7,105 8,393 (1,380) (27,707) (29,087) (20,694) ― ― ― ― ― ― ― 42,808 24,977 67,785 (761) 14,995 14,234 82,019 44,416 32,584 77,000 (2,246) (16,468) (18,714) 58,286 Early stage Later stage Other operations Consolidated Statement of Comprehensive Loss Revenue Cost of revenue Selling, general and administrative expenses Research and development expenses Other income Finance income/(cost), net Share of net loss of associates accounted for using the equity method Income/(loss) for the period Other comprehensive income Total comprehensive income/(loss) Total comprehensive income/ (loss) attributable to: Equity holders of the parent Non-controlling interests Total comprehensive income/(loss) Statement of financial position Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Net assets/(liabilities) ― ― (2,475) (2,963) 7,273 6,687 ― 8,522 ― 8,522 8,906 (384) 8,522 494 2,173 2,667 (265) (3,417) (3,682) (1,015) 2019 $'000 Minority Holdings 1,466 (628) (11,501) (9,115) - 3,546 ― (16,232) ― 1,226 (805) (3,347) (4,068) 21 6,653 ― (320) ― (320) ― ― (16,993) ― 111,021 (6,894) (28,850) 58,284 808 (16,232) 59,092 (658) 338 (15,197) (1,035) 58,284 ― (320) (16,232) 58,284 1,302 9,209 10,511 (1,992) (20,303) (22,295) (11,784) ― ― ― ― ― ― ― 70,899 86,472 157,371 (1,538) 9,537 7,999 165,370 2,692 (1,433) (34,316) (16,146) 118,315 9,992 (28,850) 50,254 808 51,062 51,335 (1,081) 50,254 72,695 97,854 170,549 (3,795) (14,183) (17,978) 152,571 Early stage companies comprise those that receive an array of business support resources and services from Allied Minds in order to successfully develop early stage technologies. Those currently include Spark Insights. In addition, all closed or dissolved subsidiaries were presented in the Early Stage segment up to the time at which they were all dissolved. Later stage companies comprise those that have graduated from Early stage by way of further advancements in their development as described above. Those currently include BridgeComm, and OcuTerra Therapeutics. The results of the management function of the head office at the parent level of Allied Minds are reported separately as Other operations. As the investment in associate is a parent activity, the share of loss, gain on deconsolidation, remeasurement of the investments to fair value and investment in associate are disclosed in the Other operations segment. In December 2020, Allied Minds has decided to dissolve Allied 119 FINANCIAL STATEMENTS Minds Federal Innovations, a holding company. The results of Allied Minds Federal Innovations to the date it was closed were also included in the Other operations segment. Summarised information related to the Company’s operating revenues by reporting segment for the years ended 31 December 2020 and 2019 is as follows: Early Stage Later Stage Minority Total revenue 2020 2019 Service revenue Software revenue - - - - - 480 - 480 Total - 480 - 480 Service revenue - 1,225 1,406 2,631 Software revenue - - 61 61 Total - 1,225 1,467 2,692 In 2020, Cost of revenue and Selling, general and administrative expenses of Early stage, Later stage, Minority holdings and Other operations segments included depreciation and amortisation expense of $10,100, $460,880, $0, and $179,637, respectively (2019: $115,000, $664,000, $597,000, and $233,000, respectively). The proportion of net assets shown above that is attributable to non-controlling interest is disclosed further in notes 11 and 15. Geographic Information The Group revenues and net operating losses for the years ended 31 December 2020 and 2019 are considered to be entirely derived from its operations within the United States and accordingly no additional geographical disclosures are provided. (5) Operating Expenses The average number of persons employed by the Group (including Directors) during the year, analysed by category, was as follows: For the year ended 31 December: 2020 2019 Selling, general and administrative Research and development Total 28 46 74 41 71 112 The aggregate payroll costs of these persons were as follows: For the year ended 31 December: Selling, general and administrative Research and development Total 2020 $'000 5,873 2,619 8,492 2019 $'000 17,960 8,043 26,003 120 FINANCIAL STATEMENTS Total operating expenses were as follows: For the year ended 31 December: Salaries and wages Payroll taxes Healthcare benefit Other payroll cost Share-based payments Total Cost of revenue Other SG&A expenses Other R&D expenses Total operating expenses Auditor's remuneration Audit of these financial statements Audit of the financial statements of subsidiaries Audit-related assurance services 2020 $'000 5,903 158 1,338 41 1,052 8,492 210 4,624 2,093 15,419 2020 $'000 419 — 96 515 2019 $'000 23,727 1,290 1,942 509 (1,465) 26,003 1,433 16,356 8,103 51,895 2019 $'000 544 — 122 666 The Group recorded an impairment charge on property and equipment of $nil million (2019: $0.5 million) and on intangible assets of $nil million (2019: $0.1 million). See note 6 for further disclosures related to share-based payments and note 22 for management’s remuneration disclosures. (6) Share-Based Payments UK Long Term Incentive Plan Under the UK Long Term Incentive Plan (“LTIP”), awards of Ordinary Shares may be made to employees, officers and directors, and other individuals providing services to the Company and its subsidiaries. Awards may be granted in the form of share options, share appreciation rights, restricted or unrestricted share awards, performance share awards, restricted share units, phantom-share awards and other share- based awards. Vesting is subject to the achievement of certain performance conditions and continued services of the participant. Awards have been granted under the LTIP based on the following vesting criteria: • awards subject to performance conditions based on the Company’s total shareholder return (“TSR”) performance or relative total shareholder return (rTSR) performance over a defined of time; 121 FINANCIAL STATEMENTS • awards subject to performance conditions based on a basket of shareholder value metrics (“SVM”). Performance is assessed on these measures on a scorecard basis over a defined period of time; • awards that vest 100 per cent after a period of time subject to continued service condition only. On 10 June 2019, the Board has determined to retire the long term incentive plan (LTIP) scheme for executive directors, management and other employees. New annual LTIP awards planned for issuance in May 2019 subsequent to the release of annual results, were cancelled and no future awards will be made to executive directors, management and other employees. Historic awards will remain outstanding and eligible to vest in accordance with their terms. A significant majority of the outstanding awards are subject to relative total shareholder return (TSR) performance; however, at the current share price, the performance criteria of these awards will not be met and therefore, no shares are expected to be issued under such awards. The Company issued shares in respect of historic awards under the LTIP during 2020 and 2019 in respect of a total of 387,000 and 343,383 Ordinary Shares, respectively. A summary of stock option activity under the UK LTIP for the year ended 31 December 2020 and 2019, respectively, is shown below: For the year ended 31 December: Number of shares granted at maximum (‘000) Weighted average fair value ($) Fair value measurement basis rTSR — — Monte Carlo 2020 SVM — — Market value of ordinary share Time rTSR — — Monte Carlo 387 0.36 Market value of ordinary share 2019 SVM — — Market value of ordinary share Time 343 0.63 Market value of ordinary share The share grants that vest upon the occurrence of a market condition (i.e. the TSR performance) and service condition were adjusted to current market price at the date of the grant to reflect the effect of the market condition on the non-vested shares’ value. The Company used a Monte Carlo simulation analysis utilising a Geometric Brownian Motion process with 50,000 simulations to value those shares. The model takes into account share price volatilities, risk-free rate and other covariance of comparable UK public companies and other market data to predict distribution of relative share performance. This is applied to the reward criteria to arrive at expected value of the TSR awards. The share grants that vest only upon the occurrence of a non-market performance condition (i.e. the SVM grants) and service condition or upon passage of time were valued at the fair value of the shares on the date of the grants the vesting conditions are taken into account. The number of instruments included in the measurement of the transaction amount is subsequently adjusted so that, ultimately, the amount of recognised share-based expense is based on the number of instruments that eventually vest. None of the outstanding awards under the LTIP as of 31 December 2020 are subject to SVM vesting. The accounting charge does not necessarily represent the intended value of share-based payments made to recipients, which are determined by the Remuneration Committee according to established criteria. The share-based payment charge for the fiscal year ended 31 December 2020 related to the UK LTIP was $0.9 million (2019: $1.9 million). 122 FINANCIAL STATEMENTS U.S. Stock Option/Stock Issuance Plan The U.S. Stock Option/Stock Issuance Plan (the “U.S. Stock Plan”) was originally adopted by Allied Minds, Inc. (now Allied Minds, LLC) in 2008. The U.S. Stock Plan provides for the grant of share option awards, restricted share awards, and other awards to acquire common stock of Allied Minds, Inc. (now Allied Minds, LLC). All stock options granted to employees under this plan are equity settled, for a ten-year term. Pursuant to the Company’s IPO in 2014, Allied Minds plc adopted and assumed the rights and obligations of Allied Minds, Inc. (now Allied Minds, LLC) under this plan except that the obligation to issue Common Stock is replaced with an obligation to issue ordinary shares to satisfy awards granted under the U.S. Stock Plan. As of 19 June 2014, the maximum number of options reserved under the plan were issued and outstanding and as a result of the Company’s IPO in 2014, all issued and outstanding options vested on 19 June 2014. The Company does not intend to make any further grants under the U.S. Stock Plan. No new stock option grants were awarded in 2020 and 2019 under the Allied Minds 2008 Plan. A summary of stock option activity in the U.S. Stock Plan is presented in the following table: For the twelve months ended: 31 December 2020 Number of options Weighted average exercise price 230,000 — (230,000) — — $ nil $ 2.49 — $ 2.49 — — Outstanding as of 1 January Exercised during the period Forfeited during the period Outstanding as of period end Exercisable at period end Intrinsic value of exercisable 31 December 2019 Number of options Weighted average exercise price 1,300,000 — (1,070,000) 230,000 230,000 $ nil $ 2.15 $ 0.00 $ 1.80 $ 2.49 $ 2.49 As of 31 December 2020 no options were exercised (2019: nil) resulting in $nil (2019: $ nil) additional share premium for the period. Allied Minds Phantom Plan In 2007, Allied Minds established a cash settled plan for Allied Minds employees, also known as its Phantom Plan. In 2012, the Board of Directors adopted the Amended and Restated 2007 Phantom Plan. Under the terms of the Amended and Restated Plan, upon a liquidity event Allied Minds will allocate 10% of the value (after deduction of the amount invested by Allied Minds and accrued interest at a rate not exceeding 5% per annum) of the invested capital owned by Allied Minds of each operating company to the plan account. Upon a liquidity event, plan participants holding units will receive their proportionate share of the plan account. The allocated shares at all times remain the sole and exclusive property of Allied Minds and holders of units have no rights or interests in Allied Minds. Allied Minds has not accrued any expense relating to the Phantom Plan as of 31 December 2020 and 2019. Management records an expense relating to this plan when it is probable that a subsidiary will be sold and the amount of the payout is reasonably estimable or will be paid out in accordance with the plan. 123 FINANCIAL STATEMENTS Given the current valuation of the investments and the thresholds required for payments to be made, management have judged that is unlikely there will be any future payouts in respect of this plan based on the position as at 31 December 2020. Share-based Payment Expense The Group recorded share-based payment charge/ credit related to stock options of approximately $1,052,000 and $1,465,000 for the years ended 31 December 2020 and 2019, respectively. There was no income tax benefit recognised for share- based payment arrangements for the years ended 31 December 2020 and 2019, respectively, due to operating losses. The following table provides the classification of the Group’s consolidated share-based payment expense/ income as reflected in the Consolidated Statement of (Loss) / Income: For the year ended 31 December: Selling, general and administrative Research and development Total (7) Finance Cost, Net 2020 $'000 991 61 1,052 2019 $'000 (1,597) 132 (1,465) The following table shows the breakdown of finance income and cost: For the year ended 31 December: Interest income on: – Bank deposits Foreign exchange gain Finance income Interest expense on: – Financial liabilities at amortised cost Foreign exchange loss Finance cost contractual (Loss)/ income on fair value measurement of subsidiary preferred shares Finance (cost)/ income Total finance (cost)/ income, net 2020 $'000 2019 $'000 292 (1) 291 (313) (1) (314) (1,763) (2,077) (1,786) 1,007 1 1,008 (267) — (267) 9,251 8,984 9,992 See note 16 for further disclosure related to subsidiary preferred shares. (8) (Loss)/ income Per Share The calculation of basic and diluted income per share as of 31 December 2020 was based on the loss attributable to ordinary shareholders of $53.0 million (2019: income of $51.3 million) and a weighted average number of ordinary shares outstanding of 241,901,871 (2019: 240,981,168), calculated as follows: 124 FINANCIAL STATEMENTS (Loss)/ Income attributable to ordinary shareholders (Loss)/ income for the year attributed to the owners of the Company (Loss)/ income for the year attributed to the ordinary shareholders 2020 $'000 2019 $'000 Basic Diluted Basic Diluted (53,025) (53,025) 51,335 51,335 (53,025) (53,025) 51,335 51,335 Weighted average number of ordinary shares 2020 2019 Basic Diluted Basic Diluted Issued ordinary shares on 1 January 241,563,123 241,563,123 240,314,745 240,314,745 Effect of RSUs issued Effect of dilutive shares 338,748 ― 338,748 666,423 ― ― 666,423 ― Weighted average ordinary shares 241,901,871 241,901,871 240,981,168 240,981,168 (Loss)/ Income per share (Loss)/ income per share (9) Property and Equipment 2020 $ 2019 $ Basic (0.22) Diluted (0.22) Basic 0.21 Diluted 0.21 Property and equipment, net, consists of the following at: Cost in $'000 Balance as of 31 December 2018 Additions, net of transfers Disposals Deconsolidation of subsidiaries Balance as of 31 December 2019 Additions Transfers Balance as of 31 December 2020 Machinery and Equipment Furniture and Fixtures Leasehold Improvements Computers and Electronics Under Construction Total 3,082 26 (272) (1,965) 871 — — 871 911 185 (166) (575) 355 353 — 708 1,639 3,341 — (4,772) 208 147 454 809 8,804 3,603 (2,126) (7,727) 2,554 564 0 3,118 2,463 (71) (1,233) (110) 1,049 64 (454) 659 709 122 (455) (305) 71 — — 71 125 FINANCIAL STATEMENTS Accumulated Depreciation and Impairment loss in $'000 Balance as of 31 December 2018 Depreciation Impairment loss Disposals Deconsolidation of subsidiaries Balance as of 31 December 2019 Depreciation Impairment loss Disposals Balance as of 31 December 2020 Property and equipment, net in $'000 Balance as of 31 December 2019 Balance as of 31 December 2020 Machinery and Equipment Furniture and Fixtures Leasehold Improvements Computers and Electronics Under Construction Total (1,009) (280) (305) 1,233 61 (300) (175) ― ― (475) (381) (101) (101) 455 125 (3) (14) ― ― (17) (841) (535) — 272 611 (493) (143) ― ― (636) (576) (141) (15) 166 293 (273) (121) ― ― (394) ― — ― ― ― ― ― ― — (2,807) (1,057) (421) 2,126 1,090 (1,069) (453) ― ― (1,522) Machinery and Equipment 749 184 Furniture and Fixtures 68 54 Leasehold Improvements 378 235 Computers and Electronics 82 314 Under Construction 208 809 Total 1,485 1,596 Impairment of property and equipment of $nil and $421,000 for the years ended 31 December 2020 and 2019, respectively, is mainly attributed to the closing of subsidiary companies, which resulted in the associated assets being impaired. Impairment of property and equipment is included in selling, general and administrative expenses in the consolidated statement of comprehensive income. Property and equipment under constructions represents assets that are in the process of being built and not placed in service as of the reporting date. (10) Intangible Assets Information regarding the cost and accumulated amortisation of intangible assets is as follows: Cost in $'000 Balance as of 31 December 2018 Additions - Acquired separately Disposals Deconsolidation of subsidiaries Balance as of 31 December 2019 Additions - Acquired separately Disposals Balance as of 31 December 2020 Licenses Purchased IPR&D Software Total 163 29 (142) (50) — — — — 277 192 (384) (85) — — — — 1,690 4 (66) (702) 926 — — 926 2,130 225 (592) (837) 926 — — 926 126 FINANCIAL STATEMENTS Accumulated amortisation and Impairment loss in $'000 Balance as of 31 December 2018 Amortisation Impairment loss Disposals Deconsolidation of subsidiaries Balance as of 31 December 2019 Amortisation Impairment loss Disposals Balance as of 31 December 2020 Intangible assets, net in $'000 Balance as of 31 December 2019 Balance as of 31 December 2020 Licenses (64) (4) (58) 111 15 — — — — — Purchased IPR&D — — (192) 192 — — — — — — Software (845) (546) — 66 596 (729) (197) — — (926) Total (909) (550) (250) 369 611 (729) (197) — — (926) Licenses Purchased IPR&D — — — — Software Total 197 — 197 — Amortisation expense is included in selling, general and administrative expenses in the consolidated statement of comprehensive loss. Amortisation expense, recorded using the straight-line method, was approximately $197,000 and $551,000 for the years ended 31 December 2020 and 2019, respectively. Impairment of intangible assets of $nil and $250,000 for the years ended 31 December 2020 and 2019, respectively, is mainly attributed to the closing of subsidiary companies, which resulted in the associated intangible assets being impaired to zero. Impairment expense is included in selling, general and administrative expenses in the consolidated statement of comprehensive income. At each reporting period, management considers qualitative and quantitative factors that define the future prospects of the respective investment and assesses whether it supports the value of the underlying intangible. (11) Investments Group Subsidiaries, associates and investments As of 31 December 2020, Allied Minds has seven portfolio companies, including subsidiaries, associates and investments. As at the 31 December 2020 the investments in each of the companies and the accounting treatment is summarized below: Portfolio company Financial instruments held Allied Minds LLC Ordinary shares Accounting treatment of financial instruments Consolidated by the group in line with IFRS 10 and following management assessment of significant control. 127 FINANCIAL STATEMENTS Allied Minds Securities Corp. Ordinary shares BridgeComm, Inc. Ordinary share capital and preferred shares Spark Insights, Inc. Ordinary share capital and preferred shares OcuTerra Therapeutics, Inc. Ordinary share capital and preferred shares Federated Wireless, Inc. Ordinary share capital and preferred shares Spin Memory, Inc. Ordinary share capital and preferred shares 128 Consolidated by the group in line with IFRS 10 and following management assessment of significant control. Consolidated by the group in line with IFRS 10 and following management assessment of significant control. Preferred shares are eliminated on consolidation between group companies, preferred shares held by third parties are fair valued through profit and loss under IFRS 9. Consolidated by the group in line with IFRS 10 and following management assessment of significant control. Preferred shares are eliminated on consolidation between group companies. Consolidated by the group in line with IFRS 10 and following management assessment of significant control. Preferred shares are eliminated on consolidation between group companies. The ordinary share capital ownership means that the group has significant influence but not control over the entity. Therefore, the investment in ordinary shares is accounted for by the equity method of accounting under IAS 28. Preferred share holdings are accounted for at fair value through profit and loss as investments held by the group. The ordinary share capital ownership means that the group has significant influence but not control over the entity. Therefore, the investment in ordinary shares is accounted for by the equity method of accounting under IAS 28. Preferred share holdings are accounted for at fair value through profit and loss as investments held FINANCIAL STATEMENTS Orbital sidekick, Inc. Preferred shares TouchBistro, Inc. Ordinary shares by the group. No ordinary shares are owned by Allied Minds and the directors have judged that the group does not have significant influence over the entity through is preferred share holding. Preferred share holdings are accounted for at fair value through profit and loss as investments held by the group. The group has a minority stake in the investment and does not have significant influence over the company. Therefore, the investment in ordinary shares is accounted for at fair value through the profit and loss under IFRS 9. The following outlines the formation of each subsidiary and evolution of Allied Minds’ ownership interest over the two year period ended 31 December 2019: Inception Date Location (4) Issued and Outstanding Ownership percentage at 31 December (1) (2) 2019 2020 Active subsidiaries Holding companies Allied Minds, LLC Allied Minds Securities Corp. Early stage companies Spark Insights, Inc. Later stage companies BridgeComm, Inc. OcuTerra Therapeutics, Inc. (SciFluor Life Sciences) Closed subsidiaries Allied Minds Federal Innovations, Inc. Number of active subsidiaries at 31 December: Associates Spin Memory, Inc.(3) Federated Wireless, Inc. (3) Federated Wireless Government Solutions, Inc. (3) 19/06/14 21/12/15 09/10/18 09/02/15 14/12/10 09/03/12 03/12/07 08/08/12 04/05/16 Boston, MA Boston, MA 100.00% 100.00% 100.00% 100.00% Boston, MA 70.59% 70.59% Denver, CO Cambridge, MA 81.15% 62.67% 81.38% 62.67% Boston, MA ― 5 100.00% 6 Fremont, CA Arlington, VA Arlington, VA 43.01% 43.11% 43.11% 42.69% 42.57% 42.57% Other investments TouchBistro, Inc (TableUp, Inc.) (3) Orbital Sidekick, Inc. (3) 04/20/07 02/08/16 Boston, MA San Francisco, CA 1.52% 33.23% 35.52% 33.23% 129 FINANCIAL STATEMENTS Notes: (1) Represents ownership percentage held by Allied Minds Plc based on the equity interest owned in ordinary shares plus potential equity interest owned in convertible preference shares. The current percentage ownership of each company ordinary share capital is as follows: Allied Minds LLC 100%, Allied Minds Securities Corp. 100%, Spark Insights 0.07%, BridgeComm, Inc. 98.47%, OcuTerra Therapeutics, Inc. 75.26%, Spin Memory 56.31%, Federated Wireless 93.60%, TouchBistro 1.52%, Orbital Sidekick 0%. (2) Allied Minds LLC, Spark Insights, Inc., BridgeComm, Inc., OcuTerra Therapeutics, Inc., Federated Wireless, Inc. and Federated Wireless Government Solutions, Inc. have a registered office address at CT Corporation System, Corporation Trust Center, and 1209 Orange Street, Wilmington, DE 19801, United States. Allied Minds Securities Corp. has a registered office address at CT Corporation System, 155 Federal Street, Suite 700, Boston, MA 02110, United States. Spin Memory Inc. and TableUp Inc. have a registered office address at 1209 Orange Street, Wilmington, DE 19801. Orbital Sidekick Inc. has a registered office at Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808. (3) The preferred shares that allied Minds has in these companies is accounted for under IFRS 9. On 24 December 2020, Orbital Sidekick, Inc., has conditionally secured $16.0 million in a Series A Preferred financing round led by Temasek, an investment company headquartered in Singapore. Round participants also include other new investors and existing investors Allied Minds, committing $2.5 million (including conversion of its SAFE), and 11.2 Capital. The financing round is scheduled to close in the first quarter of 2021. On 16 July 2020, Allied Minds and 11.2 Capital collectively invested $2.0 million in the form of SAFEs (simple agreements for equity), which will convert into shares of preferred stock in the company’s next equity financing round expected in Q2 of 2021 as noted above. The receivables are included in current assets in the group accounts and are held at fair value through profit and loss at 31 December 2020. Orbital Sidekick was awarded a multi-year contract by the Department of the Air Force’s commercial investment group (AFVentures) as part of its Strategic Financing (STRATFI) programme, under which the company received $4.0 million of non-dilutive financing in Q4 2020, with the opportunity to receive up to $12.0 million of additional non-dilutive financing over next three years to match private funds raised. On 5 August 2020, TableUp, one of Allied Minds’ portfolio companies, has been acquired by TouchBistro, Inc. (“TouchBistro”). The acquisition was structured as a stock-for-stock transaction in which TouchBistro acquired 100% of the shares of TableUp in exchange for the issuance of TouchBistro common shares to the shareholders of TableUp. A total of 2,542,662 common shares of TouchBistro was paid to Allied Minds valued at $5.99 million at the time of the transaction. On 26 August 2020, as a result of achieving certain development milestones under the JDA with Boeing, BridgeComm secured the remaining $1.5 million of convertible debt from Boeing. On 4 February 2020, BridgeComm issued $2,000,000 in convertible notes to Allied Minds, following the issuance of $1,000,000 in convertible notes to Boeing HorizonX Ventures in December 2019. On 17 July 2020, Spin Memory, the leading MRAM developer, secured $8.25 million in additional Series B funding on the same terms as the last closing in April 2019. Allied Minds committed $4.0 million to the round. The Group invested alongside existing investors, Arm, Applied Ventures and Abies Ventures, who collectively committed the remaining $4.25 million. Following this investment, Allied Minds' ownership of Spin's issued share capital is 43.01%. On 20 April 2020, Federated Wireless raised an additional $13.7 million from existing shareholders in a 130 FINANCIAL STATEMENTS second closing of the preferred financing round from September 2019, half of which was contributed by Allied Minds. Following this investment, Allied Minds' ownership of Federated's issued share capital is 43.11% compared to 52.17% at 31 December 2019. This transaction increases the company’s investment at fair value in Federated Wireless from $22.4 million, as reported at 31 December 2019, to $29.2 million at 30 June 2020. On 10 January 2020, OcuTerra Therapeutics raised an additional $375K in the second closing of its convertible note financing. On 29 December 2020, the Group ceased operations and dissolved Allied Minds Federal Innovations, Inc. The following tables summarise the financial information related to the Group’s subsidiaries with material non-controlling interests, aggregated for interests in similar entities, and before intra-group eliminations. As of and for the year ended 31 December: Statement of Comprehensive Loss Revenue Loss for the year Other comprehensive loss Total comprehensive loss Comprehensive loss attributed to NCI Statement of Financial Position Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Net liabilities Carrying amount of NCI Statement of Cash Flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Early stage 2020 $'000 Later stage Minority holdings - (1,966) 480 (11,051) - - (1,966) (2,024) 320 502 822 (105) (3,756) (3,861) (3,039) (1,953) (20) 184 (1,789) (11,051) (455) 1,288 7,105 8,393 (1,380) (27,707) (29,087) (20,694) (6,621) (538) 4,707 (2,452) - - - - - - - - - - - - - 131 FINANCIAL STATEMENTS Statement of Comprehensive Loss Revenue Loss for the year Other comprehensive loss Total comprehensive loss Comprehensive loss attributed to NCI Statement of Financial Position Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Net assets/(liabilities) Carrying amount of NCI Statement of Cash Flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Early stage 2019 $'000 Later stage - 8,522 - 8,522 (384) 1,226 (320) - (320) 338 494 2,173 2,667 (265) (3,417) (3,682) (1,015) (1,418) 27,511 16,244 (61,347) (17,592) 1,302 9,209 10,511 (1,992) (20,303) (22,295) (11,784) 1,533 (3,199) (133) 915 (2,417) Minority holdings 1,466 (16,232) - (16,232) (1,035) - - - - - - - - 11,064 (3,315) 4,701 12,450 Investment in Associates The Group has two associates that are material to the Group, both of which are equity accounted. Nature of relationship with the Group Principal place of business Ownership interest Spin Memory Portfolio company of the Group Federated Wireless Portfolio company of the Group Fremont, CA 43.01% (2019: 42.69 %) Arlington, VA 43.11% (2019: 42.57 %) Spin Memory: As of November 2018, Spin Memory was deconsolidated from the Group’s financial statements as a result of its Series B Preferred Stock financing round as the voting rights associated with this stock meant that Allied Minds would no longer control the business but would maintain significant influence over the operations. As of 31 December 2019, Allied Minds’ ownership percentage went from 41.63% to 42.69% and the investment in common stock in Spin Memory continues to be subject to the equity method accounting. In accordance with IAS 28, the Company’s investment was adjusted by the share of profits and losses generated by Spin Memory subsequent to the date of deconsolidation. In 2019, Allied Minds recognised $19.5 million as its share of loss from Spin through the Consolidated Statements of Comprehensive Income/ (Loss) that reduced Allied Minds’ investment in Spin Memory down to zero. As of 31 December 2020, Allied Minds’ ownership percentage went from 42.69% to 43.01% as a result of the entity’s latest financing round in July 2020. In accordance with IAS 28, once the share of losses of an 132 FINANCIAL STATEMENTS associate equals or exceeds its "interest in the associate", the investor discontinues recognising its share of further losses. Once Allied Minds’ interest in Spin Memory was reduced to zero no further adjustments were made to the investment balance at 31 December 2020. If Spin Memory subsequently reports profits, Allied Minds will resume recognising its share of those profits only after its share of the profits equals the share of losses not recognised. Spin Memory, Inc. Group’s interest in net assets of investee, beginning of period Share of loss from continuing operations Carrying amount for equity accounted investees Unrecognised share of losses in associate Total outstanding Ownership percentage 31 December 2020 31 December 2019 43.01% 42.69% Location Fremont, CA 31 December 2020 $'000 31 December 2019 $'000 ― ― ― (37,393) (37,393) 19,543 (19,543) ― (406.5) (406.5) Federated Wireless: As of September 2019, Federated Wireless was deconsolidated from the Group’s financial statements as a result of its latest Series C Preferred Stock financing round as the voting rights associated with this stock meant that Allied Minds would no longer control the business but would maintain significant influence over the operations. Allied Minds’ ownership percentage as of 31 December 2019 dropped from 52.23% to 42.57%. Upon the date of deconsolidation, Allied Minds recognised an investment in Federated Wireless related to its common shares of $16.2 million. At 31 December 2019, Allied Minds’ investment was adjusted by the share of losses generated by Federated Wireless from 3 September through 31 December 2019 of $9.3 million. As a result of the deconsolidation, Allied Minds recorded an unrealised gain of $69.8 million in the Consolidated Statements of Comprehensive Income/ (Loss). In accordance with IAS 28, the Company’s investment was adjusted by the share of profits and losses generated by Federated Wireless subsequent to the date of deconsolidation. In 2019, Allied Minds recognised $9.3 million as its share of loss from Federated Wireless through the Consolidated Statements of Comprehensive Income/ (Loss). As of 31 December 2020, Allied Minds’ ownership percentage went from 42.57% to 43.11% and the investment in Federated Wireless continues to be subject to the equity method accounting. In accordance with IAS 28, the Company’s investment was adjusted by the share of profits and losses generated by Federated Wireless subsequent to the date of deconsolidation. As a result, Allied Minds recorded a share of loss of $6.8 million in the Consolidated Statements of Comprehensive Income/ (Loss) that reduced the investment in Federated to a zero balance as follows: 133 FINANCIAL STATEMENTS Ownership percentage Location 31 December 2020 31 December 2019 Federated Wireless, Inc. Arlington, VA 43.11% 42.57% Group’s interest in net assets of investee, beginning of period Addition in the year Share of loss from continuing operations Carrying amount for equity accounted investees Unrecognised share of losses in associate Total outstanding 31 December 2020 31 December 2019 $'000 $'000 6,845 ― (6,845) ― (19,432) (19,432) ― 16,151 (9,306) 6,845 ― ― The following is summarised financial information for Spin Memory and Federated Wireless, based on their perspective consolidated financial statements prepared in accordance with IFRS: Spin Memory $'000 Federated Wireless $'000 2020 2019 2020 2019 1,181 (65,684) 12,918 1,850 14,768 (1,871) (19,151) (6,254) 2,080 (35,429) 14,694 5,315 20,009 (209) (96,206) (76,406) 2,882 (28,073) 17,948 30,597 48,545 (5,804) (133,917) (91,176) 2,322 (28,816) 19,874 44,319 64,193 (4,315) (125,039) (65,161) Revenue Loss for the period Total non-current assets Total current assets Total assets Total non-current liabilities Total current liabilities Net assets Investments at fair value The Group’s investments at fair value represent securities of portfolio companies where Allied Minds holds preferred shares or a minority stake in those companies. This includes preferred shares held in Federated Wireless, Spin Memory and Orbital Sidekick and a minority holding in TouchBistro as at 31 December 20. These investments are initially measured at fair value through profit or loss and are subsequently re-measured at fair value at each reporting date and on derecognition. The fair value of these investments is derived using the option pricing model (“OPM”), the Probability- Weighted Expected Return Method (“PWERM”) or a hybrid of the two. 134 FINANCIAL STATEMENTS The key inputs into these valuation models include the equity value of the portfolio company, the term of the instrument, risk free rate and volatility. The valuation methodologies utilised for determining the equity value include market approach, income approach or cost approach or hybrid of these approaches. Other methodologies such as asset based and cash in are also utilised where deemed appropriate. It is noted that in the current year none of the equity values were determined using the income approach. Other valuation approaches In certain cases, the value of a portfolio company is determined using a market instead of income- based approach. Where there has been a third party funding round in the year this has been used as the implied value of the portfolio company or comparable guideline public companies or comparable transactions, adjusted for indexation where this is deemed to be appropriate. Whilst the Board considers the methodologies and assumptions adopted in the valuation are supportable, reasonable and robust, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the investment existed and the differences could be significant. PWERM and OPM The principal methods the Group applies for allocation of value are the PWERM, the OPM as well as a hybrid of the two. These models take assumptions such as the equity values, term of the instruments, risk free rate and volatility to determine the fair value of each share class. The PWERM estimates the value of equity securities based on an analysis of various discrete future outcomes, such as an IPO, merger or sale, dissolution, or continued operation as a private enterprise until a later exit date. The equity value today is based on the probability-weighted present values of expected future investment returns, considering each of the possible outcomes available to the enterprise, as well as the rights of each security class. The key judgement relates to probability weighting of the scenarios. The OPM treats common stock or derivatives thereof as call options on the enterprise’s value or overall equity value. The value of a security is based on the optionality over and above the value securities that are senior in the capital structure (e.g. preferred stock), considering the dilutive effects of subordinate securities. In the OPM, the exercise price is based on a comparison with the overall equity value rather than per-share value. 135 FINANCIAL STATEMENTS Those investments are presented in the below table: 31 December 2020 $'000 28,532 4,821 5,464 ― Disposals $'000 ― ― ― (5,016) Finance (income)/cost from IFRS 9 fair value accounting $'000 (677) (29,151) 1,438 (508) 2,771 ― (3,213) Additions $'000 6,855 4,000 ― ― 5,984 31 December 2019 $'000 22,354 29,972 4,026 5,524 ― 41,588 (5,016) (32,111) 16,839 61,876 Federated Wireless, Inc. Spin Memory, Inc. Orbital Sidekick, Inc. TableUp, Inc. TouchBistro, Inc. (TableUp, Inc.)- Common Stock Total investments at fair value The company’s investment at fair value in Federated Wireless has changed from $22.4 million, as reported at 31 December 2019, to $28.5 million at 31 December 2020. The increase in fair value primarily relates to the additional investment made by Allied Minds in Federate Wireless during the period. The company’s investment at fair value in Spin Memory has changed from $29.9 million, as reported at 31 December 2019, to $4.8 million at 31 December 2020. The change was primarily due to COVID-19 related delays in the required testing of its development chip with a strategic partner that affected Spin's ability to secure new customers. As a result, this, coupled with an unexpected loss of a government bid in late Q4 2020, Spin is now facing significant liquidity issues. On 6 April 2018, Allied Minds made an investment in Orbital Sidekick, a company developing capabilities in aerial and space-based hyperspectral imaging and analytics, initially for the oil and gas industry. Allied Minds has significant influence over financial and operating policies of the investee by virtue of its large, albeit minority, stake in the company and its representation on the entity’s board of directors. Allied Minds only held shares of preferred stock in Orbital Sidekick. The preferred shares held by Allied Minds are not equity-like and therefore these fall under the guidance of IFRS 9 and will be treated as a financial asset held at fair value where all movements to the value of Allied Minds’ share in the preferred stock will be recorded through the Consolidated Statements of Comprehensive Income/(Loss). On 24 December 2020, Orbital Sidekick, Inc., has conditionally secured $16.0 million in a Series A Preferred financing round. Following this investment, Allied Minds' ownership of Orbital Sidekick's issued share capital is 26.52% compared to 33.23% at 31 December 2020. As of 31 December 2020, Allied Minds recognised an investment held at fair value related to its Preferred Shares in Orbital Sidekick of $5.5 million (31 December 2019: $4.0 million). On 6 April 2018, Allied Minds made an investment in TableUp, a software provider enabling end-to-end transparency through the restaurant supply chain to enable more effective inventory and operations management. On 5 August 2020, TableUp was acquired by TouchBistro, Inc. (“TouchBistro”). The acquisition was structured as a stock-for-stock transaction in which TouchBistro acquired 100% of the shares of TableUp in exchange for the issuance of TouchBistro common shares to the shareholders of TableUp. As such, Allied Minds’s investment in preferred stock, along with the convertible note, was fully converted into common shares in TouchBistro. A total of 2,542,662 common shares of TouchBistro was paid to Allied Minds valued at $5.99 million at the time of the transaction. As a result of the acquisition, 136 FINANCIAL STATEMENTS Allied Minds’ ownership percentage was 1.52% at 31 December 2020. Allied Minds does not have significant influence over the investee as it does not hold 20% or more of the voting power of the investee as well as it does not have any board representation. As such, the investment does not meet the definition of an associate under IAS 28 Equity Accounting (“IAS 28”) and therefore, the common shares are classified as an investment at fair value, under IFRS 9 Financial Instruments (“IFRS 9”). At 31 December 2020, the fair value of Allied Minds’ investment in TouchBistro was subsequently measured at $2.8 million. Allocation Model Inputs Allied Minds holds shares of preferred stock in Spin Memory, Federated Wireless and Orbital sidekick and has significant influence over financial and operating policies of the investee by virtue of its stake in the companies and representation on the entity’s board of directors. Allied Minds hold a minority interest in the ordinary share capital of TouchBistro, where significant influence is not held. The preferred shares and investment note above fall under the guidance of IFRS 9 and will be treated as a financial asset held at fair value and all movements to the value of Allied Minds’ share of these assets will be recorded through the Consolidated Statements of Comprehensive Income/(Loss). The following presents the quantitative information about the significant unobservable inputs used in the fair value measurement of the Group’s financial assets: As of 31 December: Volatility Time to Liquidity (years) Risk-Free Rate IPO/M&A/Sale Probability Sensitivity Analysis 2020 38.8%-73.5% 1.50 - 3.27 0.10% - 0.2% 0%/ 100%/ n/a 2019 26.7%-62.1% 0.5 - 3.27 1.58% - 1.6% 40%-60%/ 40%-60%/ n/a The following summarises the sensitivity from the assumptions made by the Company in respect to the unobservable inputs used in the fair value measurement of the Group’s financial assets. The sensitivities provided reflect reasonably possible changes to the key assumptions: As of 31 December: Input Enterprise Value Volatility Time to Liquidity Risk-Free Rate (1) M&A vs. IPO Probability Sensitivity range Financial assets increase/(decrease) 2020 $'000 2019 $'000 -2% +2% -10% +10% -6 months +6 months -0.02%/0.01% 0.02% /0.02% 100%/ 40% 0%/ 60% (451) 613 602 (290) 445 (198) 445 (198) ― ― (819) 846 1,136 (1,133) 886 (915) 886 (915) (865) 842 (1) Risk-free rate is a function of the time to liquidity input assumption. 137 FINANCIAL STATEMENTS (12) Cash and Cash Equivalents As of 31 December: Bank balances Total cash and cash equivalents (13) Trade and Other Receivables As of 31 December: Trade receivables Prepayments and other current assets Total trade and other receivables (14) Equity 2020 $'000 2019 $'000 24,489 24,489 90,571 90,571 2020 $'000 2019 $'000 394 5,422 5,816 60 5,642 5,702 On 8 November 2019, Allied Minds plc completed the sale of its entire stake in its portfolio company HawkEye 360 to Advance for cash consideration of $65.6 million. As a result, the Company remeasured the investment to the fair value on the on the date of the sale and derecognised its investment of $65.6 million. In addition, Allied Minds made a distribution of $4.9 million to participants under the terms of the Company’s Phantom Plan. On 5 December 2019, Allied Minds plc completed a court-approved reduction of the Company’s capital by way of: (i) the capitalisation of the amount standing to the credit of the Company’s merger reserve by way of the issue and subsequent cancellation of the Capital Reduction Shares; and (ii) the cancellation of the amount standing to the credit of the Company’s share premium account, so as to create distributable reserves (the “Capital Reduction”). The Capital Reduction created realised profits sufficient to eliminate the accumulated losses of the Company and establish positive distributable reserves of approximately $191.4 million. The purpose of the reduction of capital was to provide distributable reserves which enabled the Company to make a special dividend payment of $39.7 million to shareholders and provided the flexibility for future dividend payments. Following the reduction of capital, the number of issued shares and the rights attached to those shares remained unchanged. During 2020 and 2019, there were no options exercised under the U.S. Stock Plan. Additionally, 624,862 (2019: 1,248,378) shares were issued to existing and former employees of the Group during the year as result of vesting of RSUs under the LTIP. As of 31 December 2020, 11,551,496 ordinary shares were reserved under the U.S. Stock Plan and 24,781,174 were reserved under the LTIP, see note 6 for further discussion of the share-based payment plans. 138 FINANCIAL STATEMENTS The table below explains the composition of share capital: As of 31 December: 2020 $'000 2019 $'000 Equity Share capital, $0.01 par value, issued and fully paid 242,187,985 and 241,563,123, respectively Translation reserve Accumulated profit Equity attributable to owners of the Company Non-controlling interests Total equity 3,767 1,343 55,440 60,550 (2,264) 58,286 3,759 1,459 147,238 152,456 115 152,571 Holders of Ordinary Shares are entitled to vote, on all matters submitted to shareholders for a vote. Each Ordinary Share is entitled to one vote. Each ordinary share is entitled to receive dividends when and if declared by the Company’s Board of Directors. The Company has not declared any dividends in the past. In February 2020, Allied Minds made a special cash dividend payment to shareholders of $39.7 million as a result of the sale of Allied Minds’ share in HawkEye in the second half of 2019. Translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. (15) Changes in Non-Controlling Interest (“NCI”) For the two years ended 31 December 2020, the Group recognised the following changes in common stock ownership in subsidiaries resulting in changes to non-controlling interest: • On 10 January 2020, OcuTerra Therapeutics raised an additional $375K in the second closing of its convertible note financing. • On 4 February 2020, BridgeComm issued $2,000,000 in convertible notes to Allied Minds, following the issuance of $1,000,000 in convertible notes to Boeing HorizonX Ventures in December 2019. In August 2020, as a result of achieving certain development milestones under the JDA with Boeing, BridgeComm secured the remaining $1.5 million of convertible debt from Boeing. The following summarises the changes in the non-controlling ownership interest in subsidiaries by reportable segment: Non-controlling interest as of 31 December 2018 Share of comprehensive loss Effect of change in Company’s ownership interest Equity-settled share based payments US Subsidiary distributions to shareholders Deconsolidation of subsidiaries Dissolution of subsidiaries Early stage $'000 Later stage $'000 Consolidated $'000 18,181 (384) (105) 61 (12,050) 7 (7,128) 303 (697) (89) 473 — 1,543 — 18,484 (1,081) (194) 534 (12,050) 1,550 (7,128) 139 FINANCIAL STATEMENTS Non-controlling interest as of 31 December 2019 Share of comprehensive loss Effect of change in Company’s ownership interest Equity-settled share based payments Non-controlling interest as of 31 December 2020 (16) Preferred Shares (1,418) 1,533 115 (2,024) — 1 (3,441) (455) (18) 117 1,177 (2,479) (18) 118 (2,264) Certain of the Group’s subsidiaries have outstanding preferred shares which have been classified as a subsidiary preferred shares in current liabilities in accordance with IFRS 9 as the subsidiaries have a contractual obligation to deliver cash or other assets to the holders under certain future liquidity events, and/or a requirement to deliver an uncertain number of common shares upon conversion. The preferred shares do not contain mandatory dividend rights. The preferred shares are convertible into common stock of the subsidiary at the option of the holder and mandatorily convertible into common stock of the subsidiary upon a qualified public offering at or above certain value and gross proceeds specified in the agreements or upon the vote of the holders of a majority of the subsidiary preferred shares. Under certain scenarios the number of common stock shares receivable on conversion will change. The Group has elected not to bifurcate the variable conversion feature as a derivative liability, but account for the entire instrument at fair value through the income statement. The preferred shares are entitled to a vote with holders of common stock on an as converted basis. The holders of the preferred shares are entitled to a liquidation preference amount in the event of a liquidation or a deemed liquidation event of the respective subsidiary. The Group recognises the subsidiary preferred shares balance upon the receipt of cash financing, and records the change in its fair value for the respective reporting period through profit and loss. Preferred shares are not allocated shares of the subsidiary losses. The following summarises the subsidiary preferred shares balance: As of 31 December: BridgeComm Total subsidiary preferred shares 2020 $'000 6,497 6,497 Fair value gain or loss under IFRS 9 $'000 Additions $'000 Disposals $'000 1,480 1,480 — — — — 2019 $'000 5,017 5,017 140 FINANCIAL STATEMENTS The redemption is conditional on occurrence of uncertain future events beyond the control of the Group. The amount that would be payable in case of such events is as follows: As of 31 December: BridgeComm Total liquidation preference 2020 $'000 6,500 6,500 2019 $’000 5,020 5,020 For the two years ended 31 December 2020, the Group recognised the following changes in subsidiary preferred shares: • On 4 February 2020, BridgeComm issued $2,000,000 in convertible notes to Allied Minds, following the issuance of $1,000,000 in convertible notes to Boeing HorizonX Ventures in December 2019. In August 2020, as a result of achieving certain development milestones under the JDA with Boeing, BridgeComm secured the remaining $1.5 million of convertible debt from Boeing. The fair value is derived using the option pricing model (“OPM”), the Probability-Weighted Expected Return Method (“PWERM”) or a hybrid of the two. The key inputs into these valuation models include the equity value of the subsidiary, the term of the instrument, risk free rate and volatility. The valuation methodologies utilised for determining the equity value include the market approach, income approach or cost approach or hybrid of these approaches. Other methodologies such as asset based are also utilised where deemed appropriate. It is noted that in the current year none of the equity values were determined using the income approach. Where there has been a third party funding round in the year this has been used as the implied value of the portfolio company or comparable guideline public companies or comparable transactions, adjusted for indexation where this is deemed to be appropriate. Whilst the Board considers the methodologies and assumptions adopted in the valuation are supportable, reasonable and robust, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the investment existed and the differences could be significant. PWERM and OPM The principal methods the Group applies for allocation of value are the PWERM, the OPM as well as a hybrid of the two. These models take assumptions such as the equity values, term of the instruments, risk free rate and volatility to determine the fair value of each share class. The PWERM estimates the value of equity securities based on an analysis of various discrete future outcomes, such as an IPO, merger or sale, dissolution, or continued operation as a private enterprise until 141 FINANCIAL STATEMENTS a later exit date. The equity value today is based on the probability-weighted present values of expected future investment returns, considering each of the possible outcomes available to the enterprise, as well as the rights of each security class. The key judgement relates to probability weighting of the scenarios. The OPM treats common stock or derivatives thereof as call options on the enterprise’s value or overall equity value. The value of a security is based on the optionality over and above the value securities that are senior in the capital structure (e.g. preferred stock), considering the dilutive effects of subordinate securities. In the OPM, the exercise price is based on a comparison with the overall equity value rather than per-share value. Allocation Model Inputs The following presents the quantitative information about the significant unobservable inputs used in the fair value measurement of the Group’s subsidiary preferred shares liability: As of 31 December: Volatility Time to Liquidity (years) Risk-Free Rate Probability M&A 2020 53.6% 2.00 0.10% 100% 2019 n/a* 1.64 n/a* 15%-85% *In 2019, The Group valued BridgeComm using PWERM as opposed to OPM used in the current year and as such not applicable. Sensitivity Analysis The following summarises the sensitivity from the assumptions made by the Company in respect to the unobservable inputs used in the fair value measurement of the Group’s subsidiary preferred shares liability. Option Pricing Model and Probability Weighted Expected Return Method Inputs for Investments Held at Fair Value at 31 December 2020 and 2019 respectively: As of 31 December: OPM Measurement Date 2020 $'000 Input Sensitivity range Enterprise Value Volatility Time to Liquidity Risk-Free Rate (1) -2% +2% -10% +10% -6 months +6 months -0.02/ -n/a 0.02/ n/a (112) 114 266 (264) 117 (112) 117 (112) 142 FINANCIAL STATEMENTS PWERM Measurement Date As of 31 December: Input Enterprise Value Discount rate Time to Liquidity Sensitivity range -2% 2% -5% 5% -2.0 months +2.0 months 2019 $'000 (38) 76 378 (304) 304 (228) (1) Risk-free rate is a function of the time to liquidity input assumption. The subsidiary preferred shares are measured at fair value through profit/loss (FVTPL) according to IFRS 9 at initial recognition and upon subsequent measurement. Hence, any gains and losses on the preferred shares liability are recognised in profit or loss, unless they relate to changes in the entity’s own credit risk for financial liability designated as at fair value through profit or loss. The effect of changes in the entity’s own credit risk in the fair value of the financial liabilities are presented in other comprehensive income. There were no adjustments considered for movement in credit risk as this is not applicable within the specific valuation frameworks utilized for the fair values of the Group’s preferred share liability. The subsidiary preferred shares values and movement in credit risk, if applicable, are being constantly monitored as new information becomes available. For the year ended 31 December 2020, the change in fair value of the subsidiary preferred shares is recorded in Finance cost, net in the consolidated statement of comprehensive loss. (17) Trade and Other Payables As of 31 December: Trade payables Accrued expenses Other current liabilities Trade and other payables, current (18) Loans As of 31 December: Current liabilities - Loans: Unsecured loans PPP loans Non- Current liabilities - Loans: Unsecured loans Total loans 2020 $'000 319 1,457 325 2,101 2019 $'000 1,195 3,100 390 4,685 2020 $'000 2019 $'000 — — 1,965 1,965 2,965 184 1,440 4,589 143 FINANCIAL STATEMENTS The terms and conditions of outstanding loans are as follows: 2020 $'000 2019 $'000 As of 31 December: Unsecured loan(1) Unsecured loan(2) Unsecured loan(3) Total interest bearing liabilities Currency Nominal interest rate Year of maturity Face value Carrying amount Face value Carrying amount USD USD USD 5.0% 12.0% 8.0% 2019-21 2020-21 2019-22 2,500 100 1,325 3,825 2,862 103 1,440 1,000 1,000 950 965 4,589 1,950 1,965 BridgeComm convertible note (1) On 16 December 2019, BridgeComm secured $1.0 million of funding through the issuance of a convertible bridge note to Boeing HorizonX Ventures, LLC (“Boeing”). All principal and accrued interest shall be due and payable on 31 January 2021. In August 2020, as a result of achieving certain development milestones under the JDA with Boeing, BridgeComm secured the remaining $1.5 million of convertible debt from Boeing. The $2.5 million promissory note was issued at a 5.0% interest rate that will be compounded monthly and computed on the basis of a year of 365 days for the actual number of days elapsed and shall be paid on the maturity date. The entire instrument and the offsetting discount will be measured at fair value through profit or loss as the conversion feature fails the fixed for fixed equity classification. At 31 December 2020, the entire instrument was adjusted by a fair market change of $0.3 million. OcuTerra Therapeutics promissory note (2) On 23 September 2020, OcuTerra Therapeutics secured $0.1 million of funding through the issuance of a promissory note to multiple investors at annual interest rate of 12.0% payable within one year from the date of issuance. The note was issued at an interest rate that will accrue on the unpaid Principal Amount at the rate of twelve (12%) per annum computed on the basis of a 365-day year. OcuTerra Therapeutics convertible note (3) On 5 November 2019, OcuTerra Therapeutics secured $0.95 million of funding through the issuance of a convertible bridge note to multiple investors at annual interest rate of 8.0%. On 10 January 2020, OcuTerra Therapeutics raised an additional $0.4 million in the second closing of its convertible note financing. The note was issued at an interest rate that will accrue on the unpaid Principal Amount at the rate of eight (8%) per annum, payable at the maturity date (36 month anniversary of the closing date). All accrued interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months, and shall be payable on the date the outstanding principal amount shall become due and payable, whether on the Maturity Date or by acceleration or otherwise, or upon conversion. The entire instrument and the offsetting discount will be measured at fair value through profit or loss as the conversion feature fails the fixed for fixed equity classification. 144 FINANCIAL STATEMENTS (19) Leases Office and laboratory space is rented under non-cancellable operating leases. These lease agreements contain various clauses for renewal at the Group’s option and, in certain cases, escalation clauses typically linked to rates of inflation. Right of use asset Balance at 1 January Additions Derecognition of right-of-use assets* Depreciation Deconsolidation Balance at 31 December 2020 $000s 1,016 - - (365) - 651 * Derecognition of the right-of-use assets during 2019 is as a result of entering into a finance sub-lease. Lease liability Balance at 1 January Additions Cash paid Interest expense Deconsolidation Balance at 31 December 2020 $000s 2,854 - (1,150) 126 - 1,830 2019 $000s 4,205 6,897 (1,693) (1,216) (7,177) 1,016 2019 $000s 4,490 6,898 (1,540) 209 (7,203) 2,854 The following details the short term and long-term portion of the lease liability as at 31 December 2020: Lease liability released in < 1 year Lease liability released in over 1 year Total Lease Liability Total lease liability $000s 1,024 806 1,830 During 2019, the Group relocated its corporate headquarters and as a result it sub-leased the office space that has been presented as part of a right-of-use asset. As the sub-lease is for all of the remaining useful economic life of the right-of-use asset, the sub-lease is classified as a finance lease. The following table sets out a maturity analysis of lease receivables, showing the undiscounted lease payments to be received after the reporting date. Under IAS 17, the Group did not have any finance leases as a lessor. 145 FINANCIAL STATEMENTS In thousands of $ Less than 1 year Between 1 and 5 years More than 5 years Total undiscounted lease receivable Unearned finance income Net investment in the lease 31 December 2020 740 438 - 1,178 47 1,131 Additions in the period relate to site leases that were entered into by Allied Minds’ consolidated subsidiaries during 2019. Amounts were arrived at using the contractual minimal lease payments, present valued using the applicable incremental borrowing rate of 5.50%. Amounts recognised in profit or loss In thousands of $ 2020 – Leases under IFRS 16 Interest on lease liabilities Income from sub-leasing right-of-use assets presented in ‘interest income’ (20) Financial Instruments and Related Disclosures 31 December 2020 126 78 The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy: As of 31 December: Financial assets designated as fair value through profit or loss Investments at fair value Convertible note receivable Loans and receivables Cash and cash equivalents Trade and other receivables Security and other deposits Total Financial liabilities designated as fair value through profit or loss Convertible notes Subsidiary preferred shares Financial liabilities measured at amortised cost Trade and other payables Lease liability Total 2020 $'000 Fair value Level 1 Level 2 Level 3 Total — — — 41,588 41,588 1,500 — 1,500 — 1,500 41,588 43,088 — — 4,590 — — 6,497 4,590 6,497 — 4,590 6,497 11,087 Carrying Amount 41,588 1,500 24,489 5,816 1,360 74,753 4,590 6,497 2,101 1,830 15,018 146 FINANCIAL STATEMENTS As of 31 December: Financial assets designated as fair value through profit or loss Investments at fair value Convertible note receivable(1) Loans and receivables Cash and cash equivalents Trade and other receivables Security and other deposits Total Financial liabilities designated as fair value through profit or loss Convertible notes Subsidiary preferred shares Financial liabilities measured at amortised cost Trade and other payables Lease liability Total 2019 $'000 Fair value Level 1 Level 2 Level 3 Total Carrying Amount 61,895 750 — — — 750 61,895 61,895 — 750 90,571 5,702 2,088 161,006 — 750 61,895 62,645 1,965 5,017 — — 1,965 — — 5,017 1,965 5,017 4,685 2,854 14,521 — 1,965 5,017 6,982 (1) On 5 August 2020, TableUp has been acquired by TouchBistro, Inc. (“TouchBistro”). As a result of the acquisition, the entire instrument was converted into common shares during the year to 31 December 2020. Total other financials assets were as follows: For the year ended 31 December: Deposits Other long term assets Total Convertible note receivable Other current assets Total 2020 $'000 81 500 581 1500 779 2,279 2,860 2019 $'000 122 1,135 1,257 750 831 1,581 2,838 The fair value of financial instruments that are not traded is determined by using valuation techniques that maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the 147 FINANCIAL STATEMENTS instrument is included in Level 2. Where the inputs for determining the fair value of financial instruments are not based on observable market data, the instrument is included in Level 3. For assumptions used in the fair value measurement of the Group’s convertible notes designated as Level 2, see note 18. For assumptions used in the fair value measurement of the Group’s subsidiary preferred shares liability designated as Level 3, see note 16. For assumptions used in the fair value measurement of Investments at fair value designated as Level 3, see note 11. Cash and cash equivalents, trade receivables, and trade payables are carried at cost, which approximates fair value because of their short-term nature. (21) Capital and Financial Risk Management The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors the level of capital deployed and available for deployment in subsidiary projects. The Board of Directors seeks to maintain a balance between the higher returns that might be possible with higher levels of deployed capital and the advantages and security afforded by a sound capital position. The Group’s executive management and Board of Directors have overall responsibility for establishment and oversight of the Group’s risk management framework. The Group is exposed to certain risks through its normal course of operations. The Group’s main objective in using financial instruments is to promote the commercialisation of intellectual property through the raising and investing of funds for this purpose. The Group’s policies in calculating the nature, amount and timing of funding are determined by planned future investment activity. Due to the nature of activities and with the aim to maintain the investors’ funds secure and protected, the Group’s policy is to hold any excess funds in highly liquid and readily available financial instruments and reduce the exposure to other financial risks. The Group has exposure to the following risks arising from financial instruments: Credit Risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, investments held at fair value, and trade and other receivables. The Group held following balances: As of 31 December: 2020 $'000 2019 $'000 Cash and cash equivalents Investments held at fair value Trade and other receivables 90,571 61,895 5,702 158,168 24,489 41,588 5,816 71,893 148 FINANCIAL STATEMENTS The Group maintains money market funds, certificates of deposits, and fixed income securities with financial institutions, which the Group believes are of high credit quality. Risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on ratings in accordance with limits set by the Board. The utilisation of credit limits is regularly monitored. The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to credit ratings (if available) or to historical information about counterparty default rates. Group policy is to maintain its funds in highly liquid deposit accounts with reputable financial institutions. The Group’s investments in preferred stock are accounted for at fair value through profit or loss (FVTPL) in accordance with IFRS 9. This measurement is appropriate as these financial assets are not held with the objective to collect contractual cash flows which are solely payments of principal and interest (SPPI) on the principal amount outstanding. The entity is primarily focused on fair value information and uses that information to assess the asset’s performance and to make decisions. The subsidiary preferred shares values and movement in credit risk are being constantly monitored as new information becomes available. The aging of trade receivables that were not impaired was as follows: As of 31 December: 2020 $'000 2019 $'000 Neither past due nor impaired Past due 30-90 days Past due over 90 days Reserve for bad debt 135 259 ― ― 394 60 ― ― ― 60 The Group has a concentration of credit risk in respect of it financial asset held at fair value through the profit or loss which relate to preferred share liabilities of $38.8 million. Of this balance $28.5 million relates specifically to the preferred shares held in Federate Wireless. These investments are reviewed in detail in note 11. The Group assesses the credit quality of customers, taking into account their current financial position. An analysis of the credit quality of trade receivables that are neither past due nor impaired is as follows: As of 31 December: Customers with less than three years of trading history with the Group 2020 $'000 2019 $'000 394 394 60 60 Liquidity Risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities 149 FINANCIAL STATEMENTS when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group seeks to manage liquidity risk, ensuring that sufficient liquidity is available to meet foreseeable requirements. The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest payments and exclude the impact of netting agreements. The current portion of the carrying amount of lease obligations is included in trade and other payables. As of 31 December 2020: $'000 Trade and other payables Subsidiary notes payable Subsidiary preferred shares Lease liability Carrying amount Total Contractual cash flows Less than 1 year 2-5 years More than 5 years 2,101 4,590 6,497 1,830 15,018 2,101 4,302 6,497 1,830 14,730 2,101 3,150 6,497 1,830 13,578 — 1,440 — — 1,440 — — — — — As of 31 December 2019: $'000 Carrying amount Trade and other payables Subsidiary notes payable Subsidiary preferred shares Lease liability 4,685 1,965 5,017 2,854 14,521 Contractual cash flows Less than 1 year 2-5 years More than 5 years 4,685 1,965 5,017 2,854 14,521 — — — — — — — — — — Total 4,685 1,965 5,017 2,854 14,521 It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts. 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. The Group maintains the exposure to market risk from such financial instruments to insignificant levels. The Group exposure to changes in interest rates is determined to be insignificant. Capital Risk Management The Group is funded by equity finance and long term borrowings. Total capital is calculated as ‘total equity’ as shown in the consolidated statement of financial position. 150 FINANCIAL STATEMENTS The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may issue new shares or borrow new debt. The Group has some external debt in the form of preferred shares and no material externally imposed capital requirements. The Group’s share capital is set out in note 16. (22) Related Parties Transactions with Key Management Personnel Key Management Personnel Compensation Key management personnel compensation received comprised the following: For the year ended 31 December: Short-term employee benefits Share-based payments Total 2020 $'000 1,022 105 1,127 2019 $'000 608 - 608 Short-term employee benefits of the Group’s key management personnel include salaries and bonuses, health care and other non-cash benefits. Share-based payments include the value of awards granted under the LTIP during the year. Share-based payments under the LTIP are subject to vesting terms over future periods. See further details of the two plans in note 6. Bonuses to key management for the year of $375,000 were outstanding at 31 December 2020 (2019: $522,600) and were paid in January of 2021. Key Management Personnel Transactions Directors’ remuneration for the year comprised the following: For the year ended 31 December: Executive Directors’ fees Non-executive Directors' fees Total 2020 $'000 1,127 359 1,486 2019 $'000 3,086 254 3,340 Executive management and Directors of the Company control 0.6% of the voting shares of the Company as of 31 December 2020 (2019: 0.8 %). In October 2020, Bruce Failing (Chair of Remuneration Committee) purchased 80,000 shares of the company. 151 FINANCIAL STATEMENTS The Group has not engaged in any other transactions with key management personnel or other related parties. (23) Taxation Amounts recognised in profit or loss No current income tax expense was recorded for the years ended 31 December 2020 and 2019 due to accumulated losses. For the year ended 31 December: Net income/(loss) Income taxes Net income/(loss) before taxes Reconciliation of Effective Tax Rate 2020 $'000 (53,025) — (53,025) 2019 $'000 50,254 — 50,254 The Group is primarily subject to taxation in the US, therefore the reconciliation of the effective tax rate has been prepared using the US statutory tax rate. A reconciliation of the US statutory rate to the effective tax rate is as follows: US federal statutory rate Effect of state tax rate in US Research credits Share-based payment remeasurement Permanent differences from consolidation Other permanent differences Current year income/(losses) for which no deferred tax asset/(liability) is recognised 2020 % 2019 % 21.0 5.3 0.7 (0.4) 1.2 (0.7) (27.1) — 21.0 5.1 (2.5) (1.2) (38.3) 0.1 15.8 — Factors that may affect future tax expense The Group is primarily subject to taxation in the US and UK. Additionally, the Group is exposed to state taxation in various jurisdictions throughout the US. Changes in corporate tax rates can change both the current tax expense (benefit) as well as the deferred tax expense (benefit). A UK corporation rate of 19% (effective 1 April 2020) was substantively enacted on 17 March 2020, reversing the previously enacted reduction in the rate from 19% to 17%. This will increase the company's future current tax charge accordingly. The Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%. The change in our future effective tax rate is not anticipated to have an effect on our tax until all of our U.S. federal net operating losses and credits have been utilised. 152 FINANCIAL STATEMENTS Unrecognised Deferred Tax Assets Deferred tax assets have not been recognised in respect of the following items, due to history of operating losses and no convincing evidence that future taxable profit will be available against which the Group can use the benefits therefrom, as well as due to potential permanent restrictions under Internal Revenue Code Section 382 rules: As of 31 December: Tax loss carry forward Research credits Temporary differences Deferred tax assets Other temporary differences Deferred tax liabilities Deferred tax assets, net, not recognised 2020 $’000 2019 $'000 79,285 7,022 15,494 101,801 — — 101,801 78,472 6,739 5,931 91,142 — — 91,142 Deferred tax is measured at the rates that are expected to apply in the period when the temporary differences are expected to reverse, based on tax rates and laws that have been enacted or substantially enacted by the statement of financial position date. As of 31 December 2020 the Company had United States federal net operating losses carry forwards (“NOLs”) of approximately $292.7 million (2019: $288.4 million) available to offset future taxable income, if any. These carryforwards start to expire in 2024 and are subject to review and possible adjustment by the Internal Revenue Service. The Company may be subject to limitations under Section 382 of the Internal Revenue Code as a result of changes in ownership. The Company’s preliminary analysis on the impact from Section 382 limitations suggests that there is unlikely to be a material restriction on NOLs. A detailed exercise is ongoing. Upon the completion of the study, there may or may not be limitations on the Company’s ability to utilise its current NOLs against future profits, although these are not expected to be material. (24) Subsequent Events The Company has evaluated subsequent events through 29 March 2021, which is the date the consolidated financial information is available to be issued. On 11 January 2021, OcuTerra Therapeutics, Inc. issued $100K in the form of a promissory note to Maxim Partners LLC. 153 FINANCIAL STATEMENTS COMPANY BALANCE SHEET As of 31 December Note 2020 $ '000 2019 $ '000 Non-current assets Loan to subsidiary Total non-current assets Current assets Cash and cash equivalents Trade and other receivables Loan to subsidiary Total current assets Total assets Equity Share capital Translation reserve Accumulated reserves Total equity Current liabilities Trade and other payables Total current liabilities Total liabilities Total equity and liabilities Registered number: 08998697 3 2 4 4 4 4 92,648 92,648 1,756 284 — 2,040 94,688 3,767 (59,394) 150,080 94,453 235 235 235 94,688 147,432 147,432 2,082 85 40,000 42,167 189,599 3,759 (54,612) 239,876 189,023 576 576 576 189,599 The financial statements on pages 154 to 160 were approved by the Board of Directors and authorised for issue on 29 March 2021 and signed on its behalf by: Harry Rein Non-Executive Chairman 154 FINANCIAL STATEMENTS COMPANY STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2020 Balance at 31 December 2018 Total comprehensive loss for the year Loss for the year Foreign currency translation Total comprehensive loss for the year Reduction of capital Issuance of ordinary shares Equity-settled share based payments Balance at 31 December 2019 Total comprehensive loss for the year Loss for the year Foreign currency translation Total comprehensive loss for the year Issuance of ordinary shares Dividend payment Equity-settled share based payments Balance at 31 December 2020 Share capital Share Merger Translation Accumulated Total Shares 240,314,745 Amount $'000 3,743 premium $'000 160,170 reserve $'000 263,367 reserve $'000 (70,857) reserves $'000 (167,815) equity $'000 188,608 — — — 1,248,378 — — — — 16 — 241,563,123 3,759 — — 624,862 — — — — 8 — — 242,187,985 3,767 — — — — — 16,245 (6,310) (7,537) (6,310) 8,708 (160,170) (263,367) — — — — — — — — — — — — — — — — — — 16,245 (13,847) 2,398 — — — 423,537 — — 16 (1,999) (1,999) (54,612) 239,876 189,023 — (4,782) (55,917) 4,894 (55,917) 112 (4,782) (51,023) (55,805) — — — (39,707) 934 8 (39,707) 934 (59,394) 150,080 94,453 155 Note 2020 $ '000 2019 $ '000 (55,917) (6,310) 934 53,755 (199) (340) (2,086) (3,853) 43,223 43,223 8 (39,705) (39,697) (328) 2,082 1,756 (1,999) 6,515 139 370 (2,691) (3,976) 4,296 4,296 16 — 16 336 1,746 2,082 FINANCIAL STATEMENTS COMPANY STATEMENT OF CASH FLOWS For the year ended 31 December: Cash flows from operating activities: Net operating loss Adjustments to reconcile net loss to net cash used in operating activities: Share-based compensation expense Impairment loss in subsidiary and loan to subsidiary Changes in working capital: Decrease/(increase) in trade and other receivables Decrease in trade and other payables Other finance cost Net cash used in operating activities Cash flows from investing activities: (Issuance)/repayments of note receivable to subsidiary, net Net cash provided by investing activities Cash flows from financing activities: Proceeds from issuance of share capital Dividend payment Net cash (used in)/ provided by financing activities 3 4 4 Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period 156 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2020 (1) Accounting Policies Basis of Preparation and Measurement The financial statements of the parent company have been prepared under the historical cost convention, in accordance with international accounting standard in conformity with the requirements of the Companies Act 2006 and in accordance with the International Financial Reporting Standards, International Accounting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union (“Adopted IFRSs”). A summary of the more important accounting policies which have been applied consistently throughout the year are set out below. Functional and Presentation Currency The functional currency of the parent company is British Pounds. The financial statements of the parent company are presented in US dollars to the nearest $’000s. Foreign Currency Transactions in foreign currencies are translated to the respective functional currencies of the parent company at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined. On translation of the Company financial statements from functional currency to presentational currency the assets and liabilities are translated at the closing exchange rates. Profit and loss accounts are translated at the average rates of exchange during the year. Gains and losses arising on these translations are taken to reserves. Intercompany Loans All intercompany loans are initially recognised at fair value and subsequently measured at amortised cost. Where intercompany loans are intended for use on a continuing basis in the Company’s activities and there is no intention of their settlement in the foreseeable future, they are presented as non-current assets. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid instruments with original maturities of three months or less. Impairment If there is an indication that an asset might be impaired, the Company will perform an impairment review. An asset is impaired if the recoverable amount, being the higher of net realisable value and value in use, is less than its carrying amount. Value in use is measured based on future discounted cash flows (“DCF”) 157 FINANCIAL STATEMENTS attributable to the asset. In relation to the investment held in subsidiaries and intra group receivable balance the net realisable value is the fair value of the underlying subsidiaries. In such cases, the carrying value of the asset is reduced to recoverable amount with a corresponding charge recognised in the profit and loss account. The underlying assumptions in determining the fair value of the subsidiaries are key estimates and include the determination of the fair value as described in note 11 and 16 of the group financial statements. Financial Instruments Currently the Company does not enter into derivative financial instruments. Financial assets and financial liabilities are recognised and cease to be recognised on the basis of when the related titles pass to or from the Company. Share-based Payments Share-based payment arrangements in which the Company receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the Company. The Company’s share based payment scheme, which awards shares in the parent entity, includes recipients who are not employees the company, but in its subsidiaries. Where beneficiaries are employees in a subsidiary, their element of the share based payment charge would usually be capitalized to recognize the service received by the subsidiary. To the extent that these amounts will not be recovered the charge has continued to be expensed by the Company. The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non- market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. (2) Cash and Cash Equivalents As of 31 December: Bank balances Cash and cash equivalents (3) Loan to Subsidiary Balance at 1 January Additions Impairment 2020 $'000 2019 $'000 1,756 1,756 2,082 2,082 2020 $'000 187,431 1,910 (53,755) 2019 $'000 186,842 3,572 (6,515) 158 FINANCIAL STATEMENTS Repayments Effect from currency translation Balance at 31 December (45,133) 2,195 92,648 (7,867) 11,399 187,431 The Company has loaned its excess cash to its operating subsidiary Allied Minds, LLC (‘the subsidiary’) , as part of its continuing working capital investment programme in the wider group, and to be further deployed by the subsidiary, to enable the group to deliver its strategic plans. The note bears an interest of 1.25% and in the foreseeable future, repayment is neither planned nor likely to occur. During 2020, the Directors reviewed the value of the underlying business and concluded an impairment charge of $53.8 million should be recorded. The asset’s recoverable amount is determined to be based on the fair value of the company’s subsidiaries together with its associates, preferred shares held and the recoverable cash. This has been recorded against the loan to subsidiary balance (this note). (4) Share Capital and Reserves Allied Minds plc was incorporated with the Companies House under the Companies Act 2006 as a public company on 15 April 2014. Full detail of the share capital and reserves activity for the year can be found in note 16 to the consolidated financial statements. As of 31 December: 2020 $'000 2019 $'000 Equity Share capital, $0.01 par value, issued and fully paid 242,187,985 and 241,563,123, respectively Translation reserve Accumulated deficit Total equity 3,767 (59,394) 150,080 94,453 3,759 (54,612) 239,876 189,023 In December 2016, the Company issued 17,457,015 ordinary shares of one pence at 367 pence, which were admitted to the premium listing segment of the Official List of the UK Listing Authority and to trading on the LSE’s Main Market for listed securities. This resulted in approximately $78.1 million of net proceeds from the equity placing (net of issue cost of $2.2 million). The amounts subscribed for share capital in excess of the nominal value in relation to this transaction are reflected in the merger reserve balance as of 31 December 2016. On 8 November 2019, Allied Minds plc completed the sale of its entire stake in its portfolio company HawkEye 360 to Advance for cash consideration of $65.6 million. As a result, the Company remeasured the investment to the fair value on the date of the sale and derecognised its investment of $65.6 million. In addition, Allied Minds made a distribution of $4.9 million to participants under the terms of the Company’s Phantom Plan. On 5 December 2019, Allied Minds plc completed a court-approved reduction of the Company’s capital by way of: (i) the capitalisation of the amount standing to the credit of the Company’s merger reserve by way of the issue and subsequent cancellation of the Capital Reduction Shares; and (ii) the cancellation of 159 FINANCIAL STATEMENTS the amount standing to the credit of the Company’s share premium account, so as to create distributable reserves (the “Capital Reduction”). The Capital Reduction created realised profits sufficient to eliminate the accumulated losses of the Company and establish positive distributable reserves of approximately $191.4 million. The purpose of the reduction of capital was to provide distributable reserves to enable the Company to make a special dividend payment of $39.7 million to shareholders and provided the flexibility for future dividend payments. Following the reduction of capital, the number of issued shares and the rights attached to those shares remained unchanged. In February 2020, Allied Minds made a special cash dividend payment to shareholders of $39.7 million as a result of the sale of Allied Minds’ share in HawkEye in the second half of 2019. Holders of Ordinary Shares are entitled to vote, on all matters submitted to shareholders for a vote. Each Ordinary Share is entitled to one vote. Each ordinary share is entitled to receive dividends when and if declared by the Company’s Board of Directors. The share-based payment credit for the fiscal year ended 31 December 2020 included in accumulated deficit was $0.9 million (2019 charge: $2.0 million). (5) Profit and Loss Account As permitted by Section 408 of the Companies Act 2006, the Company’s profit and loss account has not been included in these financial statements. The Company’s loss for the year was $55,917,000 (2019: $6,310,000). (6) Directors’ Remuneration, Employee Information and Share-based Payments The remuneration of the Directors of the Company is disclosed in note 23 to the consolidated financial statements. Full details for their remuneration can be found in the Directors’ Remuneration Report on pages 71 to 83. Full detail of the share-based payment charge and related disclosures can be found in note 6 to the consolidated financial statements. The Company had one employee during 2020 (2019: one). 160 Company Information Company Registration Number 08998697 Registered Office Beaufort House 51 New North Road Exeter EX4 4EP United Kingdom Website www.alliedminds.com Board of Directors Harry Rein (Non-Executive Chairman) Bruce Failing (Senior Independent Director) Mark Lerdal (Independent Non-Executive Director) Company Secretary Nina Thayer Broker Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT United Kingdom TEL: +44 207 260 1000 Registrar Link Group The Registry Unit 10 Central Square 29 Wellington Street Leeds LS1 4DL TEL UK: 0871 664 0300 TEL Overseas: +44 208 639 3399 Solicitors DLA Piper UK LLP 160 Aldersgate Street London EC1A 4HT United Kingdom TEL: +44 207 349 0296 Independent Auditor BDO LLP 55 Baker Street London W1U 7EU United Kingdom TEL: 020 7486 5888 Media Relations Instinctif Partners 65 Gresham Street, London EC2V 7NQ United Kingdom TEL: +44 20 7457 2020 161 

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