Company Registration No. 09910883 Belluscura plc Annual report and financial statements for the year 31 December 2020 Belluscura plc Report and financial statements 2020 Contents Page Officers and professional advisers Strategic report Directors’ report Statement of directors’ responsibilities in respect of the Strategic Report, the Directors’ Report and the Financial Statements Independent Auditor’s report to the members of Belluscura plc Consolidated Statement of Profit and Loss and other Comprehensive Income Consolidated Balance sheet Company Balance sheet Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated Statement of cash flows 1 2-3 4-5 6 7-9 10 11 12 13 14 15 Notes to the accounts 16-38 Belluscura plc Report and financial statements 2020 Officers and professional advisers Robert Rauker Anthony Stephen Dyer Registered Office 15 Fetter Lane Holborn London EC4A 1BW Auditor KPMG LLP Gateway House Tollgate Chandler's Ford Eastleigh Southampton SO53 3TG Banks Barclays Bank Plc 1 Churchill Place London E14 5HP Comerica Bank PO Box 650282 Dallas Texas TX 75265-0282 Solicitor DWF 20 Fenchurch Street London EC3M 3AG 1 Belluscura plc Strategic report for the year ended 31 December 2020 The Directors present their strategic report on the Group for the year ended 31 December 2020. The principal activity of the parent company is that of a holding management company and that of the Group is to develop and commercialise in oxygen related medical device products. This is achieved by using its proprietary oxygen enrichment technologies to advance the use of oxygen in medical products. Review of the Business Belluscura is a private English company founded on the principle of making healthcare both more affordable and more available while returning a strong profit to our shareholders. In February 2017, the Company entered into a co-exclusive license and development agreement with Separation Design Group (“SDG”) to complete the development of the X-PLORTM, a portable oxygen concentrator, used to deliver concentrated oxygen to a patient requiring oxygen therapy. Belluscura and SDG delivered a working prototype within five months of acquiring the X-PLORTM license. X-PLORTM received 510k clearance from the FDA on 2 March 2021. The Company expect to launch the product in H1 2021. The Company has also developed follow-on products for the X-PLORTM range of oxygen concentrators, the X-PLOR CXTM and X-PLOR DXTM, which will target the same oxygen markets and believe they can commercialise these products in H2 2021 and H1 2022 respectively. The Company continues to work on other oxygen enrichment technologies in complementary markets. The Company has taken the strategic decision to focus purely on the oxygen enrichment marketplace and divested its existing products in 2019. The Company retains the licence to the SNAP IIITM with a view to exploring future commercialisation opportunities, but due to the uncertainty of timescales, it has fully impaired this licence. As the business mainly operates in the US through its subsidiary Belluscura LLC the Company does not perceive any near term risk of Brexit impacting the Group. Current Trading and Outlook The Directors believe that the major opportunities lie with the X-PLORTM and complementary technologies. The Directors believe that X-PLORTM, when launched, will provide significant growth for the Group. It is expected that the longer-term health impact of the Covid-19 pandemic will increase demand for long term oxygen therapy and accelerate the growth in the market. Forecast of the supplementary oxygen market now expected it to reach $5.74bn by 2026. The Directors believe the Group has made solid progress in achieving its mission. Financial review The Group is still in its early stages of development. Funds raised from investors are being applied to pursuing our strategic objectives. We continue to be primarily focussed on completing the X-PLORTM. Group sales for the period to 31 December 2020 were US $nil (2019: $128,701) with losses of US $1,978,145 (2019: $1,551,996). Group net assets at the end of the period were US $4,668,864 (2019: $3,727,929). Principal Risks and Uncertainties The Group actively considers and manages its risks. The Directors consider the following areas of business and operational risk and details how this risk is managed or mitigated: • Generating revenue. The Group was formed in 2015 and is still in start-up phase. Having divested its existing products in 2019, the Group’s focus is on the commercialisation of X-PLORTM in H2 2021 Management performs regular reviews of the sector to ensure it is targeting large markets. • Successful product development. The Group received FDA 510k clearance for X-PLORTM on 2 March 2021. The Group’s follow-on products are in advanced development and are based upon the same technology as X-PLORTM. • Credit risk. The Group’s principal financial assets are cash, and trade and other receivables. The Group monitors receivables and should any be the subject of an identified loss event, allowance is made for impairment if required. At the end of the period the Group had no customers. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. Further, apart from intercompany consolidated transactions the Group has no current debt outstanding. 2 Belluscura plc • Liquidity risk. To support expansion plans for future development, the Group regularly reviews its financing arrangements and cash flows to ensure there is sufficient funding in place. • Foreign exchange risk. As the Group holds Sterling cash deposits and reports its financial performance in US Dollars, this exposes the Group to a potential unrealised currency risk on its Sterling bank balances. This relates to the raising of capital in the United Kingdom. The Directors review this exposure on a regular basis. COVID-19 The Board have reviewed and assessed the impact of the COVID-19 pandemic on the Group. This did result in the FDA clearance process being elongated, however clearance was received on 2 March 2021. The longer-term impact on oxygen requirements for recovering COVID-19 patients is yet unknown, however the Group believes that there will be increased demand for oxygen related devices globally. The Group will continue to develop innovative advanced oxygen solutions. Analysis of Financial and non-Financial Key Performance Indicators The Board continues to monitor performance regularly throughout the year by reviewing a range of key performance indicators. These include revenue growth, progress towards operational break even, and expenditure control against budget. The Directors expect further improvement in performance in future periods as it achieves success in the Group’s strategy to launch its products and grow through continual investment. By Order of the Board A S Dyer Chief Financial Officer 27 April 2021 3 Belluscura plc Directors’ report for the year ended 31 December 2020 The Directors present their annual report and the audited financial statements for the year ended 31 December 2020. Research and development The Group continues to invest in the development of the X-PLORTM range of products. Proposed dividend No dividend was paid or was proposed during the period ended 31 December 2020. Directors The following Directors held office during the period, and to the date of this report. Robert Rauker Anthony Stephen Dyer (appointed 18 August 2016) (appointed 13 November 2017) Going concern In adopting the going concern basis for preparing the financial statements, the directors have considered the principal activities as well as the business risks as set out on pages 2 to 3. The Group made a loss of US $1,978,145 in the period to 31 December 2020 (2019: loss of US $1,551,996). At the balance sheet date the Group had net assets of US $4,668,864 (2019: US $3,727,929) and utilised net operating cash outflows of $1,470,773 (2019: US $1,002,377). The Company raises the funds required for the Group’s activities and has successfully undertaken several Private Funding rounds raising over $13,500,000 to date to support the Group. During the reporting period, funding rounds raised approximately $2.7m. This cash has allowed the Group to continue to trade, complete FDA 510k clearance of the X-PLORTM portable oxygen concentrator and continue the development of its follow-on products, the X-PLORTM CX and the X-PLORTM DX portable oxygen concentrators. The Company is targeting commercial launch of X-PLORTM in H1 2021. Since the period end the Group has raised $2.7m equity from new and existing shareholders which will allow the business to continue to trade. Further equity fundraising is planned in 2021 to support the commercial launch of X-PLORTM. The Group has a number of private shareholders who have been supportive during all fundraisings to date and believe that, given FDA clearance of X-PLORTM, they will continue to be supportive. As with any company placing reliance on shareholders for financial support, the directors acknowledge that there can be no certainty that this support will continue although, at the date of approval of these financial statements, they have no reason to believe that it will not do so. The Group expects that due to the close link of the COVID-19 virus to Oxygen Therapy requirements the prospects for the Group going forward to be enhanced by an increase in the requirement for Oxygen related products. The Group’s forecasts and projections, including the intention to raise further funds on the public markets to commercialise the X-PLORTM, indicate that the Group has sufficient cash reserves to operate within the level of its current facilities for a period of 12 months from the date of approval of the financial statements. The Group's forecasts and projections, taking account of reasonably possible downsides in trading performance and development costs/timelines, and the risks to these projections (set out in the Principal Risks and Uncertainties section of the Group Strategic Report on Page 3) have been considered in the assessment of these forecasts. Whilst the directors expect that further equity raising will be successful, to the extent it is not, the directors believe that the most likely alternative will be to curtail its operations, halt development and delay commercialisation whilst looking for alternative source of funding. In the unlikely situation where this is also unsuccessful, the Group may cease further development of the X- PLORTM range and seek potential purchasers of the company or the IP intrinsically linked to the X-PLORTM, in which case the application of the going concern basis of preparation may be inappropriate. Based on the above, the directors believe it remains appropriate to prepare the financial statements on a going concern basis. However, these circumstances represent a material uncertainty that may cast significant doubt upon the group and company’s ability to continue as a going concern and, therefore to continue realising its assets and discharging its liabilities in the normal course of business. The financial statements do not include any adjustments that would result from the basis of preparation being inappropriate. 4 Belluscura plc Directors’ report for the year ended 31 December 2020 (continued) Political contributions Neither the Company nor any subsidiaries made any political donations or incurred any political expenditure during the period. Remuneration report (this is a voluntary unaudited disclosure note) Directors’ Emoluments Period to 31 December 2020 Robert Rauker Anthony Dyer Period to 31 December 2019 Robert Rauker Anthony Dyer Directors’ beneficial interests in shares Robert Rauker Anthony Dyer Disclosure of information to auditor Salary & fees US $ 200,000 170,310 370,310 Salary & fees US $ 185,000 142,804 327,804 Benefits in kind US $ 31,105 2,920 34,025 Benefits in kind US $ 33,666 2,534 36,200 Pension US $ - - - Pension US $ - - - 2020 Total US $ 231,105 173,230 404,335 2019 Total US $ 218,666 145,338 364,004 As at 31 December 2020 No of Shares 1,176,628 636,941 As at 31 December 2019 No of Shares 1,016,628 636,941 The directors who held office at the date of approval of this directors’ report confirm that, so far as they are each aware, there is no relevant audit information of which the company’s auditor is unaware; and each director has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the company’s auditor is aware of that information. Other information An indication of likely future developments in the business and particulars of significant events which have occurred since the end of the financial year have been included in the Strategic Report on page 2. Auditor In accordance with Section 489 of the Companies Act 2006, a resolution for the re-appointment of KPMG LLP as auditor of the company is to be proposed at the forthcoming Annual General Meeting. By order of the Board of Directors and signed on behalf of the Board Robert Rauker Chief Executive Officer 27 April 2021 5 Belluscura plc Statement of directors’ responsibilities in respect of the Strategic Report, the Directors’ Report and the Financial Statements The directors are responsible for preparing the Strategic Report, the Directors’ Report and the group and parent company financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that law they have elected to prepare the group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent company financial statements in accordance with UK accounting standards and applicable law (UK Generally Accepted Accounting Practice), including FRS 101 Reduced Disclosure Framework. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and parent company financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; • • make judgements and estimates that are reasonable, relevant, reliable and prudent; • • for the group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; for the parent company financial statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; assess the group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and use the going concern basis of accounting unless they either intend to liquidate the group or the parent company or to cease operations or have no realistic alternative but to do so. • • 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. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. 6 Independent auditor’s report to the members of Belluscura plc Opinion We have audited the financial statements of Belluscura plc (“the company”) for the year ended 31 December 2020 which comprise the Consolidated Statement of Profit and Loss and Other Comprehensive Income, Consolidated Balance Sheet, Company Balance Sheet, Consolidated Statement of Changes in Equity, Company Statement of Changes in Equity, Consolidated Statement of Cashflows and related notes, including the accounting policies in note 2. 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 parent company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. • • • Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the group in accordance with, UK ethical requirements including the FRC Ethical Standard. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Material Uncertainty Related to Going Concern We draw attention to Note 2.1.2 to the financial statements, which indicates that the group and company’s ability to continue as a going concern is dependent on a further equity fundraise in 2021. These events and conditions, along with the other matters explained in note 2.1.2, constitute a material uncertainty that may cast significant doubt on the group’s and the parent company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Going concern The directors have prepared the financial statements on the going concern basis. As stated above, they have concluded that a material uncertainty related to going concern exists. Based on our financial statements audit work, we consider that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. In our evaluation of the directors’ conclusions, we considered the inherent risks to the group’s business model and analysed how those risks might affect the group and company’s financial resources or ability to continue operations over the going concern period. Our conclusions based on this work: • we consider that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate; • we have identified, and concur with the directors’ assessment that there is, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the group or the company's ability to continue as a going concern for the going concern period. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the group or the company will continue in operation 7 Independent auditor’s report to the members of Belluscura plc (continued) Fraud and breaches of laws and regulations – ability to detect Identifying and responding to risks of material misstatement due to fraud To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included: • Enquiring of directors and inspection of policy documentation as to the Group’s/Company’s high-level policies and procedures to prevent and detect fraud, as well as whether they have knowledge of any actual, suspected or alleged fraud. • Reading Board/ general meeting minutes. • Considering remuneration incentive schemes for management/ directors. • Using analytical procedures to identify any unusual or unexpected relationships. We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit As required by auditing standards, and our overall knowledge of the control environment, we perform procedures to address the risk of management override of controls, in particular the risk that Group/ Company management may be in a position to make inappropriate accounting entries and the risk of bias in accounting estimates and judgements such as provision for impairment of intangibles and provision of intercompany receivables in the parent’s Company books. On this audit we do not believe there is a fraud risk related to revenue recognition because of Nil revenue. We did not identify any additional fraud risks. In determining the audit procedures we took into account the results of our evaluation and testing of the operating effectiveness of some of the Group/Company-wide fraud risk management controls. We also performed procedures including: • Identifying journal entries to test based on risk criteria and comparing the identified entries to supporting documentation. These included those posted to unusual accounts. Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience and through discussion with the directors (as required by auditing standards), and discussed with the directors the policies and procedures regarding compliance with laws and regulations. As the Group/Company is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity’s procedures for complying with regulatory requirements. We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. The potential effect of these laws and regulations on the financial statements varies considerably. The Group/Company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation, and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items. Whilst the Group/Company is subject to many other laws and regulations, we did not identify any others where the consequences of non-compliance alone could have a material effect on amounts or disclosures in the financial statement Context of the ability of the audit to detect fraud or breaches of law or regulation Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non- compliance with all laws and regulations. 8 Independent auditor’s report to the members of Belluscura plc (continued) Strategic report and directors’ report The directors are responsible for the strategic report and the directors’ report. Our opinion on the financial statements does not cover those reports and we do not express an audit opinion thereon. Our responsibility is to read the strategic report and the directors’ report and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work: • we have not identified material misstatements in the strategic report and the directors’ report; • • in our opinion the information given in those reports for the financial period is consistent with the financial statements; and in our opinion those reports have been prepared in accordance with the Companies Act 2006. Matters on which we are required to report by exception Under the Companies Act 2006, we are required 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 • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. We have nothing to report in these respects. Directors’ responsibilities As explained more fully in their statement set out on page 6, the directors are responsible for: the preparation of the financial statements and for being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they 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 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 our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not 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 aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities. The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. William Smith (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants Gateway House, Tollgate, Chandler's Ford, Eastleigh, Southampton. SO53 3TG 27 April 2021 9 Belluscura plc Consolidated Statement of Profit and Loss and Other Comprehensive Income For the year ended 31 December 2020 Group Continuing Operations Revenue Cost of sales Gross Profit/(Loss) Other operating income Administrative expenses Operating Loss Finance costs Finance costs - net Loss before income tax Income tax expense Note 5 6.1a 6.1b 8 9 Loss after tax for the period Other comprehensive income Items that are or may be reclassified subsequently to profit or loss: Foreign currency translation differences – foreign operations Total other comprehensive income Total comprehensive loss for the period attributable to the equity holders Year ended 31 December 2020 US $ Year ended 31 December 2019 US $ - - - 128,701 (114,385) 14,316 11,493 (1,956,682) (1,945,189) 44,368 (1,573,479) (1,514,795) (32,956) (37,201) (32,956) (37,201) (1,978,145) (1,551,996) - - (1,978,145) (1,551,996) 391,737 391,737 373,742 373,742 (1,586,408) (1,178,254) The Group has used the exemption under S408 CA 2006 not to disclose the company income statement. Items in the statement above are disclosed net of tax. The notes on pages 16 to 38 are an integral part of these consolidated financial statements. 10 Belluscura plc Consolidated Balance Sheet At 31 December 2020 Group Note Assets Non-current assets Tangible assets Intangible assets Product development Right to use asset Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Non-current liabilities Trade and other payables Total liabilities Net assets Equity attributable to the owners of the parent Share capital Share premium Capital contribution Retained earnings Translation reserve Total equity 11 12 12 11 14 15 19 19 17 17 18 18 18 As at 31 December 2020 US $ As at 31 December 2019 US $ 13,818 - 4,129,660 375,852 4,519,330 22,361 - 2,935,228 473,901 3,431,490 197,653 520,070 717,723 64,575 1,033,512 1,098,087 5,237,053 4,529,577 (230,136) (230,136) (385,325) (385,325) (338,053) (338,053) (416,323) (416,323) (568,189) (801,648) 4,668,864 3,727,929 823,201 556,683 165,000 2,687,361 436,619 648,298 5,714,678 165,000 (2,844,929) 44,882 4,668,864 3,727,929 The notes on pages 16 to 38 are an integral part of these financial statements. The financial statements on pages 10 to 38 were authorised for issue by the Board of Directors on 27 April 2021 and were signed on its behalf. Robert Rauker Chief Executive Officer A S Dyer Chief Financial Officer Belluscura plc registered number 09910883 11 Belluscura plc Company Balance Sheet At 31 December 2020 Company Note Assets Non-current assets Intangible assets Investment in subsidiaries Trade and other receivables Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Total liabilities Net assets Equity attributable to the owners of the parent Share capital Share premium Capital contribution Retained earnings Translation reserve Total equity 12 10 14 14 15 19 17 17 18 18 18 As at 31 December 2020 US $ As at 31 December 2019 US $ - 10 6,245,745 6,245,755 - 10 4,678,768 4,678,778 187,681 317,606 505,287 8,955 814,424 823,379 6,751,042 5,502,157 (62,907) (62,907) (84,004) (84,004) (62,907) (84,004) 6,688,135 5,418,153 823,201 556,683 165,000 4,706,632 436,619 648,298 5,714,678 165,000 (1,154,705) 44,882 6,688,135 5,418,153 The notes on pages 16 to 38 are an integral part of these financial statements. The financial statements on pages 10 to 38 were authorised for issue by the Board of Directors on 27 April 2021 and were signed on its behalf. Robert Rauker Chief Executive Officer Belluscura plc registered number 09910883 A S Dyer Chief Financial Officer 12 Belluscura plc Consolidated Statement of Changes in Equity For the year ended 31 December 2020 Attributable to equity holders of the parent company Group Balance at 31 December 2018 Issue of ordinary shares Reduction in capital Loss for the period Other comprehensive income Total comprehensive income Share based payments Note 17 18 18 18 Ordinary Shares US $ 456,107 192,191 - Share Premium US $ 3,304,432 2,410,246 - - - - - - - - - Translation Reserve US $ (328,860) - - - 373,742 373,742 - Capital Contribution US $ 165,000 - - - - - - Retained earnings US $ (1,298,819) - - (1,551,996) - (1,551,996) Total US $ 2,297,860 2,602,437 - (1,551,996) 373,742 (1,178,254) 5,886 5,886 Balance at 31 December 2019 648,298 5,714,678 44,882 165,000 (2,844,929) 3,727,929 Balance at 31 December 2019 Issue of ordinary shares Reduction in capital Loss for the period Other comprehensive income Total comprehensive income Share based payments 17 18 18 18 648,298 174,903 - 5,714,678 2,233,896 (7,391,891) - - - - - - - - 44,882 - - - 391,737 391,737 - 165,000 - - (2,844,929) - 7,391,891 3,727,929 2,408,799 - - - - - (1,978,145) - (1,978,145) (1,978,145) 391,737 (1,586,408) 118,544 118,544 Balance at 31 December 2020 823,201 556,683 436,619 165,000 2,687,361 4,668,864 There is no impact to the reserves of the Group through adoption of IFRS16. The notes on pages 16 to 38 are an integral part of these financial statements. 13 Belluscura plc Company Statement of Changes in Equity For the period ended 31 December 2020 Company Balance at 31 December 2018 Issue of ordinary shares Reduction in capital Loss for the period Other comprehensive income Total comprehensive income Share based payments Note 17 18 18 18 Attributable to owners of the parent company Ordinary Shares US $ 456,107 192,191 - Share Premium US $ Translation Reserve US $ 3,304,432 2,410,246 - (328,828) - - Capital Contributio n US $ 165,000 - - Retained earnings US $ 31,485 - - Total Equity US $ 3,628,196 2,602,437 - - - - - - - - - - 373,710 373,710 - - - - - (1,192,076) - (1,192,076) (1,192,076) 373,710 (818,366) 5,886 5,886 Balance at 31 December 2019 648,298 5,714,678 44,882 165,000 (1,154,705) 5,418,153 Balance at 31 December 2019 Issue of ordinary shares Reduction in capital Loss for the period Other comprehensive income Total comprehensive income Share based payments 17 18 18 18 648,298 174,903 - 5,714,678 2,233,896 (7,391,891) 44,882 - - 165,000 - - (1,154,705) - 7,391,891 5,418,153 2,408,799 - - - - - - - - - - 391,737 391,737 - - - - - (1,649,098) - (1,649,098) (1,649,098) 391,737 (1,257,361) 118,544 118,544 Balance at 31 December 2020 823,201 556,683 436,619 165,000 4,706,632 6,688,135 The notes on pages 16 to 38 are an integral part of these financial statements. 14 Belluscura plc Consolidated Statement of cash flows For the period ended 31 December 2020 Group Note Cash flows from operating activities Cash generated from operations Taxation paid Net cash used in operating activities Cash flows from investing activities Purchases of property, plant and equipment Intangible assets under development Sale of product licence Net cash used in investing activities Cash flows from financing activities Proceeds from issuance of ordinary shares (net) Lease Payments Net cash generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of period Exchange loss on cash and cash equivalents 23 11 12 17 21 For the period ended 31 December 2020 US $ For the period ended 31 December 2019 US $ (1,470,773) - - (1,470,773) (1,002,377) - (1,002,377) - (1,194,432) - (1,194,432) (2,547) (1,120,285) 44,368 (1,078,464) 2,251,774 (118,859) 2,132,915 2,655,751 (105,348) 2,550,403 (532,290) 1,033,512 18,848 469,562 532,248 31,702 Cash and cash equivalents at end of period 520,070 1,033,512 The notes on pages 16 to 38 are an integral part of these financial statements. 15 Belluscura plc Notes to the accounts For the year ended 31 December 2020 1. General Information Belluscura plc is a company incorporated in England and Wales and domiciled in the UK. Company Registration No. 09910883. On 28 November 2017 the company changed its name from Belluscura Limited to Belluscura plc. The address of the registered office is detailed on page 1 of these financial statements. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied, unless otherwise stated. 2. Accounting Policies 2.1 Statement of compliance The group financial statements consolidate those of the Company and its subsidiaries (together referred to as the “Group”). The parent company financial statements present information about the Company as a separate entity and not about its group. The group financial statements have been prepared and approved by the directors in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 (‘‘Adopted IFRSs’’). The Company has elected to prepare its parent company financial statements in accordance with FRS 101. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. Critical accounting estimates and judgements made by the directors, in the application of these accounting policies that have significant effect on the financial statements are disclosed in note 4 (a)-(c) applicable for the whole Group and 4 (d) applicable for the Company only. The Company financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”). The amendments to FRS 101 (2014/15 Cycle) issued in July 2015 have been applied. In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of international accounting standards in conformity with the requirements of the Companies Act 2006 (“Adopted IFRSs”) but makes amendments where necessary in order to comply with Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken. Under section s408 of the Companies Act 2006 the company is exempt from the requirement to present its own profit and loss account. In these financial statements, the company has applied the exemptions available under FRS 101 in respect of the following disclosures: a Cash Flow Statement and related notes; • • Disclosures in respect of transactions with wholly owned subsidiaries; • Disclosures in respect of capital management; • The effects of new but not yet effective IFRSs; and • Disclosures in respect of the compensation of Key Management Personnel; As the consolidated financial statements include the equivalent disclosures, the Company has also taken the exemptions under FRS 101 available in respect of the following disclosures • Certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial Instrument Disclosures. • IFRS 2 Share Based Payments in respect of group settled share based payments The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements 2.1.1 Measurement convention The financial statements are prepared on the historical cost basis except that assets and liabilities are stated at their fair value. 16 Belluscura plc Notes to the accounts For the year ended 31 December 2020 2.1.2 Going concern In adopting the going concern basis for preparing the financial statements, the directors have considered the principal activities as well as the business risks as set out on pages 2 to 3. The Group made a loss of US $1,978,145 in the period to 31 December 2020 (2019: loss of US $1,551,996). At the balance sheet date the Group had net assets of US $4,668,864 (2019: US $3,727,929) and utilised net operating cash outflows of $1,470,773 (2019: US $1,002,377). The Company raises the funds required for the Group’s activities and has successfully undertaken several Private Funding rounds raising over $13,500,000 to date to support the Group. During the reporting period, funding rounds raised approximately $2.7m. This cash has allowed the Group to continue to trade, complete FDA 510k clearance of the X- PLORTM portable oxygen concentrator and continue the development of its follow-on products, the X-PLORTM CX and the X-PLORTM DX portable oxygen concentrators. The Company is targeting commercial launch of X-PLORTM in H1 2021. Since the period end the Group has raised $2.7m equity from new and existing shareholders which will allow the business to continue to trade. Further equity fundraising is planned in 2021 to support the commercial launch of X-PLORTM. The Group has a number of private shareholders who have been supportive during all fundraisings to date and believe that, given FDA clearance of X-PLORTM, they will continue to be supportive. As with any company placing reliance on shareholders for financial support, the directors acknowledge that there can be no certainty that this support will continue although, at the date of approval of these financial statements, they have no reason to believe that it will not do so. The Group expects that due to the close link of the COVID-19 virus to Oxygen Therapy requirements the prospects for the Group going forward to be enhanced by an increase in the requirement for Oxygen related products. The Group’s forecasts and projections, including the intention to raise further funds on the public markets to commercialise the X-PLORTM, indicate that the Group has sufficient cash reserves to operate within the level of its current facilities for a period of 12 months from the date of approval of the financial statements. The Group's forecasts and projections, taking account of reasonably possible downsides in trading performance and development costs/timelines, and the risks to these projections (set out in the Principal Risks and Uncertainties section of the Group Strategic Report on Page 3) have been considered in the assessment of these forecasts. Whilst the directors expect that further equity raising will be successful, to the extent it is not, the directors believe that the most likely alternative will be to curtail its operations, halt development and delay commercialisation whilst looking for alternative source of funding. In the unlikely situation where this is also unsuccessful, the Group may cease further development of the X-PLORTM range and seek potential purchasers of the company or the IP intrinsically linked to the X-PLORTM, in which case the application of the going concern basis of preparation may be inappropriate. Based on the above, the directors believe it remains appropriate to prepare the financial statements on a going concern basis. However, these circumstances represent a material uncertainty that may cast significant doubt upon the group and company’s ability to continue as a going concern and, therefore to continue realising its assets and discharging its liabilities in the normal course of business. The financial statements do not include any adjustments that would result from the basis of preparation being inappropriate. 2.1.3 Changes in accounting policy In these financial statements, where the Group has adopted new or updated standards, there is not a material impact on the financial information and on the Company’s future financial statements. 2.2 Basis of Consolidation Belluscura plc was incorporated on 10 December 2015. On 16 May 2016, a US incorporated company, Belluscura LLC, was formed as a 100% owned subsidiary. On 25 April 2017 the company acquired the entire share capital of Nanotether Discovery Science Limited. Nanotether is a dormant subsidiary. The consolidated financial statements comprise the financial statements of Belluscura plc, Belluscura LLC, and Nanotether Discovery Science Limited. Nanotether Discovery Science Limited was dissolved during the year. 17 Belluscura plc Notes to the accounts For the year ended 31 December 2020 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. In assessing control, the Group takes into consideration potential voting rights. The acquisition date is the date on which control is transferred to the acquirer. 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. Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. IFRS 13 did not affect any fair value measurements of the Group’s assets or liabilities and therefore had no effect on the Group’s financial position or performance. 2.3 Foreign currencies Functional and presentation currency (a) These consolidated financial statements are presented in US Dollars which is the presentation currency of the Group. This is because the majority of the Group’s transactions are undertaken in US Dollars. Each entity within the Group has its own functional currency which is dependent on the primary economic environment in which that subsidiary operates. (b) Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within ‘finance income or costs’. (c) Group companies The results and financial position of all Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities for each balance sheet presented are translated at the closing exchange rates at the date of that balance sheet income and expense for each income statement are translated at the average rates of exchange during the period (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions) (ii) (iii) all resulting exchange differences are recognised in other comprehensive income. 2.4 Business combinations All business combinations are accounted for by applying the acquisition method. Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Acquisitions on or after 1 January 2010 For acquisitions on or after 1 January 2010, the Group measures goodwill at the acquisition date as: • • • • the fair value of the consideration transferred; plus the recognised amount of any non-controlling interests in the acquiree; plus the fair value of the existing equity interest in the acquiree; less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred. Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. On a transaction-by-transaction basis, the Group elects to measure non-controlling interests, which have both present ownership interests and are entitled to a proportionate share of net assets of the acquiree in the event of liquidation, either at its fair value or at its proportionate interest in the recognised amount of the identifiable net assets of the acquiree at the acquisition date. All other non-controlling interests are measured at their fair value at the acquisition date. 18 Belluscura plc Notes to the accounts For the year ended 31 December 2020 2.5 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 under short-term cash bonus or profit-sharing plans 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. Share-based payment transactions Share-based payment arrangements in which the Group receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions. 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. 2.6 Expenses Operating lease payments Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense. Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method. 2.7 Property, plant and equipment Property, plant and equipment are stated at historical cost less depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation of assets is calculated is provided to write off the cost less the estimated residual value of tangible fixed assets by equal instalments over the estimated useful economic lives as follows: 5 years Furniture Computer equipment 3 years Leasehold improvements - 5 years - - The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the assets carrying value is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are recognised within administrative expenses in the income statement. When re-valued assets are sold, the amounts are included in other reserves are transferred to retained earnings. 2.8 Intangible assets Licenses Costs associated with the acquisition of Licenses for technologies and distribution rights are recognised as an intangible asset when they meet the criteria for capitalisation. That is, they are separately identifiable, measurable and it is probable that economic benefit will flow to the entity. 19 Belluscura plc Notes to the accounts For the year ended 31 December 2020 Further development costs attributable to the licensed technology and recognised as an intangible asset when the following criteria are met: it is technically feasible to complete the technology for commercialisation so that it will be available for use; (i) (ii) management intends to complete the technology and use or sell it; (iii) there is an ability to use or sell the technology; (iv) it can be demonstrated how the technology will generate probable future economic benefits; (v) adequate technical, financial and other resources to complete the development and to use or sell the technology are available; and (vi) the expenditure attributable to the technology during its development can be reliable measured. Licenses and their associated development costs are amortised over the life of the license or the underlying patents, whichever is shorter. The estimated useful life of the licences is 10-15 years. 2.9 Impairment of non-financial assets The carrying amounts of the non-financial assets, other than inventories and deferred tax assets, are reviewed 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. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are 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. For the purpose of impairment testing, assets that cannot be tested individually 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 groups of assets (the “cash-generating unit”). An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. 2.10 Financial assets 2.10.1 Classification The Group classifies its financial assets depending on the purpose for which the asset was acquired. Management determines the classification of its financial assets at initial recognition. During the financial period the Group held loans and receivables that are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities that are greater than 12 months after the end of the reporting year. These are classified as noncurrent assets. The Group’s loans and receivables comprise ‘trade and other receivables’ in the balance sheet. The Group also has cash and cash equivalents. 2.10.2 Recognition and measurement Loans and receivables are recognised on the trade date in which the transaction took place, and are recognised at their fair value with transaction costs expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the loans or receivables have been collected, expired or transferred and the Group has subsequently transferred substantially all risks and rewards of ownership. 2.11 Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is the intention to settle on a net basis or realise the asset and settle the liability simultaneously. 20 Belluscura plc Notes to the accounts For the year ended 31 December 2020 2.12 Impairment of financial assets Assets carried at amortised cost A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. Evidence of impairment may include indications of that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. For loans and receivables category, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement. If a loan or held-to maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price. If, in a subsequent year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as the improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated income statement. 2.13 Leases (policy applicable from 1 January 2019) The Group has applied IFRS 16 using the modified retrospective approach. At the inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. As a lessee The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise the following: - - - - fixed payments, including in-substance fixed payments; variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date amounts expected to be payable under a residual value guarantee; and the exercise price under a purchase option that the Group is reasonably certain to exercise, 21 Belluscura plc Notes to the accounts For the year ended 31 December 2020 - - lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, to the extent that the right-of-use asset is reduced to nil, with any further adjustment required from the remeasurement being recorded in profit or loss. The Group presents right-of-use assets that do not meet the definition of investment property in 'property, plant and equipment' and lease liabilities in 'loans and borrowings' in the statement of financial position. Short-term leases and leases of low-value assets The Group has elected not to recognise right-of-use assets and lease liabilities for lease of low-value assets and short- term leases. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. 2.14 Inventory Inventory comprises goods held for resale and are stated at the lower of cost or net realisable value. Cost is based on FIFO principle and includes all direct expenditure and other appropriate attributable costs incurred in bringing the inventory to its present location and condition. 2.15 Trade receivables Trade receivables are amounts due from customers for the sale of goods in the ordinary course of business. Collection is normally expected within three months or less (in the normal operating cycle of the business) and is classified as current assets. In the rare circumstances that they exceed a period of greater than one year they are presented as non-current assets. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. 2.16 Cash and cash equivalents In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with other banks, other short term highly liquid investments with maturities of three months or less and bank overdrafts. 2.17 Share capital Share premium The share premium account has been established to represent the excess of proceeds over the nominal value for all share issues, including the excess of the exercise share price over the nominal value of the shares on the exercise of share options as and when they occur. Incremental costs directly attributable to the issue of new ordinary shares and new shares options are shown in equity as a deduction, net of tax, from the proceeds. Capital contribution Capital contributions are contributions made by the ultimate parent company for which no consideration is given. 2.18 Trade payables Trade payables are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method. 22 Belluscura plc Notes to the accounts For the year ended 31 December 2020 2.19 Current and deferred tax The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on amounts expected to be paid to the tax authorities. Deferred income tax is recognised on temporary timing differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries only to the extent that it is probable the temporary difference will reverse in full in the future and there is sufficient taxable profit available against which the temporary difference can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle balances on a net basis. 2.20 Provisions Provisions and any other anticipated foreseen liabilities are recognised: when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties, and employee termination payments. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering a class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as an interest expense. 2.21 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for the goods supplied, stated net of discounts, and value added taxes. The Group recognises revenue when the amount of revenue can reliably be measured; when it is probable that future economic benefits will flow to the Group; and when specific criteria have been met for each of the Group’s activities, described below. The Group bases its estimate of return on historical results taking into consideration type of customer, type of transaction and specifics of each arrangement. Sales of goods Income is derived from the sale of goods when the goods have been shipped to the customer. Interest income Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. 23 Belluscura plc Notes to the accounts For the year ended 31 December 2020 3. Financial Risk Management The Company’s Directors review the financial risk of the Group. Due to the early stage of its operations the Group has not entered into any form of hedging instruments to assist in the management of risk during the period under review. 3.1 Financial risk factors (a) Liquidity Risk Cash flow forecasting is performed on a Group basis. The Directors monitor rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs. At the reporting date the Group held bank balances of US $520,070. The contractual maturities of financial liabilities is shown in note 16. (b) 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. Foreign exchange risk arises when individual Group entities enter into transactions denominated in a currency other than their functional currency. The Group’s policy is, where possible, to allow Group entities to settle liabilities denominated in their functional currency, with the cash generated from their own operations in that currency. Where Group entities have liabilities denominated in a currency other than their functional currency (and have insufficient reserves of that currency to settle them), cash already denominated in that currency will, where possible, be transferred from elsewhere within the Group. Due to low value and number of financial transactions that involve foreign currency and the fact that the Group has no borrowings to manage, the Directors have not entered into any arrangements, adopted or approved the use of derivative financial instruments to assist in the management of the exposure of these risks. The Group’s exposure to foreign currency risk is based on the carrying amount for monetary financial instruments. The gross foreign currency exposure below is with respect of pound Sterling to US Dollars. Cash and cash equivalents Trade receivables (gross) Trade payables Net exposure 31 December 2020 317,606 10,380,745 (62,908) 10,635,443 31 December 2019 814,424 7,762,723 (84,004) 8,493,143 The trade receivables shown above relates to the UK entity’s intercompany balance with the US entity, which will be repaid in Sterling. A 10% percent strengthening of the pound sterling against the US Dollar at 31 December 2020 would have increased (decreased) equity and profit or loss by the amounts shown below. This calculation assumes that the change occurred at the balance sheet date and had been applied to risk exposures existing at that date. This analysis assumes that all other variables, in particular other exchange rates and interest rates, remain constant. The analysis is performed on the same basis for 31 December 2019. 2020 US $ (1,063,544) Equity 2019 US $ (849,314) 2020 US $ (1,063,544) Profit or loss 2019 US $ (849,314) A 10% percent weakening of the above currencies against the pound sterling at 31 December 2020 would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. Translation exposures The Group’s results, as presented in US Dollars, are subject to fluctuations as a result of exchange rate movements. The Group does not hedge this translation exposure to its earnings. 24 Belluscura plc Notes to the accounts For the year ended 31 December 2020 Gains or losses arise on the retranslation of the net assets of foreign operations at different reporting dates and are recognised within the consolidated statement of comprehensive income. They will predominantly relate to the retranslation of opening net assets at closing foreign exchange rates, together with the retranslation of retained foreign profits for the year (that have been accounted for in the consolidated income statement at average rates) at closing rates. Exchange rates for major currencies are set out below The following exchange rates have been used in the translation of the results of foreign operations: Closing rate for 2018 Weighted average rate for 2019 Closing rate for 2019 Weighted average rate for 2020 Closing rate for 2020 US Dollar 1.2769 1.2769 1.3270 1.2841 1.3652 3.2 Capital management 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, benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to adjust or maintain the capital structure, the Group may adjust the level of dividends paid to its shareholders, return capital to shareholders, issue new shares or sell assets to reduce borrowings. This policy is periodically reviewed by the Directors, and the Group’s strategy remains unchanged for the foreseeable future. The capital structure of the Group consists of cash and bank balances and equity consisting of issued share capital, reserves and retained earnings of the Group. 3.3 Fair value Financial instruments are measured at fair value including cash and cash equivalents trade and other payables, and borrowings. Due to their short term nature, the carrying value of cash and cash equivalents, trade and other receivables, and trade and other payables approximate their fair value. 4. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Key judgement The following judgement (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements. (a) Tangible fixed assets (see note 11) Tangible fixed assets, are depreciated over their useful lives taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on the number of factors. In re-assessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values. (b) Intangible fixed assets (see note 12) Intangible fixed assets, are depreciated over their useful lives taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on the number of factors. In re-assessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values. Development costs attributable to the licensed technology and recognised as an intangible asset when the criteria in note 2.9 are met. (c) Deferred taxes Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their 25 Belluscura plc Notes to the accounts For the year ended 31 December 2020 respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Deferred tax is recognised as a component of the tax expense in the income statement, except where it relates to items charged or credited to other comprehensive income or directly to equity. (d) Recoverability of intercompany debt by the company from its subsidiaries. The directors assess the recoverability of amounts owed by the subsidiary to the parent company, which requires judgement to be made. This involves forecasting sales revenues to be earned by the subsidiary which will enable it to repay the parent company. 5. Revenue The entire revenue is generated from the Sale of Goods and from its geographical market in United States of America US$ nil (2019: US $128,701). Gross profit in the period was US$ nil (2019: US$ 14,316). Gross profit in 2019 was reduced by $39,675 for the inventory write off of discontinued products and increased by $16,488 for the release of unused royalty provision. 6. Other operating income and administrative expenses 6.1 (a) Other operating income Group Net gain on disposal of SlydeTM licence Grants Purchase of option right Total 6.1 (b) Expenses by nature Group Depreciation of property plant and equipment Costs related to fundraising activities Foreign exchange movements Employee benefit expense Other administration expenses 2020 US$ - 6,421 5,072 11,493 2020 US$ 8,544 78,911 391,737 1,022,677 63,079 2019 US$ 44,368 - - 44,368 2019 US$ 9,403 (2,237) 373,742 808,524 24,556 6.2 Auditor remuneration During the period, the Group (including its subsidiaries) obtained the following services provided by the auditor and its associates: Group Fees payable to the Group’s auditor and its associated for the audit of the Group and Company financial statements Fees payable to the Company’s auditor and its associates for other services - Tax advisory services 2020 US$ 37,098 7,705 44,803 2019 US$ 37,157 5,175 42,332 7. Employees 7.1 Directors’ emoluments Group Directors emoluments Total 2020 US$ 404,355 2019 US$ 401,817 404,355 401,817 26 Belluscura plc Notes to the accounts For the year ended 31 December 2020 Two Directors served during the year (2019: 2). The highest paid Director received a salary of $200,000 (2019: $185,000) and benefits of $31,105 (2019: $33,666). Two Directors received share options in the year (2019: 2) and no Directors exercised share options in the year (2019: nil) 7.2 Employee benefit expense Group Wages and salaries Social security costs Medical Insurance Share based payments Total 7.3 Average number of people employed Group Average number of people (including executive directors) employed Management Sales Finance Total average headcount 8. Finance income and costs Group Finance Cost: - - Finance Cost Interest cost on Right of Use Asset Interest on COVID-19 Small Business Association Loan 2020 US$ 765,854 61,396 84,077 111,350 1,022,677 2019 US$ 679,281 53,767 69,813 5,663 808,524 2020 2019 2 4 - 6 2020 US$ 32,443 513 32,956 2 3 - 5 2019 US$ 37,201 - 37,201 27 Belluscura plc Notes to the accounts For the year ended 31 December 2020 9. Income tax expense Group Current tax on profits for the period Adjustments in respect of prior period Total current tax Income tax expense 2020 US$ - - - - 2019 US $ - - - - The charge for the year can be reconciled to the loss per the Income Statement as follows: Group (Loss) before tax Tax calculated at domestic tax rates applicable to profits in the respective countries Tax effects of: - Expenses not deductible for tax purposes - Capital allowances in excess of depreciation - Unrelieved tax losses and other deductions Total income tax charge 2020 US$ (1,978,145) 2019 US$ (1,551,996) (403,628) (294,879) 36,150 (2,760) 370,238 - (425) (4,472) 299,776 - The tax on the Group’s loss before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to losses. The weighted average applicable UK tax rate was 19%. Unused tax losses for which no deferred tax assets have been recognised is attributable to the uncertainty over the recoverability of those losses through future profits. 10. Investment in subsidiaries Company Cost and net book value Balance at 31 December 2018 Investment set off against Trade and Other Payables Balance at 31 December 2019 Shares in subsidiaries 355,940 (355,930) 10 Total US $ 355,940 (355,930) 10 Balance at 31 December 2020 10 10 In 2019 Nanotether Discovery Science Limited was dissolved. At the year end, the Company’s investment in Nanotether Discovery Science Ltd amounted to $nil (2019: $nil). The loss on the disposal of the investment in Nanotether at zero value was set off against the amount payable to Nanotether in trade & other payables. Principal subsidiaries name Belluscura LLC The registered office: Belluscura LLC Country of Incorporation & place of business USA Class of share held Ordinary % of ordinary shares directly held 2020 2019 Nature of business 100% 100% Sale of medical devices 160 Greentree Drive, Suite 101, Dover, Delaware 19904, County of Kent The Parent Company’s loss before tax for the period 31 December 2020 was $1,640,014 (2019: $1,192,076). 28 Belluscura plc Notes to the accounts For the year ended 31 December 2020 11. Property, plant and equipment Group Cost At 1 January 2019 Additions during the period Disposals during the period At 31 December 2019 At 1 January 2020 Additions during the period Disposals during the period At 31 December 2020 Accumulated depreciation At 1 January 2019 Depreciation charge for the period Depreciation charge on disposals At 31 December 2019 At 1 January 2020 Depreciation charge for the period Depreciation charge on disposals At 31 December 2020 Net book value At 31 December 2019 At 31 December 2020 Land & buildings (Right of Use Asset) US$ Furniture and Equipment US $ Computer Equipment US $ 571,950 - - 571,950 571,950 - - 571,950 - (98,049) - (98,049) (98,049) (98,049) - (196,098) 35,880 - - 35,880 35,880 - - 35,880 (9,048) (7,176) - (16,224) (16,224) (7,176) - (23,400) 7,034 2,547 - 9,581 9,581 - - 9,581 (4,649) (2,227) - (6,876) (6,876) (1,367) - (8,243) Total US $ 614,864 2,547 - 617,411 617,411 - - 617,411 (13,697) (107,452) - (121,149) (121,149) (106,592) - (227,741) 473,901 375,852 19,656 12,480 2,705 1,338 496,262 389,670 Right-of-use assets related to lease properties that do not meet the definition of investment properties are presented as Land & Building (see note 21). 29 Belluscura plc Notes to the accounts For the year ended 31 December 2020 12. Intangible assets Group Cost At 1 January 2019 Additions during the period At 31 December 2019 At 31 December 2019 Additions during the period At 31 December 2020 Accumulated amortisation and impairment At 1 January 2019 At 31 December 2019 At 1 January 2020 At 31 December 2020 Net book value At 31 December 2019 At 31 December 2020 Purchased intangible assets Product Development US$ 2,085,093 1,120,285 3,205,378 Licenses US $ 189,506 - 189,506 189,506 - 189,506 3,205,378 1,194,432 4,399,810 Total US$ 2,274,599 1,120,285 3,394,884 3,394,884 1,194,432 4,589,316 (189,506) (189,506) (270,150) (270,150) (459,656) (459,656) (189,506) (189,506) (270,150) (270,150) (459,656) (459,656) - - 2,935,228 4,129,660 2,935,228 4,129,660 Note: During the current year, the Group has capitalised $1,194,005 (2019: $1,009,617) of development costs related to the X-PLORTM portable oxygen concentrator and capitalised $342,093 (2019: $110,669) of development costs related to the X-PLOR DX portable continuous flow oxygen concentrator These assets are still under construction and on which amortisation has not started yet. Purchased intangible assets Company Cost At 1 January 2019 Additions during the period At 31 December 2019 At 31 December 2019 Additions during the period At 31 December 2020 Accumulated amortisation and impairment At 1 January 2019 Amortisation charge for the period At 31 December 2019 At 31 December 2019 Amortisation charge for the period At 31 December 2020 Net book value At 31 December 2019 At 31 December 2020 13. Inventory Due to the divestment of legacy products and new products not yet online, there is no current inventory. Licenses US $ 189,506 - 189,506 189,506 - 189,506 (189,506) - (189,506) (189,506) - (189,506) - - 30 Belluscura plc Notes to the accounts For the year ended 31 December 2020 14. Trade and other receivables Group Trade receivables Less provision for impairment of trade receivables Trade receivables – net VAT Receivable from shareholders Prepayments and other debtors Total trade and other receivables 2020 US $ - - - 16,146 171,535 9,972 197,653 2019 US $ 12,398 (6,750) 5,648 8,809 - 50,118 64,575 The fair value of trade and other receivables are not materially different to those disclosed above. The Groups exposure to credit risk related to trade receivables is detailed in note 3 to the accounts on page 24. Company – Current Receivable from shareholders Prepayments and other debtors VAT Total trade and other receivables Company – Non-Current Receivables from Group companies Less provision for impairment of Intercompany receivables Total trade and other receivables 2020 US $ 171,535 - 16,146 187,681 2019 S $ - 146 8,809 8,955 2020 US $ 10,380,745 (4,135,000) 6,245,745 2019 US $ 7,753,768 (3,075,000) 4,678,768 Ageing of trade receivables: Group 0-30 days US $ 30-60 days US $ 60-90 days US $ 90+ days US $ Total Gross US $ ECL US $ Total Net US $ 2019 2020 3,152 - 936 - 1,560 6,750 12,398 (6,750) 5,648 - - - - - Company 0-30 days US $ 30-60 days US $ 60-90 days US $ 90+ days US $ Total Gross US $ ECL US $ Total Net US $ 2019 2020 - - - - - - - - - - - - - - The amount receivable from Group companies is an interest free loan given and is repayable on demand. Management doesn’t intend to recall it in the next 12 months and hence same has been disclosed as Non-Current. The basis of the impairment of Intercompany receivables is the management intends to recall it within 7 years so it is discounted over 7 years at 7%. The majority of investment has been used to develop and sell products initially in the US market. The Group expects the US entity to be become profitable and cash positive within 3 years. A 10% percent increase in the discount rate would increase the impairment by $322,000 (2019: $240,000) and a 10% reduction in the discount rate would reduce impairment by $337,000 (2019: 251,000). 31 Belluscura plc Notes to the accounts For the year ended 31 December 2020 15. Cash and cash equivalents Group Cash and bank and in hand Total cash and cash equivalents Company Cash at bank and in hand Total cash and cash equivalents 2020 US $ 520,070 520,070 2019 US $ 1,033,512 1,033,512 2020 US $ 317,606 317,606 2019 US $ 814,424 814,424 The Groups exposure to foreign exchange risk is detailed in note 3 to the accounts on page 24. 16. Categories of financial assets and financial liabilities Group Financial assets Loans and receivables at amortised cost Receivables from shareholders Cash and equivalents Financial liabilities Trade and other payables at amortised cost Lease liability COVID-19 Small Business Association Loan Company Financial assets Loans and receivables at amortised cost Provision Net loans and receivables at amortised cost Receivables from shareholders Cash and equivalents Financial liabilities Trade and other payables at amortised cost 2020 US $ - 171,535 520,070 691,605 2019 US $ 5,648 - 1,033,512 1,039,160 73,391 417,384 77,314 568,089 297,770 498,398 - 796,168 2020 US $ 2019 US $ 10,380,745 (4,135,000) 6,245,745 171,535 317,606 6,734,886 7,753,768 (3,075,000) 4,678,768 - 814,424 5,493,192 62,797 77,791 32 Belluscura plc Notes to the accounts For the year ended 31 December 2020 Maturity Analysis of financial liabilities The following are the contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated contractual interest payments and exclude the effect of netting agreements: Carrying amount US $ Contractual cashflows US $ 1 year or less US $ 1-5 years US $ 5 years and over US $ 73,391 73,391 73,391 - 417,384 77,314 474,759 77,314 118,183 77,314 356,576 - 568,089 625,464 268,888 356,576 297,770 297,770 297,770 - 498,398 588,890 - 796,168 886,660 114,131 474,759 - 411,901 - 474,759 - - - - - - - - Group 2020 Trade and other payables at amortised cost Lease liability COVID-19 Small Business Association Loan 2019 Trade and other payables at amortised cost Lease Liability COVID-19 Small Business Association Loan 17. Share capital and premium Share capital Group and Company Issued and fully paid up At 1 January 2019 Shares issued for cash At 31 December 2019 No of shares of £0.01 each Ordinary Shares US $ Total US $ 33,782,234 15,350,248 49,132,482 49,132,482 12,889,190 885,918 62,907,590 456,107 192,191 648,298 648,298 163,653 11,250 823,201 456,107 192,191 648,298 648,298 163,653 11,250 823,201 At 31 December 2019 Shares issued for cash Shares issued for cash received post year end At 31 December 2020 The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. Share premium Group and Company Allotted and fully paid up At 1 January 2019 Premium on shares issued (net of cost of issue of shares) At 31 December 2019 At 1 January 2020 Premium on shares issued (net of cost of issue of shares) Reduction in Capital At 31 December 2020 Ordinary Shares US $ Total US $ 3,304,432 2,410,246 5,714,678 5,714,678 2,233,896 (7,391,891) 556,683 3,304,432 2,410,246 5,714,678 5,714,678 2,233,896 (7,391,891) 556,683 The cost of issue of shares relates to broker’s commissions on funds raised of $83,928 (2019: $183,156). 33 Belluscura plc Notes to the accounts For the year ended 31 December 2020 At the end of the period there were 8,122,243 share warrants in issue at an average subscription price of $0.18 (2019: 6,367,318 at $0.18 per share). There was no consideration paid for the warrants. Share options During the year staff were granted share options, vesting 100% on an exit or in equal annual thirds following a stock market listing of the Company. As an exit is not predictable, the Company determined the best measurement period is a potential listing-mid 2021 Award Unapproved EMI Unapproved EMI Total 2020 000’s - - 4,893 1,882 6,775 2019 000’s 4,380 1,275 - - 5,655 Date of Grant 31/10/2019 05/11/2019 07/05/2020 07/05/2020 Exercise Price $0.085 $0.085 $0.195 $0.195 Exercise Period From To 31/10/2019 05/11/2019 07/05/2020 07/05/2020 31/10/2029 05/11/2029 07/05/2030 07/05/2030 Avg remaining contractual life 8.8 years 8.8 years 9.6 years 9.6 years Movement in share options Outstanding at 1 January 2019 Granted Outstanding at 31 December 2019 Outstanding at 1 January 2020 Granted Outstanding at 31 December 2020 Number 000’s - 5,655 5,655 5,655 6,775 12,430 Weighted average exercise price $ - 0.085 0.085 Weighted average share price $ - 0.078 0.078 0.085 0.195 0.145 0.078 0.195 0.142 Key assumptions used in the calculation of share option fair value Date of Grant Award 31/10/2019 05/11/2019 07/05/2020 07/05/2020 Unapproved EMI Unapproved EMI Share price on the date of grant $ 0.078 0.078 0.195 0.195 Exercise price $ 0.085 0.085 0.195 0.195 Volatility % 28.5 28.5 28.5 28.5 Expected Dividend Yield % 0% 0% 0% 0% (%) Vesting period Years 2.67 2.67 2.50 2.50 Risk-free rate of interest % 2.1 2.1 2.1 2.1 Fair value $ 0.01 0.01 0.03 0.03 The key assumptions used in calculating the share-based payments were as follows: a. The Black-Scholes model is used to value both the options. b. The expected volatility is based on a comparator set of similar stocks. c. The risk-free rate is equal to the prevailing UK Gilts rate at grant date, which is commensurate with the expected term. d. Expected forfeiture rates are based on recent experience of staff turnover levels. e. The charge is spread over the vesting period on a straight-line basis. Share based payments charge Group Charge in year 2020 US $ 118,544 2019 US $ 5,886 34 Belluscura plc Notes to the accounts For the year ended 31 December 2020 18. Reserves Retained earnings At 31 December 2018 Loss for the period Share based payments charge At 31 December 2019 Loss for the period Reduction in Capital Share based payments charge At 31 December 2020 Group US $ (1,298,819) (1,551,996) 5,886 (2,844,929) (1,978,145) 7,391,891 118,544 2,687,361 Company US $ 31,485 (1,192,076) 5,886 (1,154,705) (1,649,098) 7,391,891 118,544 4,706,632 On 7 October 2020, the shareholders of the group passed a special resolution, pursuant to Chapter 2 of Part 13 of the Companies Act 2006, to cancel the balance standing to the credit of the share premium account and transfer the same to reserves. Capital Contribution At 31 December 2018 Capital contribution received At 31 December 2019 Capital contribution received At 31 December 2020 The Capital Contribution relates to the acquisition of intangible product licences. Translation reserve At 31 December 2018 Foreign exchange loss At 31 December 2019 Foreign exchange loss/gain At 31 December 2020 Group US $ 165,000 - 165,000 - 165,000 Group US $ (328,860) 373,742 44,882 391,737 436,619 Company US $ 165,000 - 165,000 - 165,000 Company US $ (328,828) 373,710 44,882 391,737 436,619 The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations, primarily relating to the statement of financial position at the reporting dates. The reporting date foreign exchange rates by major currency are provided in note 3. 19. Trade and other payables Group – Current Trade creditors Social security and other taxes Lease liability COVID-19 Small Business Association Loan Accruals and other creditors Group – Non-Current COVID-19 Small Business Association Loan Lease liability 2020 US $ - 100 92,217 64,428 73,391 230,136 2020 US $ 12,886 325,167 338,053 2019 US $ 33,968 5,480 82,075 - 263,802 385,325 2019 US $ 416,323 416,323 35 Belluscura plc Notes to the accounts For the year ended 31 December 2020 There are no amounts included with lease liability repayable after five years. Company Trade creditors Social security and other taxes Accruals and other creditors 2020 US $ - 100 62,807 62,907 2019 US $ - 6,213 77,791 84,004 The fair values of trade and other payables are not materially different to those disclosed above. The Group’s exposure to currency and liquidity risk related to trade and other payables is detailed in note 3 to the accounts on page 24. Included within trade and other payables is $338,053 (2019: $416,323) expected to be settled in more than 12 months. On 4 May 2020 the Group secured a COVID-19 Small Business Association (SBA) Loan for $76,800 with an interest rate of 1.00% per annum. The loan matures on 4 May 2022. Interest has been accrued on this loan to 31 December 2020. As at 31 December 2020, no repayments had been made. On 9 April 2021 the entire loan was forgiven. 20. Deferred income tax Unused tax losses for which no deferred tax assets have been recognised are attributable to the uncertainty over the recoverability of those losses through future profits. A blended tax rate of 20% has been used to calculate the potential deferred tax. Group Deferred tax Accelerated capital allowances Share based payments Short term timing differences Tax losses Unprovided deferred tax asset Deferred Tax Company Deferred tax Accelerated capital allowances Share based payments Short term timing difference Tax losses Unprovided deferred tax asset 2020 US $ (2,760) 23,642 - 2,035,030 2,055,912 (2,055,912) - 2019 US $ (4,472) 1,118 425 1,547,630 1,544,701 (1,544,701) - 2019 2020 US $ US $ - - 1,118 23,642 152,425 201,400 264,242 332,088 417,785 557,130 (417,785) (557,130) - - In the 3 March 2021 Budget it was announced that the UK tax rate will increase to 25% from 1 April 2023. This will have a consequential effect on the group’s future tax charge. If this rate change had been substantively enacted at the current balance sheet date the unrecognised deferred tax asset would have increased by $135,198. 36 Belluscura plc Notes to the accounts For the year ended 31 December 2020 21. Leases as a lessee (IFRS 16) Right-of-use assets Right-of-use assets related to lease properties that do not meet the definition of investment properties are presented as property, plant and equipment (see note 11): Group At 1 January 2019 Addition to right of use asset Depreciation charge for the period At 31 December 2019 Depreciation charge for the period At 31 December 2020 Land and buildings US$ - 571,950 (98,049) 473,901 Total US $ - 571,950 (98,049) 473,901 (98,049) 375,852 (98,049) 375,852 Amounts recognised in profit or loss The following amounts have been recognised in profit or loss for which the Group is a lessee Interest expense on lease liability Depreciation on right of use assets Amounts recognised in statement of cash flows Total cash outflow for leases Lease Liabilities Group At 1 January 2019 Interest Payment At 31 December 2019 At 1 January 2020 Interest Payment At 31 December 2020 Maturity analysis of undiscounted cash flows due for leases Within one year After one year but not more than five years After five years Total 2020 US $ 32,443 98,049 2019 US $ 37,201 98,049 2020 US $ 118,859 2019 US $ 105,348 Land and buildings US$ 571,950 37,201 (110,753) 498,398 498,398 32,443 (113,457) 417,384 2020 US$ 118,183 356,576 - 474,759 Total US $ 571,950 37,201 (110,753) 498,398 498,398 32,443 (113,457) 417,384 2019 US $ 114,131 474,759 - 588,890 37 Belluscura plc Notes to the accounts For the year ended 31 December 2020 22. Dividends No dividend has been declared for the period ended 31 December 2020 and no dividend was paid during the period. 23. Cash generated from operating activities Group Loss before income tax Adjustments for - Depreciation - Amortisation and impairment - Proceeds from sale of asset - No cash interest expense - Movement in foreign exchange - Movement in trade and other receivables Inventory movement Movement in trade and other payables Cash generated from operating activities Share based payments 2020 US $ (1,978,145) 2019 US $ (1,551,996) 8,544 98,049 - 32,956 (68,056) 111,350 81,268 - 243,261 (1,470,773) 9,403 98,049 (44,368) 37,202 (385,513) 5,663 (634,169) 128,094 1,335,258 (1,002,377) 24. Related party transactions Details of Directors' remuneration are given in the Directors’ report. As at the period end the Group does not have any controlling party. 25. Events after the reporting period Following the reporting date and at the date of signing the Group has raised approximately $2.7m from new and existing shareholders. 38
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