Annual Report 2018 The fastest path to discovery DIRECTORS, OFFICERS AND ADVISORS Non-Executive Chairman Chief Executive Finance Director Founding Scientific Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Directors James Ede-Golightly Mark Warne Michael Bretherton Lee Cronin David Cleevely Laurence Ede Bettina Goerner Secretary Michael Bretherton Registered Office The Walbrook Building 25 Walbrook London EC4N 8AF Broker and Nominated Advisor Stockdale Securities Limited 100 Wood Street London EC2V 7AN Auditor Nexia Smith & Williamson Portwall Place Portwall Lane Bristol BS1 6NA Registrar and Transfer Agent Neville Registrars Neville House Steelpark Road Halesowen B62 8HD Company Number 05845469 (England and Wales) CONTENTS DIRECTORS, OFFICERS AND ADVISERS CHAIRMAN’S STATEMENT STRATEGIC REPORT DIRECTORS’ REPORT INDEPENDENT AUDITOR’S REPORT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS COMPANY STATEMENT OF FINANCIAL POSITION COMPANY STATEMENT OF CHANGES IN EQUITY COMPANY STATEMENT OF CASH FLOWS NOTES TO THE COMPANY FINANCIAL STATEMENTS NOTICE OF THE ANNUAL GENERAL MEETING IFC 2 5 8 13 17 18 19 20 21 35 36 37 38 41 DeepMatter Group Plc Annual Report 2018 1 CHAIRMAN’S STATEMENT Introduction On behalf of the Board, I am pleased to be able to report on such a transformative year for DeepMatter Group Plc (”DeepMatter Group” or “the Group”), with the Group making significant strides in progressing its strategy to digitize chemistry. During the year, we rebranded and strengthened the management team with the appointment of a new CEO, Mark Warne, to take the Group forward through its next phase of growth. Under Mark’s leadership, the Group has successfully executed on the first stage of its strategy, with its technology now deployed on a trial basis with several of the world’s premier scientific organisations. Post-period end, the Group completed the key strategic acquisition of Infochem and the Group’s largest fundraising. We are very pleased to be reporting on this rapid pace of progress, which is in line with the Group’s expected timeline for this stage of the growth strategy. The achievements made over the year have strengthened the Group technically, operationally and financially as we focus on building the credibility, awareness and understanding of the DigitalGlassware™ platform before rolling it out in full to the broader scientific community. Vision and Strategy Update DeepMatter Group’s aim is for the use of its software platform to become truly integral to research and process chemistry, providing those involved with a cost-effective, easy-to-use solution that will save them significant time, effort and money. The research industry is ripe for modernisation, becoming more open to adopting new disruptive solutions, having reached a point where the use of digitisation and big data at scale is viable. The Group is confident its technology, positioning and capability mean that it is able to capitalise on this opportunity. In the near term, the Group is delivering an integrated software, hardware and machine learning enabled platform, DigitalGlassware™, to scientists across research and process development sectors. This process has now begun with the Pioneer Partner trials, described in more detail below. The DigitalGlassware™ platform allows experiments to be accurately and systematically recorded, coded and entered into a shared data cloud. The platform is designed to enable scientists to collaborate effectively; sharing the details of their experiments from anywhere and in real-time. This ensures that work is not needlessly duplicated, time and money wasted, and ultimately new discoveries can be made faster. Building upon its experiences with the DigitalGlassware™ Pioneer Programme, the Group is now focused on deploying its technology to an increasingly large user base; incorporating robust cheminformatic capabilities enabled by the recent InfoChem acquisition; and progressing to the direct monetisation of the platform. Alongside this, the Group has begun to identify unique chemistry insights, which it will both use to create intellectual property and also begin to share with the wider scientific community in due course, as further proof of the validity of the platform. The Group’s vision is to progress its platform to the point where it enables the use of artificial intelligence in chemistry, ultimately to the stage where chemicals can be synthesised autonomously through robotics operating on the DeepMatter platform. DigitalGlassware™ platform deployment During 2018, the Group partnered with, and continues to work with, a total of seven organisations across three continents for its DigitalGlassware™ Pioneer Programme (the “Pioneers”). The seven Pioneers include multinational life science companies, research institutions and leading academic institutions. We are pleased with the level of engagement seen with the technology from trial users so far. To date, the DigitalGlassware™ platform has been used to collect data from over 900 days (2.5 years) of chemistry research across over 1,100 individual experimental runs. Data has been collected and structured, comprising nearly 9 billion sensor readings over 221 million samples. Of the most frequently used synthetic reaction types in medicinal chemistry*, more than 50 per cent. are now represented in the DigitalGlassware™ platform. This data will be subjected to machine learning methodologies that will form the basis of intellectual property to be protected by the Group. InfoChem Acquisition, Placing and associated Board Appointment In December 2018, the Group announced that it had agreed to acquire the entire issued share capital of InfoChem GmbH, a specialist in cheminformatics, from global publisher Springer-Verlag GmbH (“Springer Nature”). The total consideration was a maximum of £2.031 million satisfied as to £0.321 million (€0.374 million) in cash and up to 68,400,000 new ordinary shares in the capital of the Group. The Group also announced its intention to raise new capital by way of a proposed placing of new Ordinary Shares to further finance ongoing DigitalGlassware™ technology development, including integration of cheminformatics capabilities, user and partner support, marketing, data science, manufacture and for working capital requirements of the enlarged Group. The placing was ultimately oversubscribed, with the Group raising £4.0 million and the acquisition completed in March 2019. * as reported in the frequently cited publication by Brown and Boström of pharmaceutical company AstraZeneca in the Journal of Medicinal Chemistry 59, 4443 (2016) 2 DeepMatter Group Plc Annual Report 2018 CHAIRMAN’S STATEMENT (CONTINUED) InfoChem, based in Munich, Germany, has extensive scientific expertise and a long tradition in developing successful software solutions for handling and retrieval of structures and reactions. With an established base of users, which are in the same industries as those being targeted by the Group, the acquisition will accelerate the Group’s strategy by providing cost effective access to established data sources and chemical information software tools, assisting in the accelerated development of the DigitalGlassware™ platform, as well as providing specialist staff, recurring revenues and an additional sales channel. Bettina Goerner, Managing Director, Databases, at Springer Nature, was appointed to the DeepMatter Board as a Non-Executive Director, on completion of the acquisition. SICM Divestment In January 2019, DeepMatter Group announced that Group company OpenIOLabs Limited (“OpenIOLabs”) had disposed of Scanning Ion Conductance Microscope (“SICM”), by way of an asset purchase agreement. The Group acquired OpenIOLabs in 2017 to secure access to some of its key technology assets, specifically those used to integrate equipment in a laboratory, a capability the Group had always intended to include in its DigitalGlassware™ platform. With this objective complete, the remainder of the OpenIOLabs business, being non-core to the Group’s continuing operations, was sold for cash to Scientific Digital Imaging Plc. Scientific Publications Scientific credibility of the Group’s approach, ultimately an important factor in the Group’s industry engagements, has been underpinned by relevant high- profile publications, Nature, Science and PNAS, by the Group’s Founding Scientific Non-Executive Director, Professor Lee Cronin FRSE FRSC, and the granting of patents assigned to the Group under its agreement with the University of Glasgow. Change of Group Name and Re-branding In May 2018, to better represent its vision and strategy, the Group rebranded as DeepMatter Group Plc. The change has been received well by the Group’s stakeholders, commercial partners and the wider industry. Board Changes The Group announced in June 2018 that Mark Warne would join the Group full time as Chief Executive Officer. Having been a Non-Executive Director of the Group, I assumed the role of Non-Executive Chairman on an interim basis whilst the search for a new Non-Executive Chairman was undertaken. This search remains in process. We are confident that we now have in place the strength and depth of management required. We have today announced further changes to the Board, as we seek to optimise our structure for streamlined strategic and operational execution, while retaining the wealth of industry knowledge and insight of our Directors. The changes are: (cid:129) (cid:129) (cid:129) (cid:129) Lauren Lees, currently Financial Controller, will be appointed to the Board as Financial Director, taking effect as of 28 June 2019. Michael Bretherton, current Financial Director, will step down from the Board as of 28 June 2019, allowing for an orderly handover. David Cleevely, Non-Executive Director, will step down from the Board and become Chairman of the Advisory Committee, with immediate effect. Professor Lee Cronin, Founding Scientific Non-Executive Director, will also step down from the Board and join the Advisory Committee, with immediate effect. The function of DeepMatter’s Advisory Committee is to develop the Group’s strategy and proposition in an innovative, interdisciplinary context while the Board increasingly focuses on operational and strategic delivery. Financial Review and Corporate Governance The Group incurred an operating loss for the year ended 31 December 2018 of £2.0 million (2017: loss from operations of £1.58 million) which after tax and discontinued operations of SICM, resulted in an overall after-tax loss of £1.92 million (2017: loss of £1.46 million). The Group held cash balances at 31 December 2018 of £1.09 million (2017: £3.27 million). The £2.18 million decrease during the year is mainly attributable to the research and development and overhead expenditure costs associated with the continuing operations of the Group. Cash was also spent in funding SICM’s losses ahead of the planned sale of the business. Subsequent to the year end, the successful placing in March 2019 contributed an additional £4.0 million to the Group’s cash balances. As required by AIM Rule 26, the Group adopted the Quoted Companies Alliance (QCA) Code as of 28 September 2018. The Group’s corporate governance statement in relation to the QCA Code can be viewed on the Group’s investor webpage at http://www.deepmattergroup.com/content/investor/ governance.asp Prior to the formal adoption of the QCA Code, the Group adhered to good corporate governance which it deemed appropriate for the size and nature of the Group. DeepMatter Group Plc Annual Report 2018 3 CHAIRMAN’S STATEMENT (CONTINUED) Outlook Our DigitalGlassware™ platform brings code, structure and order into the chemistry lab environment and enables recordable, shareable, reproduceable chemistry whilst also championing speed, simplicity and unhindered discovery. The Group is progressing well with its DigitalGlassware™ Pioneer Programme and is focused in 2019 on driving deployment with key opinion leaders; delivering the first complete site rollouts to early adopters. The platform is expected to progress during the year as the cheminformatics capabilities are integrated and the expanding dataset demonstrates its value. James Ede-Golightly Non-Executive Chairman 11 April 2019 Company Number: 05845469 4 DeepMatter Group Plc Annual Report 2018 STRATEGIC REPORT The Directors present their Strategic Report with the audited consolidated financial statements and their assessment of risks faced by DeepMatter Group Plc (“DeepMatter” or the “Company”) and its subsidiaries (the “DeepMatter Group” or “the Group”) for the year to 31 December 2018. The Company name changed from “Cronin Group Plc” to “DeepMatter Group Plc” on 18 May 2018. The company has three wholly owned subsidiaries, two of which are active trading entities, DeepMatter Limited (2017: Cronin 3D Limited) and OpenIOLabs Limited (“OpenIOLabs”). DeepMatter Tech Limited is a dormant subsidiary. OpenIOLabs was acquired in November 2017 to complement the strategic digitization of chemistry operations of the Group by securing its one point of control technology platform developed to bridge the language and compatibility gap between various hardware and software systems. The Group has successfully integrated this acquired technology with its own DigitalGlassware™ platform. The remaining Scanning Ion Conductance Microscope trade of OpenIOlabs was never part of the continuing operations of the DeepMatter Group and was subsequently sold to Scientific Digital Imaging Plc on 15 January 2019 by way of an asset purchase agreement. Principal Activity and Business Model The Group’s ongoing business activity, undertaken by a subsidiary entity, is that of the digitization of chemical space coupled with innovative chemical discovery. The Group continues to make exciting progress towards deploying its DigitalGlassware™ technology platform, comprising an easy-to-use software interface and a unique, low footprint sensor array, which will allow an individual to access reproducible chemistry via internet protocols. The platform will increase access to, and the quality of, data associated with making a chemical. During the financial year ended 31 December 2018, our DigitalGlassware™ technology platform was successfully deployed to several academic institutions and commercial companies under the Group’s pioneer programme. Valuable insights were obtained through pioneer deployments and have been encompassed into the Group’s on-going development roadmap for 2019. Business Review A review of the Group’s performance and future prospects is included in the Chairman’s Statement on pages 2 to 4. Share Capital & Funding The Group held cash balances of £1.09 million at 31 December 2018 which were subsequently strengthened by way of a placing of shares completed on the 13 March 2019 at 2.5 pence per share and which raised £4.05 million in gross cash funding. Management believes that this provides sufficient funding for the Group to continue to execute its development strategy in the foreseeable future. There were 550,748,266 ordinary shares in issue at 31 December 2018. As at 11 April 2019, there were 736,533,946 ordinary shares in issue following the post year end fundraise of £4.0 million and acquisition of InfoChem GmbH. Financial Review The Consolidated Financial Statements have been prepared for the year to 31 December 2018. Key performance indicators Key Group performance indicators are set out below: 31 December 31 December 2018 2017 Net assets (£ million) 6.20 8.11 Net asset value per share (pence) 1.13 1.47 Total loss after tax (£ million) (1.92) (1.46) Basic loss per share from continuing operations (pence) (0.33) (0.27) Cash and short term deposits with banks (£ million) 1.09 3.27 Consolidated statement of comprehensive income The Group incurred a total loss after tax for the year ended 31 December 2018 of £1.92 million compared to a loss of £1.46 million in the previous year. Consolidated statement of financial position The Group continues to benefit from a solid balance sheet with net assets at 31 December 2018 of £6.20 million compared to £8.11 million at 31 December 2017. The reduction in net assets reflects the £1.92 million loss for the year. Consolidated statement of cash flows The Group’s overall cash position decreased by £2.18 million during the year. The decrease mainly reflects £2.17 million of cash used in operating activities and cash of £0.01 million invested in property plant and equipment during the year. Directors & Employees As at 31 December 2018, the Group had 21 employees, consisting of 6 directors and 15 mainly technical and scientific staff. The profile of the directors and their remuneration is detailed in the Directors’ Report on pages 8 to 10. During the year the Group employed an average of 15 of its own technical and scientific staff, together with an office manager and financial controller. The Group continues to recruit a number of additional employees to staff both its management team and development programmes. DeepMatter Group Plc Annual Report 2018 5 STRATEGIC REPORT (CONTINUED) The Company continues to provide a money purchase defined contribution pension scheme during the year for all employees and under which the Company pays a fixed 4% of basic salary as pension contributions. market’s acceptance of its products or services and there can be no guarantee that this will be forthcoming or that alternative competitor technologies are adopted by the market instead. The Group is committed to the health and safety of its employees in the workplace and has processes and procedures, combined with appropriate training and risk assessment, to ensure the same. The Group supports employment of disabled people wherever possible through recruitment, by retention of those who become disabled and generally through training, career development and promotion. The Group is committed to keeping employees as fully informed as possible with regard to the Group’s performance and prospects and seeks their views, wherever possible, on matters which affect them as employees. Risk Review The analysis of key performance indicators ("KPls") is included in the Financial Review section of the Strategic report. The Directors believe that performance should also be measured by achievement against technical and business development milestones. The Group’s risk management objectives and exposure to various risks are detailed in note 22 to the Group financial statements. The key operating risks of the Group and the measures taken to manage these are summarised below. Early stage operations The Group is at an early stage of development. It is difficult to predict if and when material revenues will arise and the Group faces risks frequently encountered by developing companies. The Group’s success will depend on its ability to develop products and services which address specific market needs and develop suitable licensing, royalty and contract manufacture models and capture value from business opportunities. Technology & Development Risk There is a risk that technology development is delayed or specific programme targets cannot be met. The Group manages the development of its technology through separate development programmes. Each programme has a specific set of milestones (either internal or external), together with measurable goals and a timeline. Performance against each of these is monitored regularly, depending on the programme requirements. This enables the Group to identify issues at an early stage and take appropriate mitigating actions. Commercial success and market acceptance There can be no assurance that any current or future technology programmes will be successfully developed into commercially viable products or services. The Group’s success will depend on the 6 DeepMatter Group Plc Annual Report 2018 Attraction and retention of key employees The Group depends on its Directors and other key employees and whilst it has entered into contractual arrangements with these individuals with the aim of securing the services of each of them, retention of these services cannot be guaranteed. The Group has attempted to reduce this risk by offering competitive remuneration packages and investment in training, development and succession planning. Intellectual Property A part of the Group’s future development and growth depends on its intellectual property. If intellectual property is inadequately protected, the Group’s future success could become adversely affected. The Group may not be able to protect and preserve its intellectual property or to exclude competitors with competing technology products. The Group continues to invest in the protection and expansion of its intellectual property portfolio. In addition the Group utilises internal procedures and controls to identify and capture new intellectual property and to prevent unauthorised disclosure to third parties. Financial Risks The Group’s activities expose it to a number of financial risks including credit risk, interest rate risk and liquidity risk. The Group is not currently exposed to significant exchange rate risks. At present the Group does not use financial derivatives in the normal course of business. The Group’s and the Company’s financial instruments comprise cash and cash equivalents, trade and other receivables, equity investments and trade and other payables. The main purpose of these financial instruments is the funding of the Group’s activities. Credit Risk The Group’s principal financial assets are cash and cash equivalents and trade and other receivables. The Group’s credit risk is primarily attributable to its cash and cash equivalents. The Group seeks to reduce the credit risk associated with cash by only holding cash with institutions that have good credit ratings. Interest Rate Risk The Group has no external financing facility, therefore its interest rate risk is limited to the level of interest received on its cash surpluses. Interest rate risk on cash, cash equivalents and short term deposits is partially mitigated by using an element of fixed-rate accounts and short term deposits. STRATEGIC REPORT (CONTINUED) Liquidity Risk The Group seeks to manage liquidity by ensuring sufficient funds are available to meet foreseeable needs and to invest cash assets safely and profitably. The Group had cash, cash equivalents and short-term deposit balances of £1.09 million as at 31 December 2018 (2017: £3.27 million). In order to minimise risk to the Company’s capital, funds are invested across a number of financial institutions with sound credit ratings. Cash forecasts are updated regularly to ensure that there is sufficient cash available for foreseeable requirements. The Directors are satisfied that the current cash balances, together with the £4.0 million of gross cash proceeds raised from a share placing in March 2019 and the present running cost base of the Group, ensures that the going concern assumption remains valid. Future Developments The Board remains committed to delivering additional value for our shareholders and aims to pursue its corporate strategies as outlined in the Chairman’s Statement. On behalf of the Board Mark Warne Chief Executive 11 April 2019 Company Number: 05845469 DeepMatter Group Plc Annual Report 2018 7 DIRECTORS’ REPORT The Directors present their report and the audited consolidated financial statements for DeepMatter Group Plc (“DeepMatter” or “the Company”) and its subsidiaries (the “DeepMatter Group” or “the Group”) for the year to 31 December 2018. Directors and their interests The Directors who have held office during the year and in the subsequent period to the signing of these financial statements were as follows: Principal Activities A review of the Group’s activities is included in the Chairman’s Statement on pages 2 to 4 and in the Strategic Report on page 5. Business Review A review of Group performance and future prospects is given in the Chairman’s Statement on pages 2 to 4 and in the Strategic Report on page 5. Share Capital The share capital of the Company increased marginally by the issue of 8,333 ordinary shares during the year on the exercise of options by departing employees. Results and Dividends The audited consolidated financial statements have been prepared for the year to 31 December 2018. The loss before tax from continuing operations for the year was £1.99 million (2017: £1.56 million). The Directors do not recommend a dividend in respect of the year to 31 December 2018 and no dividends were paid during the year under review or the prior year. Substantial Shareholdings No single person directly or indirectly, individually or collectively, exercises control over the Company. The Directors are aware of the following persons, who had an interest in 3% or more of the issued ordinary share capital of the Company as at 11 April 2019: No. of ordinary Name shares % holding IP Group and controlled undertakings 266,959,497 36.25% Richard Griffiths and controlled undertakings 165,032,111 22.41% Prof Lee Cronin 55,973,019 7.60% Robert Quested 42,285,279 5.74% GU Holdings 39,373,994 5.35% Springer Nature 25,600,000 3.48% At this date no other person had notified any interest in the ordinary shares of the Company required to be disclosed to the Company in accordance with Chapter 5 of the Disclosure and Transparency Rules of the Financial Services Authority in respect of holdings exceeding the 3% notification threshold. Mark Warne Michael Bretherton David Cleevely Lee Cronin Laurence Ede James Ede-Golightly Bettina Goerner (appointed 15 March 2019) The remuneration of the Directors for the year under review is shown below: Directors’ Remuneration Salaries Pension Total Total and Contribu- December December fees tions 2018 2017 Name of Director £’000 £’000 £’000 £’000 Mark Warne 85 4 89 20 Michael Bretherton 12 – 12 12 David Cleevely 14 – 14 2 Lee Cronin 12 – 12 12 Laurence Ede 24 – 24 16 James Ede-Golightly 14 – 14 12 161 4 165 74 All Directors have service contracts with one month’s notice with the exception of the Chief Executive whose service contract is for six month’s notice. The Directors are all required to put themselves up for re-election periodically in accordance with the Articles of Association and all service contracts and letters of appointment are subject to early termination provisions. Remuneration for Executive Directors is recommended by the Remuneration Committee and agreed by the Board as a whole. During the year, one executive director benefitted from a pension payment contribution of £3,750 (2017: £nil). At the present time, none of the Executive Directors receive any other benefits and nor do they participate in bonus schemes. Remuneration for Non-executive Directors is set by the Board as a whole. Non-executives do not receive any pension payments or other benefits and nor do they participate in bonus or share option schemes. Director dealings in Shares of the Company The Group has adopted a model code for Directors’ dealings in securities of the Company which is appropriate for a company quoted on AIM. The Directors comply with Rule 21 of the AIM Rules relating to Directors’ dealings and also take all reasonable steps to ensure compliance by the Group’s “applicable employees” as defined in the AIM Rules. 8 DeepMatter Group Plc Annual Report 2018 DIRECTORS’ REPORT (CONTINUED) Directors’ Interests in Shares of the Company The beneficial interests of the Directors in the issued share capital of the Company at 31 December 2018 are given below: Ordinary shares of £0.0001 each 31 December 2018 31 December 2017 Number Percent Number Percent Mark Warne 541,475 0.10% 541,475 0.10% Michael Bretherton 4,033,824 0.73% 4,033,824 0.73% David Cleevely 15,692,993 2.85% 15,692,993 2.85% Lee Cronin 55,173,019 10.02% 54,618,853 9.92% Laurence Ede 801,586 0.15% 444,444 0.08% James Ede-Golightly 2,080,249 0.38% 2,080,249 0.38% On 12 March 2019, the Board granted an initial award of options to Mark Warne over 25,000,000 ordinary shares at an exercise price of 2.5 pence, reflecting the 2.5 pence issue price of the placing of shares issued between 12 and 13 March 2019 to raise gross cash proceeds of £4 million. Provided Mark remains an employee, his options vest over 36 months starting from the commencement of his employment but subject to specific share price triggers being reached as set out in the table below. All unexercised options lapse after 10 years from the date of grant. No other directors have been granted share option awards. Number of plan Share Price shares in respect of Trigger which the Options (£) may be exercised None 3,750,000 0.04 3,750,000 0.06 3,750,000 0.08 3,750,000 0.10 3,750,000 0.12 1,250,000 0.14 1,250,000 0.16 1,250,000 0.18 1,250,000 0.20 1,250,000 Profiles of the Directors Mark Warne Chief Executive Mark Warne was appointed as Chief Executive Officer of DeepMatter Group Plc on the 2 July 2018. Mark, who joined DeepMatter as a Non-Executive Director in September 2015 also served as its Executive Chairman between April 2017 and July 2018. Mark is widely recognised in the UK and International life sciences sector, having spent almost 10 years at IP Group Plc, a leading intellectual property commercialisation company, where he led the Healthcare team. He managed a portfolio of £330m of net assets in 2016/2017 and represented IP Group on the boards of both listed and private companies. In 2018, concurrent with the integration of Touchstone Innovations into IP Group, Mark became a Partner in the Life Sciences division. He joined IP Group from pre-clinical drug discovery CRO, Exelgen, where he was Managing Director. Mark spent eight years at Exelgen (formerly Tripos Discovery Research) where he also held positions in licensing and strategic affairs, project management and research. He has a PhD in Computational Chemistry, an MSc in Colloid Science and a BSc in Chemistry, all from the University of Bristol. Mark is a Chartered Chemist and member of the Royal Society of Chemistry. He serves as a non- executive director on the boards of hVIVO plc and Ixico Plc. Prof. Lee Cronin Founding Scientific Non-Executive Director Professor Cronin is the Regius Chair of Chemistry in the Department of Chemistry at the University of Glasgow. He was elected to the Fellowship of the Royal Society of Edinburgh, the Royal Society of Chemistry, and appointed to the Gardiner Chair in April 2009. He was awarded a Philip Leverhulme Prize by the Leverhulme Trust in 2007. He was awarded the Corday-Morgan medal of the Royal Society of Chemistry in 2012. Professor Cronin has a large active group at the University of Glasgow performing cutting-edge research into how complex chemical systems, created from non-biological building blocks, can have real-world applications with wide impact. Professor Cronin has published in excess of 300 peer-reviewed articles in a number of journals and has given over 280 invited presentations at conferences and universities worldwide. Michael Bretherton Finance Director Michael joined the Board in June 2015. He is Chairman of Adams Plc and is also a director of Sarossa Plc and ORA Limited. In addition, Michael has been a non-executive director of six other AIM quoted companies during the last six years, including Nanoco Group Plc, Tissue Regenix Group Plc and Ceres Power Holdings Plc. He has a degree in Economics from Leeds University and is a member of the Institute of Chartered Accountants in England and Wales. His early career included working as an accountant and manager with PriceWaterhouse for 7 years in London and the Middle East, followed by finance roles at the Plessey Company plc, Bridgend Group plc, Mapeley Limited and Lionhead Studios Limited. James Ede-Golightly Non-Executive Chairman James joined the Board in July 2014. He is chairman of East Balkan Properties Plc and Quoram Plc and has extensive experience as a non-executive on the boards of AIM-quoted companies with international business interests. James was a founder of ORA Capital Partners in 2006, having previously worked as an analyst at Merrill Lynch Investment Managers and Commerzbank. He is a CFA Charterholder and holds an MA in economics from Cambridge University. In 2012 he was awarded New Chartered Director of the Year by the Institute of Directors. DeepMatter Group Plc Annual Report 2018 9 DIRECTORS’ REPORT (CONTINUED) David Cleevely Non-Executive Director David Cleevely is a serial entrepreneur having founded or co-founded several companies and organisations, notably including Abcam Plc, Analysys Limited, 3 WayNetworks Limited, Cambridge Wireless Limited, Cambridge Angels and Controllis Limited. David is Chairman of the Raspberry Pi Foundation and is a member of the IET Communications Policy Panel. He was awarded a CBE for services to innovation and technology in 2013. Laurence Ede Non-Executive Director Laurence Ede was the Managing Director and co-owner of Tocris Bioscience, a company producing chemical compounds for pharmaceutical research, when it was sold to Techne Corporation for £75M in 2011. Mr. Ede had previously led the Management Buyout of Tocris for £14M five years earlier and grew its value by focusing on developing the business to be an increasingly significant provider of products within the life science arena. Mr. Ede is currently a non-executive director of Ubiquigent Ltd, a drug discovery services company using research tools and chemistry to pursue ubiquitin system-focused drug discovery programmes. He has a BSc in Chemistry from Reading University and an MBA from the University of Bath. Bettina Goerner Non-Executive Director Bettina Goerner is Managing Director, Databases, at Springer Nature, based in Heidelberg, Germany. She oversees product development, portfolio management and commercialization for the databases and corporate product lines. This spans a portfolio of products relevant to academic institutions and corporations with R&D activity in areas like drug discovery and material sciences. Springer Nature was created as a result of the merger of Nature Publishing Group, Palgrave Macmillan, Macmillan Education and Springer Nature Science+Business Media in May 2015. Bettina graduated in Molecular Biology (MSc) from the International Max Planck Research School after a research stay at the Harvard Institute of Medicine. She first ventured into the corporate world with assignments at McKinsey & Company and INSEAD Business School, before joining Springer Nature in 2008. She was responsible for Springer Nature’s open access activities from 2009 to 2013 before moving to her current position. Corporate governance Compliant with AIM Rules, the Company has adopted the Quoted Companies Alliance (QCA) corporate governance code with effect from 28 September 2018. Prior to the formal adoption of the QCA code in September 2018, the Group adhered to good corporate governance practice appropriate for the size and nature of the Group. The Board The Board currently comprises a Non-Executive Chairman, a Chief Executive, a Founding Scientific Non-Executive Director, a Finance Director and three Non-executive Directors. Audit committee The Audit Committee’s primary responsibilities are to monitor the integrity of the financial affairs and statements of the Company, to ensure that the financial performance of the Company and any subsidiary of the Company is properly measured and reported on, to review reports from the Company’s auditors relating to the accounting and internal controls and to make recommendations relating to the appointment of the external auditors. The Audit Committee comprises David Cleevely, who acts as chairman, and Laurence Ede. Remuneration committee The Remuneration Committee’s primary responsibilities are to review the performance of the executive directors of the Company and to determine the broad policy and framework for their remuneration and the terms and conditions of their service and that of senior management (including the remuneration of and grant of options to such persons under any share scheme adopted by the Company). The remuneration committee comprises Laurence Ede, who acts as chairman, Lee Cronin and James Ede-Golightly. The remuneration of Non-executive Directors is set by the Board as a whole. Internal Control The Board is responsible for maintaining a sound system of internal control. The Board’s measures are designed to manage, but not eliminate, risk and such a system provides reasonable but not absolute assurance against material misstatement or loss. Some key features of the internal control system are: (i) Management accounts information, budgets, forecasts and business risk issues are regularly reviewed by the Board which meets at least four times per year; The Company has operational, accounting and employment policies in place; The Board actively evaluates the risks inherent in the business and ensures that appropriate controls and procedures are in place to manage these risks; and There is a clearly defined organisational structure and well-established operational and financial reporting and control systems. (ii) (iii) (iv) Going Concern At 31 December 2018, the Group had £1.09m (2017: £3.27m) of cash available to it. In addition, £4.0m of gross cash funding was subsequently raised from a placing of 10 DeepMatter Group Plc Annual Report 2018 DIRECTORS’ REPORT (CONTINUED) shares completed on 13 March 2019 at 2.5 pence per share. The Directors have considered their obligation in relation to the assessment of the going concern of the Group and each statutory entity within it and have reviewed the current budget cash forecasts and assumptions as well as the main risk factors facing the Group. After due enquiry, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements. Risk management The Group’s risk management objectives and exposure are detailed in the Strategic Report on pages 6 to 7 and in note 22 of the financial statements. Employment policy When applicable, the Directors are committed to continuing involvement and communication with employees on matters affecting both the employees and the Company. The Group supports employment of disabled people wherever possible through recruitment, by retention of those who become disabled and generally through training, career development and promotion. Creditor payment policy The Group seeks to abide by the payment terms agreed with suppliers whenever it is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. The Group does not have a standard code of conduct that deals specifically with the payment of suppliers. At the end of the year outstanding invoices for the Group and Company represented 24 days purchases (2017: 60 days). Annual General Meeting The next Annual General Meeting will take place on 22 May 2019 at the Offices of IP Group Plc, Floor 9, The Walbrook Building, 25 Walbrook, London EC4N 8AH on 22 May 2019 at 11.00 a.m. Voting rights On a show of hands at a general meeting of the Company every holder of shares present in person and entitled to vote, and every proxy duly appointed by a member entitled to vote, has one vote and on a poll every member present in person or by proxy and entitled to vote has one vote for every share held. Further details regarding voting at the Annual General Meeting can be found in the Notice of Annual General Meeting at the back of this document. None of the shares carry any special rights with regard to control of the Company. Electronic and paper proxy appointments and voting instructions must be received by the Company’s transfer agent not later than 48 hours (not counting non-working days) before the meeting. Statement of Directors’ Responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have prepared the Group and parent company financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. 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 the affairs of the Company and of the Group and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to: (cid:129) (cid:129) (cid:129) (cid:129) Select suitable accounting policies and then apply them consistently; Make judgements and accounting estimates that are reasonable and prudent; State whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; and Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable the Directors to ensure that any financial statements comply with the requirements of the Companies Act 2006. They are also responsible, as a matter of general law, for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the company’s website (www.deepmattergroup.com), and legislation in the UK governing the preparation and dissemination of financial statements, may differ from legislation in other jurisdictions. Independent Auditors A resolution to reappoint the auditors, Nexia Smith & Williamson, will be proposed at the Annual General Meeting. DeepMatter Group Plc Annual Report 2018 11 DIRECTORS’ REPORT (CONTINUED) Disclosure of information to auditors So far as each Director is aware, there is no relevant audit information of which the Company’s auditors are unaware. Each Director has taken all the steps that he ought to have taken in his duty as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. Approved by order of the Board Michael Bretherton 11 April 2019 12 DeepMatter Group Plc Annual Report 2018 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DEEPMATTER GROUP PLC Opinion We have audited the financial statements of DeepMatter Group Plc (the ‘parent company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2018 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statements of Financial Position, the Consolidated and Parent Company Statements of Cash Flows, the Consolidated and Parent Company Statements of Changes in Equity and the notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: (cid:129) (cid:129) (cid:129) (cid:129) 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 2018 and of the group’s loss for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to SME listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: (cid:129) (cid:129) the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Emphasis of matter – valuation of goodwill, intangible asset platform and parent company’s investments in subsidiaries We draw attention to the disclosures made in note 14 to the group financial statements concerning the valuation of goodwill, the disclosures made in note 15 to the group financial statements concerning the valuation of the intangible technology asset platform and the disclosures made in note C2 to the parent company financial statements concerning the valuation of investments in subsidiaries. The valuation of £4.1 million goodwill, £0.7 million intangible asset platform and £5.6 million investments is dependent on future sales within the group, which are dependent on the timing of products, obtaining regulatory approval and being taken to market, including their successful commercialisation. The ultimate outcome of these matters cannot presently be determined, and the financial statements do not reflect any provision that may be required if the £4.1 million goodwill, £0.7 million intangible asset platform and £5.6 million investments cannot be recovered in full. Our opinion is not modified in respect of these matters. Key audit matters We have identified the following key audit matters described below. Key audit matters include the most significant assessed risks of material misstatement, including those risks that had the greatest effect on our overall audit strategy, the allocation of resources in the audit and the direction of the efforts of the audit team. In addressing these matters, we have performed the procedures below which were designed to address the matters in the context of the financial statements as a whole and in forming our opinion thereon. Consequently, we do not provide a separate opinion on these individual matters. DeepMatter Group Plc Annual Report 2018 13 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DEEPMATTER GROUP PLC (CONTINUED) Goodwill and intangible asset platform impairment – group only Key audit matter description As explained further in notes 14 and 15, the group recognised goodwill upon the acquisition of DeepMatter Limited and an intangible asset platform upon the acquisition of OpenIOLabs Limited, which management tests for impairment on an annual basis, in line with accounting standards. This presents an area of audit risk, given the uncertainty and value of future sales, and the projected future life of the intangible asset and amortisation period assigned. For this reason, we have considered this area of key audit focus. Response to key audit matter We discussed the cash flow forecasts and budgets prepared by management in their impairment calculation. The main procedures performed on the calculation, the intangible assets workings and areas where we challenged management were as follows: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) testing the quality of management forecasting by comparing cash flow forecasts for prior periods to actual outcomes; verifying the consistency of forecasts used in the going concern assessment with those used for impairment calculations; testing the appropriateness of the assumptions that had the most material impact; the main focus was on forecast costs and the discount factor used as the assumptions made by management regarding revenue were deemed highly uncertain, as referred to above in the Emphasis of Matter paragraph; in challenging these assumptions actual results, external market conditions and progression of the business against milestones set were taken into account; reference to market conditions was considered by comparing the market capitalisation to the assets of the business; reviewing the amortisation charged during the year for the intangible asset platform, to ensure it has been calculated in accordance with the group’s amortisation policy, and consideration of whether the amortisation period is appropriate in light of future plans considered by the group; assessing the value of the intangible asset platform against the impairment indicators of IAS 36 and determining whether there is any indication that the asset might be impaired; considering the appropriateness of the disclosures made in the financial statements in respect of these assets. Parent company investment in subsidiaries – parent company only Key audit matter description As explained further in note C2 to the parent company financial statements, the valuation of the investment balance related to the subsidiaries of the parent company is linked to the assessment of goodwill and the intangible asset platform on consolidation. As with the key audit matter described above, this also presented an area of audit risk, given the uncertainty and value of future sales used to determine the cash flow projections upon which conclusion was reached that the values are deemed recoverable. For this reason, we have considered this area of key audit focus. Response to key audit matter We discussed the cash flow forecasts and budgets prepared by management in their impairment calculation. The main procedures performed on the calculation, the intangible assets workings and areas where we challenged management were as follows: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) testing the quality of management forecasting by comparing cash flow forecasts for prior periods to actual outcomes; verifying the consistency of forecasts used in the going concern assessment with those used for impairment calculations; testing the appropriateness of the assumptions that had the most material impact; the main focus was on forecast costs and the discount factor used as the assumptions made by management regarding revenue were deemed highly uncertain, as referred to above in the Emphasis of Matter paragraph; in challenging these assumptions actual results, external market conditions and progression of the business against milestones set were taken into account; reference to market conditions was considered by comparing the market capitalisation to the assets of the business; assessing the value of the investments against the impairment indicators of IAS 36 and determining whether there is any indication that the investments might be impaired; considering the appropriateness of the disclosures made in the financial statements in respect of these investments. Materiality The materiality for the Group financial statements as a whole was set at £315,000. This has been determined with reference to the benchmark of the Group’s net assets, which we consider to be an appropriate measure for a Group of companies with significant value in investments and research and development activities which are fundamental to the future trading of the Group. Materiality represents 5% of net assets as presented on the face of the Consolidated Statement of Financial Position. 14 DeepMatter Group Plc Annual Report 2018 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DEEPMATTER GROUP PLC (CONTINUED) We report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £15,750 (0.8% of Group loss before taxation), in addition to other identified misstatements that warrant reporting on qualitative grounds. The materiality for the parent company financial statements as a whole was set at £252,000. This has been determined with reference to the benchmark of the parent company’s net assets, which we consider to be an appropriate measure for a holding entity. Materiality represents 3% of net assets as presented on the face of the Company Statement of Financial Position. An overview of the scope of our audit We subjected all of the Group’s reporting components to audits for Group reporting purposes. Other information The other information comprises the information included in the Annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinion on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: (cid:129) (cid:129) the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the Group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: (cid:129) (cid:129) (cid:129) (cid:129) 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. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 11, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. DeepMatter Group Plc Annual Report 2018 15 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DEEPMATTER GROUP PLC (CONTINUED) A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the parent company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the parent company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the parent company and the parent company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Carl Deane Senior Statutory Auditor, for and on behalf of Nexia Smith & Williamson Statutory Auditor Chartered Accountants Portwall Place Portwall Lane Bristol BS1 6NA Date: 11 April 2019 16 DeepMatter Group Plc Annual Report 2018 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2018 Continuing operations Revenue Research and development costs Share based payments Administrative costs Operating loss Finance income Loss before tax Income tax credit Loss from continuing operations Discontinued operations Loss from discontinued operations Loss and total comprehensive loss for the year Loss and total comprehensive loss for the year attributable to: The Company’s equity shareholders Loss per share attributable to the equity holders of the Company: Basic and diluted loss per share (pence) on continuing operations Basic and diluted loss per share (pence) on total operations Year to Year to 31 December 31 December 2018 £’000 – (1,399) (6) (600) (2,005) 12 (1,993) 180 (1,813) (104) (1,917) 2017 £’000 – (1,224) (1) (356) (1,581) 22 (1,559) 137 (1,422) (42) (1,464) Notes 11 9 10 15 (1,917) (1,464) 20 20 (0.33) (0.35) (0.27) (0.28) The notes on pages 21 to 34 form an integral part of these consolidated financial statements. DeepMatter Group Plc Annual Report 2018 17 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December 2018 Assets Non-current assets Intangible assets and goodwill Investments Plant and equipment Current assets Inventories Trade and other receivables Income tax asset Cash and cash equivalents Liabilities Current liabilities Trade and other payables Net current assets Net assets Equity and liabilities Shareholder’s equity Called up share capital Share premium Merger reserve Shares to be issued reserve Share based payments reserve Retained (deficit) / earnings Total equity attributable to shareholders of the Company At At 31 December 31 December 2018 £’000 4,914 3 29 4,946 74 152 289 1,086 1,601 (345) 1,256 6,202 55 3,287 5,334 204 7 (2,685) 6,202 2017 £’000 4,958 3 31 4,992 10 127 – 3,265 3,402 (281) 3,121 8,113 55 3,287 5,334 204 1 (768) 8,113 Notes 14,15 13 16 10 17 18 19 21 21 21 23 The financial statements were approved by the Board of Directors on 11 April 2019 and were signed on its behalf by: Michael Bretherton Finance Director Company Number: 05845469 18 DeepMatter Group Plc Annual Report 2018 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2018 Share based Shares to Share Share Merger Retained payment be issued Total equity premium reserve earnings reserve reserve equity £’000 £’000 £’000 £’000 £’000 £’000 Balance at 31 December 2016 53 3,287 4,880 696 – – £’000 8,916 Total comprehensive loss for the year to 31 December 2017 – – – (1,464) – – (1,464) Transactions with owners: Shares issued and issuable on acquisition of subsidiary 2 – 454 – – 204 Share based payment charge – – – – 1 – Balance at 31 December 2017 55 3,287 5,334 (768) 1 204 660 1 8,113 Total comprehensive loss for the year to 31 December 2018 – – – (1,917) – – (1,917) Transactions with owners: Share options exercised – – – – – – Share based payment charge – – – – 6 – – 6 Balance at 31 December 2018 55 3,287 5,334 (2,685) 7 204 6,202 DeepMatter Group Plc Annual Report 2018 19 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December 2018 Cash flows from operating activities Operating loss from continuing operations Operating loss from discontinued operations Depreciation and amortisation charges Share based payments charge Operating cash outflows before movement in working capital (Increase) in inventories (Increase) in trade and other receivables Increase in trade and other payables Cash used in operations Interest received Taxation received Net cash used in operating activities Cash flows from investing activities Purchases of property, plant and equipment Cash and bank in subsidiary at acquisition Net cash used in investing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Notes 15 13 Year to Year to 31 December 31 December 2018 £’000 (2,005) (213) 59 6 2017 £’000 (1,581) (42) 14 1 (2,153) (1,608) (64) (25) 64 (1) (80) 27 (2,178) (1,662) 12 – 22 137 (2,166) (1,503) (13) – (13) (2,179) 3,265 1,086 (24) 3 (21) (1,524) 4,789 3,265 20 DeepMatter Group Plc Annual Report 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2018 1. Corporate information DeepMatter Group Plc (“the Company”) is a public limited company incorporated, registered and domiciled in England and Wales and its shares are publicly traded on AIM, a market operated by the London Stock Exchange. The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”) for the year ended 31 December 2018. The address of the registered office is given on the inside front cover of this report. The nature of the Group’s activities are set out in the Strategic Report and Directors’ Report. 2. Basis of preparation These consolidated and Company financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention and all values have been rounded to the nearest thousand, except where otherwise indicated. The functional currency of the Group is Sterling. The preparation of financial statements in conformity with IFRS as adopted by the European Union requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Group financial statements are disclosed in note 6. The accounting policies adopted are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2017, except for the adoption of new standards and interpretations, none of which resulted in any impact on the accounting policies, financial position or performance of the Group. 3. Basis of consolidation The Consolidated Financial Statements incorporate the results of the Company and its subsidiaries. Control is achieved where the Company is exposed or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Income and expenses of subsidiaries acquired or disposed of during the year are included in the Consolidated Statement of Comprehensive Income from the effective date of acquisition and up to the effective date of disposal, as appropriate. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Company. 4. Going concern Information on the business environment and the factors underpinning the Group’s future prospects and product portfolio are included in the Chairman’s Statement, Strategic Report and the Directors’ Report. The Directors confirm that they are satisfied that the Group has adequate resources to continue in business for the foreseeable future, based on the current cash resources available. For this reason, they continue to adopt the going concern basis in preparing the financial statements. 5. Summary of significant accounting policies Revenue recognition No revenue has been recognized in respect of continuing operations for the year ended 31 December 2018. A revenue recognition policy for future expected revenue streams is currently being formed under IFRS 15. Taxes Current income tax Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income. DeepMatter Group Plc Annual Report 2018 21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2018 Sales tax Revenues, expenses and assets and liabilities are recognised net of the amount of sales tax, except: (cid:129) (cid:129) Where the sales tax incurred on a purchase of assets or goods or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; Receivables and payables that are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Research and development Research costs are charged against income as they are incurred. Certain development costs are capitalised as intangible assets, when it is probable that future economic benefits will flow to the Group. Such intangible assets are amortised on a straight‑line basis from the point at which the assets are ready for use over the period of the expected benefit, and are reviewed for impairment at each balance sheet date. Other development costs are charged against income as incurred since the criteria for their recognition as an asset are not met. The criteria for recognising development expenditure as an asset are: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) Completion of the intangible asset is technically feasible so that it will be available for use or sale; The Group intends to complete the intangible asset and use or sell it; The Group has the ability to use or sell the intangible asset; The intangible asset will generate probable future economic benefits. Among many other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits; That the Group has available to it adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and That the Group can reliably measure the expenditure attributable to the intangible asset during its development. No development costs have been capitalised as intangible assets to date. Patents and licenses Patent costs and licensing rights are amortised over their estimated useful economic life of 20 years. Amortisation is included within administrative expenses. Plant and equipment Plant and equipment are stated at cost, net of depreciation and any provision for any impairment. Depreciation is calculated to write off the cost of all plant and equipment to estimated residual value on a straight‑line basis over their expected useful lives as follows: (cid:129) (cid:129) (cid:129) Plant and machinery 4 years Fixtures and fittings 4 years Computer and IT equipment 3 years Impairment of assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash‑generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. 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. An impairment loss is recognised as an expense immediately. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset 22 DeepMatter Group Plc Annual Report 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2018 in prior years. Such reversal is recognised in the consolidated statement of other comprehensive income. After such a reversal the depreciation charge is adjusted in future years to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Goodwill Goodwill arising on consolidation of subsidiaries represents the excess of fair value of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities at the date of acquisition. Goodwill is tested for impairment annually and whenever there is an indication that the asset may be impaired. Any impairment is charged to the consolidated statement of comprehensive income. Investments Investments in subsidiaries are stated at cost less any impairment in value. Any impairment is charged to the Company income statement. Other Investment assets are accounted for as fair value through other comprehensive income. Gains or losses arising from changes in fair value are recognised directly in equity until the investment is disposed of or determined to be impaired, at which time the cumulative gain or loss previously recognised directly in equity, is included in the profit or loss for the period. Financial assets and liabilities (cid:129) Trade and other receivables. Trade and other receivables are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method less any provision for impairment. (cid:129) (cid:129) Trade and other payables. Trade and other payables are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. Cash and cash equivalents. Cash and cash equivalents comprise cash at hand, bank balances and short‑term deposits of less than three months. The Group’s funds are held for the purpose of funding the future growth of the business. Deposits are placed with banks and financial institutions with a sound credit rating, and such investments are regularly reviewed by the Board. Leases Leases in which a significant portion of the risks and rewards of the ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated statement of comprehensive income on a straight‑line basis over the period of the lease. Share-based payments Employees (including senior executives) of the Group receive remuneration in the form of share‑based payment share option transactions, whereby employees rendered services as consideration for equity instruments (equity‑settled transactions). All goods and services received in exchange for the grant of any share‑based payment are measured at their fair values. Where employees are rewarded using share‑based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the instrument granted to the employee. Share options are valued at the date of grant using the Black‑Scholes Merton model and are charged to operating profit over the overall vesting period of the award with a corresponding credit to the share‑based payment reserve. Where an equity‑settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate, share premium. New Standards and interpretations (a) New and amended Standards and Interpretations adopted by the Group There were a number of Amendments to Standards adopted in the current year, but none of these had a material impact on the Group in the current period. IFRS 9 “Financial instruments” has been effective for the current year ended, the main impact of which being the impairment assessment methodology used to value trade receivables. The adoption of this standard has not had a material impact on the consolidated financial statements. DeepMatter Group Plc Annual Report 2018 23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2018 IFRS 15 “Revenue from contracts with customers” has been effective for the year ended 31 December 2018. The adoption of this standard has had no impact on the consolidated financial statements, seeing as the Group does not currently recognize any revenue. (b) There were a number of Amendments to Standards not yet effective in the current year, but none of these are expected to have a material impact on the Group in the following period. New and amended Standards and Interpretations issued but not effective for the financial year beginning 1 January 2018. At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective: IFRS 16 “Leases” will be effective for the year ending December 2019 onwards and the impact on the financial statements is not expected to be significant. 6. Critical Accounting Estimates and Judgements The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. Critical accounting estimates Impairment of tangible and intangible assets The Group tests tangible and intangible assets with definite lives for impairment if and when indicators of impairment arise. Where such an indication exists, the Group estimates the value in use of the assets based on the net present value of future cash flows. The directors have considered whether there are any indicators of impairment to the goodwill figure of £4,123,000 which arose on the acquisition of DeepMatter Ltd in 2015 and concluded that no impairment charge is required. The directors have also considered whether there are any indicators of impairment to the carrying amount of £686,000 (2017: £722,000) related to the intangible technology asset platform developed by OpenIOLabs and which arose on the acquisition of that company in 2017. That one point of control technology asset platform is being used by DeepMatter Ltd to advance its digitalization of chemistry strategy by capturing information during chemical reactions from sensors not developed by DeepMatter Ltd. The directors have concluded that no impairment charge is required. The directors acknowledge, however, that whilst DeepMatter Ltd is still at an early stage of development, there is considerable uncertainty regarding the valuation of the above goodwill of £4,123,000 and the further £686,000 (2017: £722,000) attributed to the intangible technology asset platform being used by DeepMatter Ltd, based on any estimate of the net present value of DeepMatter Ltd’s future cash flows. Valuation of consideration and resultant goodwill arising on business combination The Company completed the acquisition of 100% of the issued share capital of OpenIOLabs in November 2017 for a consideration which included 22 million ordinary shares that may be conditionally issued within 4 years of completion (the "Deferred Share Contingent Consideration") if (a) at any time before the fourth anniversary of Completion, (i) the middle market quotation for the Company's ordinary shares on AIM is at a price equal to or above 5 pence for a continuous period of 60 business days; or (ii) the whole of the ordinary share capital of the Company is acquired on arm's length terms by a third party purchaser (who is not a connected party to the Group or any of its shareholders) at a price equal to or above 5 pence per share; and (b) provided that David Cleevely has not voluntarily resigned from or has not otherwise decided to leave the board of the DeepMatter Group within 24 months of the 8 November 2017 acquisition date. The fair value of the Deferred Share Contingent Consideration has been determined as £204,000 and is based on the acquisition date fair value of the shares of 1.825 pence and incorporates the probability, estimated as 50.76 % using a Cox-Ross-Rubeinstein binomial option pricing model, that DeepMatter’s share price will have exceeded 5 pence within 4 years. The principal input assumptions used in the model are(i) underlying share price of 1.825 pence and strike price of nil pence (ii) share price volatility rate of 68%; (iii) risk free interest rate of 2%; (iv) dividend yield nil; and (v) duration period 4 years. It has been assumed that David Cleevely does not voluntarily leave the board with 2 years. The directors acknowledge, however, that the input assumptions necessary for the above valuation model may be different to the actual outcomes. 24 DeepMatter Group Plc Annual Report 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2018 Judgements Development costs to date have not been capitalised as intangible assets as the Directors consider DeepMatter to still be at an early stage of development on our planned progression to the digitisation of chemistry. Development costs are charged against income as incurred since the criteria for their recognition as an asset are not met. 7. Segmental Reporting The Board has determined that there is only one reportable operating segment, being that of the digitization of chemical space and of innovative chemical discovery, and as such management information is reviewed at a group level on that basis. Within the core digitization of chemistry segment, individual projects do not meet the definition of segments, and as such the revenues and costs of individual projects are not formally separated. In addition, due to the research and development nature of the business, many projects are transitory, depending on success, and thus no meaningful data can be provided through such analysis. All non-current assets are held in the UK. 8. Employee Benefit Expense Salaries and fees Social security costs Pension costs Share based payments (note 23) The average monthly number of employees of the Group was: Directors Technical, scientific and administrative staff Directors’ emoluments The following disclosures are in respect of the emoluments paid to the Directors of the Company Salaries and fees Pension Contributions Social security costs Key management personnel remuneration 9. Finance Income Bank interest receivable 2018 £’000 1,081 106 47 6 1,240 2018 No. 6 17 23 2018 £’000 161 4 13 178 2018 £’000 12 2017 £’000 611 60 9 1 681 2017 No. 5 12 17 2017 £’000 74 – 2 76 2017 £’000 22 DeepMatter Group Plc Annual Report 2018 25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2018 10. Income Tax Credit a) Tax credited in the consolidated statement of comprehensive income UK corporation tax credit on continuing operations UK tax credit on discontinued operations (note 15) Total UK corporation tax credit 2018 £’000 180 109 289 2017 £’000 137 – 137 b) Current tax The current tax credit in the consolidated statement of comprehensive income for the year is detailed below. Current tax credit is lower than the standard rate of corporation tax in the UK of 19% (2017: 19.25%). The differences are reconciled below: Loss before tax on continuing operations Loss before tax on discontinued operations Loss before tax on total operations Loss on ordinary activities multiplied by the average standard rate of corporation tax in the UK of 19% (2017: 19.25%) Effects of: Expenses not deductible for tax R&D tax credits received in respect of prior periods* Deferred tax not recognised on losses carried forward Tax credit on continuing operations Tax credit on discontinued operations Total tax credit 2018 £’000 (1,813) (213) (2,026) (385) 24 (289) 361 (180) (109) (289) 2017 £’000 (1,559) (42) (1,601) (308) 14 (137) 294 (137) – (137) * The tax credit accounted for in 2018 was received in February 2019 and is shown as an income tax asset at the 31 December 2018 year end. The losses available for carry forward at 31 December 2018 comprise those of the Company and its two subsidiaries, DeepMatter Ltd and OpenIOLabs and amount to £8,919,000 at 31 December 2018, (2017: £7,726,000). No deferred tax asset has been recognised in respect of the losses as recoverability is uncertain. c) Deferred Tax Tax losses carried forward Deferred tax assets (unrecognised) 2018 £’000 1,516 1,516 2017 £’000 1,313 1,313 d) Change in Corporation Tax rate The Finance Act 2016, which received Royal Assent on 15 September 2016, includes legislation to reduce the main rate of corporation tax to 17% from 1 April 2020. Accordingly, unrecognised deferred tax assets and liabilities have been calculated at the tax rate of 17% (2017: 17%). 11. Operating Costs Operations Employee benefit expense (see note 8) Depreciation of property, plant and equipment Amortisation of intangible assets – patents and licences Operating lease costs 26 DeepMatter Group Plc Annual Report 2018 2018 £’000 1,240 15 44 71 2017 £’000 681 9 5 39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2018 12. Auditors’ Remuneration During the year the Company obtained the following services from the Company’s auditors. Continuing operations Fees payable to the Company’s auditors: – The audit of the Company and consolidated accounts – The audit of the Company’s subsidiaries – The provision of non-audit services 2018 £’000 15 10 2 13. Plant and Equipment Plant & machinery Fixtures & Computer fittings equipment Notes £’000 £’000 £’000 Cost At 31 December 2016 8 Additions 2 Acquisition of subsidiary 15 – At 31 December 2017 10 Additions – At 31 December 2018 10 Depreciation At 31 December 2016 – Charge for year 3 At 31 December 2017 3 Charge for year 2 At 31 December 2018 5 Net Book Value At 31 December 2017 7 At 31 December 2018 5 2 – – 2 – 2 – – – – – 2 2 6 22 1 29 13 42 1 6 7 13 20 22 22 14. Intangible Assets – Goodwill and Patents & Licences Patents & Notes Cost At 31 December 2016 Acquisition of subsidiary 15 At 31 December 2017 At 31 December 2018 Amortisation and Impairment At 31 December 2016 Amortisation for year At 31 December 2017 Amortisation for year At 31 December 2018 Net Book Value At 31 December 2017 At 31 December 2018 Licences Goodwill £’000 £’000 4,123 – 4,123 4,123 – – – – – 98 747 845 845 5 5 10 44 54 835 791 2017 £’000 20 10 – Total £’000 16 24 1 41 13 54 1 9 10 15 25 31 29 Total £’000 4,221 747 4,968 4,968 5 5 10 44 54 4,123 4,123 4,958 4,914 DeepMatter Group Plc Annual Report 2018 27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2018 The only licence assets held at 31 December 2018 are that of a technology licence agreement with the University of Glasgow, which is being amortised over a 20 year useful economic life, together with licences relating to a one-point- of-control technology asset platform developed by OpenIOLabs, which are also being amortised over a 20 year useful economic life. The Group tests goodwill and intangible technology assets allocated to cash generating units annually by comparing the recoverable amount of the unit with the carrying amount of the unit. The recoverable amount is determined based on estimated value in use calculated using a discounted cash flow model which is dependent on the timing and amount of forecast sales and when relevant regulatory approvals are achieved. Where practical, forecasts are prepared over the expected life cycle of the Group’s proposed products and which are longer than five years due to the long term nature of the development cycle. Forecasts are prepared based on management’s current project plans for the next five years and expectations for the subsequent five years thereafter and owing to the early stage development of the project, the forecasts are not based on past experience. The recoverable amount is most sensitive to the discount rate used in the discounted cash flow model (a discount rate of 12% has been used) as well as the expected future cash flows and the multiple of year ten cash flows used in determining the estimated terminal value at that date (a multiple of 10 has been used). The Group have considered sensitivities in regard to the assumptions used and have reviewed both the discount factor and multiple of earnings. A variation in the discount rate of +31% would be required to indicate an impairment on the carrying value of goodwill. The directors acknowledge that whilst both DeepMatter Ltd and OpenIOLabs are still at an early stage of development, there is material uncertainty regarding the valuation of this goodwill based on any estimate of the net present value of the subsidiary entities’ future cash flows. This material uncertainty arises because of the unpredictability of the timing and amount of any revenue cash flow receipts or the full cost base cash outflows required to generate such revenues. The directors will continue to review the progress of the subsidiary entities in following the Group roadmap to the digitization of chemistry and the pursuit of opportunities to commercialise its platform technology. In the event that any impairment to this goodwill is in fact required in the future, this would result in a non cash impairment charge through the consolidated statement of comprehensive income and with a corresponding reduction to intangible assets and goodwill in the statement of financial position. 15. Acquisition of OpenIOLabs/Discontinued Operations On the 8 November 2017, the Company completed the acquisition of 100% of the issued share capital of OpenIOLabs for a maximum consideration of 47 million of the Company’s ordinary shares, of which 25 million ordinary shares were issued on completion at 1.825 pence share for a value of £456,000. The balance of 22 million ordinary shares may be conditionally issued within 4 years of completion (the "Deferred Share Contingent Consideration"). if (a) at any time before the fourth anniversary of Completion, (i) the middle market quotation for the Company's ordinary shares on AIM is at a price equal to or above 5 pence for a continuous period of 60 business days; or (ii) the whole of the ordinary share capital of the Company is acquired on arm's length terms by a third party purchaser (who is not a connected party to DeepMatter Group or any of its shareholders) at a price equal to or above 5 pence per share; and (b) provided that David Cleevely has not voluntarily resigned from or has not otherwise decided to leave the board of DeepMatter Group within 24 months of the 8 November 2017 acquisition date. The acquisition of OpenIOLabs was made to complement the strategic digitization of chemistry operations of the Group by securing its technology platform developed to bridge the language and compatibility gap between various hardware and software systems. The remaining Scanning Ion Conductance Microscope (“SICM”) trade of OpenIOlabs was never part of the continuing operations of the DeepMatter Group and the post acquisition losses attributable to this business have, therefore, been treated as a discontinued operation. This SICM was subsequently sold to Scientific Digital Imaging Plc on 15 January 2019 by way of an asset purchase agreement. The results of the discontinued SICM operations, which have been separately disclosed after tax in the Group’s consolidated statement of comprehensive income, were as follows: Revenue Expenses Loss before tax Attributable tax credit Net loss attributable to discontinued operations 28 DeepMatter Group Plc Annual Report 2018 2018 £’000 170 (383) (213) 109 (104) 2017 £’000 63 (105) (42) – (42) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2018 16. Trade and other Receivables Current: Other receivables Prepayments 2018 £’000 122 30 152 2017 £’000 68 59 127 The Directors consider that the carrying amount of trade and other receivables approximates to their fair values. There was no provision for impairment at 31 December 2018 or 31 December 2017 and all trade receivables are not past due. 17. Cash and Cash Equivalents Cash at bank and in hand 18. Trade and other Payables Current: Trade payables Social security and other taxes Accrued expenses and other creditors 2018 £’000 1,086 2018 £’000 81 36 228 345 The Directors consider that the carrying amounts of trade and other payables approximates to their fair values. 19. Called-up Share Capital Allotted, issued and fully paid ordinary shares of £0.0001: At 31 December 2014 Subdivision of shares and capital reduction Issue of consideration shares on acquisition of DeepMatter Ltd Issue of placing shares At 31 December 2015 and 31 December 2016 Issue of consideration shares on acquisition of OpenIOLabs At 31 December 2017 Issue of shares on exercise of options At 31 December 2018 No. of Shares 197,740,641 – 195,999,292 132,000,000 525,739,933 25,000,000 550,739,933 8,333 550,748,266 2017 £’000 3,265 2017 £’000 163 21 97 281 £’000 1,977 (1,957) 20 13 53 2 55 – 55 8,333 shares were issued during the year ending 31 December 2018 on the exercise of options by employees who left the Group. DeepMatter Group Plc Annual Report 2018 29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2018 20. Loss per share Basic loss per share is based on the loss after tax for the year and the weighted average number of ordinary shares of £0.0001 each in issue during the year. Diluted loss per share is calculated by adjusting the average number of ordinary shares in issue during the period to assume conversion of all dilutive potential ordinary shares. The Company had a total of 23,816,667, potentially issuable dilutive ordinary shares in existence at the 31 December 2018 period end, (2017: 23,936,557), comprised of 1,816,667 (2017: 1,936,667) share options (see note 23) and 22,000,000 (2017: 22,000,000) deferred consideration shares issued in relation to the acquisition of OpenIOLabs (see note 15). The 23,816,667, potentially issuable dilutive shares have not been included in the calculations below due to their potential issuance having an effect to reduce loss per share attributable to equity holders. Continuing operations Loss attributable to equity holders of the Group (£’000) Weighted average number of shares in issue Basic and diluted loss per share (pence) Total operations Loss attributable to equity holders of the Group (£’000) Weighted average number of dilutive shares in issue Basic and diluted loss per share (pence) 21. Reserves 2018 2017 (1,813) (1,422) 550,743,326 529,370,079 (0.33) (0.27) (1,917) (1,464) 550,743,326 529,370,079 (0.35) (0.28) Details of the movements in reserves are given in the Statement of Changes in Equity. A description of each reserve is set out below. Share premium The share premium account is used to record the aggregate amount or value of premiums paid when the Company’s shares are issued at a premium. Merger Reserve The merger reserve arose on the acquisition of DeepMatter Limited (previously, Cronin 3D Limited) under section 612 of the Companies Act 2006 as shares with a nominal value of £0.02m were issued for a total of £4.9m as consideration. The reserve was further increased in November 2017 upon the acquisition of OpenIOLabs as shares with a nominal value of £0.02m were issued for a total of £0.46m as consideration. Share based payment reserve The share based payment reserve relates to the Group Share Option Scheme. Additional details are disclosed in note 23 to the financial statements. Shares to be issued reserve The shares to be issued reserve arose on the acquisition of OpenIOLabs and has been used to record the fair value at the acquisition date of the 22 million potentially issuable deferred consideration shares in connection with that acquisition, see note 15 for more details. 22. Financial Risk Management Objectives, policies and processes The Board has overall responsibility for the determination of the Group’s risk management objectives and policies, as laid out in the Strategic Report. The following information lays out the exposure the Group has to financial instruments. Capital risk management The Group’s capital is comprised of issued ordinary shares of £0.0001 per share and reserves. The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to shareholders. This is achieved through careful investment of surplus cash balances and tight budgetary control. 30 DeepMatter Group Plc Annual Report 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2018 Significant accounting policies Details of significant accounting policies and methods adopted, including criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset and financial liability are disclosed in note 5 to the financial statements. Categories of financial instrument At 31 December 2017 Investments Trade and other receivables Cash and cash equivalents Trade and other payables Net Total At 31 December 2018 Investments Trade and other receivables Cash and cash equivalents Trade and other payables Net Total Financial Financial asset at liabilities at amortised amortised cost £’000 – 68 3,265 – 3,333 – 152 1,086 1,238 cost £’000 – – – (281) (281) – – – (345) (345) Financial assets at fair value through OCI £’000 3 – – – 3 3 – – – 3 Total £’000 3 68 3,265 (281) 3,055 3 152 1,086 (345) 896 All financial liabilities for both the Group and the Company are payable on demand. The amounts reflected above represent the Group’s maximum exposure to credit risk for such loans and receivables. There were no out of term financial assets or liabilities. Currently the Group does not undertake any material transactions denominated in foreign currencies. Liquidity risk The Group does not consider that it carries any significant liquidity risk at the present time. Credit risk Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to customers. For banks and financial institutions only independently rated parties with sound credit ratings are used. For credit exposures to customers the Group assesses the likelihood of payment from various factors including external credit ratings, financial records and other relevant factors. Interest Rate Sensitivity The interest rate sensitivity of the consolidated loss for the year and equity to a reasonably possible change in interest rates of 1% with effect from the beginning of the year is illustrated below. These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on the Group’s cash and cash equivalents held at the balance sheet date. All other variables are held constant. Note that the impact of a fall in rates for 2018 is limited to the amount of interest earnt during the year. Year to 31 December 2018 Year to 31 December 2017 +1% Interest Rate Sensitivity £’000 Loss for year 22 Equity 22 -1% £’000 (12) (12) +1% £’000 40 40 -1% £’000 (22) (22) DeepMatter Group Plc Annual Report 2018 31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2018 23. Share-based payments The company operates a share option scheme for the benefit of employees and share options are granted to all eligible employees. The exercise price of the options is equal to the market price of the shares on the date of grant. All options are equity settled and vest over a period of up to 3 years. If the options remain unexercised after a period of 10 years from the date of grant, the options expire. The options are accounted for as equity settled share based payment transactions. No share options were granted during the year ending 2018. On 1 December 2017, the Board granted an initial award of options to employees over 1,936,667 ordinary shares at an exercise price of 2.13 pence (being the closing price on 30 November 2017, the business day preceding the date of grant). Of those 1,936,667 share options granted, 677,871 vested on the date of grant. The balance vest in one monthly instalments until either three years from the date of grant or in the case of certain longer serving employees, from the earlier date of three years from the end of each of the employees’ respective historic probation periods. At 31 December 2018, there were 1,816,667 (2017: 1,936,667) share options in issue at a weighted average exercise price (“WAEP”) of 2.13 pence as illustrated in the following table of movements in share options during the year: Number Outstanding at 1 January 1,936,667 Granted during the year – Exercised during the year (8,333) Forfeited (71,667) Lapsed (40,000) Outstanding at 31 December 1,816,667 2018 2017 WAEP pence 2.13 – 2.13 2.13 2.13 2.13 Number – 1,936,667 – – – WAEP pence – 2.13 – – – 1,936,667 2.13 Of the 1,816,667 share options outstanding, 1,257,870 were exercisable as at 31 December 2018 (2017: 677,870). The fair value of equity-settled share options granted is estimated as at the date of grant using the Black-Scholes- Merton model, taking into account the terms and conditions upon which the options were granted and expected payment of the dividends by the Company. The following table lists the inputs to the model used for the year ending 31 December: Expected share price volatility Risk free interest rate Dividend yield Weighted average exercise price (pence) Weighted average share price at date of grant (pence) 2018 68% 2.0% 0.0% 2.13 2.13 2017 68.0% 2.0% 0.0% 2.13 2.13 The expected life of the options up to the point of exercise allows for options that vest to be exercised annually on each subsequent 12 month anniversary from the date of grant. The expected life of the options is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. The fair value of equity-settled share options granted are recognised as an expense in the statement of comprehensive income over the assumed period to exercise of the award, with a corresponding credit to the share based payment reserve. The expense so recognised in the year ended 31 December 2018 amounted to £6,000 (2017: £1,000) and the total credit on the share based payment reserve amounted to £7,000 at that date. 32 DeepMatter Group Plc Annual Report 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2018 24. Events Subsequent to the year ended 31 December 2018 Acquisition – InfoChem GmbH On 15 March 2019, the Company completed the acquisition of 100% of the issued share capital of InfoChem GmbH from Springer-Verlag GmbH (“Springer Nature”) for a maximum consideration of £2.031 million, satisfied by payment of a cash component of £321,000 (€374,000), together with the issue of up to 64.8 million of the Company’s ordinary shares, of which 25.6 million ordinary shares were issued on completion at 2.5 pence per share for a value of £640,000. The balance of 42.8 million ordinary shares (the “Deferred Shares”) are issuable no earlier than 18 months after the acquisition date (once the period for warranty claims has expired) and provided that no warranty claims have been made. In the event of a warranty claim, the Company is able to cancel Springer Nature’s right to the number of Deferred Shares as are necessary to satisfy the claim in full. The fair value of the Deferred Shares contingent consideration has been determined as £1,070,000 and is based on the acquisition date fair value of the shares of 2.5 pence per share and assumes that there will be no warranty claims during the warranty period. The fair market price of the Company’s shares on completion of the InfoChem acquisition has been determined at 2.5 pence per share. This 2.5 pence share price is considered to be the best estimate of fair value for a transaction of the size of the InfoChem acquisition and reflects the 2.5 pence share price that was paid by investors under the £4 million fund raise that was completed by the Company on 13 March 2019. This price has, therefore been used in the valuation of the InfoChem share consideration, rather than use of the higher AIM quoted mid-market price of 3.45 pence per share at the close of the AIM market on 14 March 2019 prior to completion of the acquisition, and which reflected a small volume of AIM market share trades around that time. InfoChem is a company registered in Germany based in Munich which has extensive scientific expertise and a long tradition in developing successful software solutions for handling retrieval, structures and reactions. Its established base of users is in the same industries as those being targeting by the Company. The Directors anticipate that the integration of InfoChem will assist in the accelerated development of the DigitalGlassware™ platform and the shared customer base will provide an additional sales channel. The Group estimates it has incurred £70,000 of third party acquisition related costs in respect of this acquisition. These expenses have been included in accrued professional fees within administrative expenses in the Group’s consolidated statement of comprehensive income for the period ended 31 December 2018. The acquisition of InfoChem will be accounted for by the purchase method of accounting. As the acquisition completed on the 15 March 2019, the detailed purchase price allocation exercise is currently on-going and therefore the following table summarises the InfoChem acquisition consideration and the incomplete amounts of identified assets acquired and liabilities assumed at the acquisition date: Recognised amounts of net assets acquired and liabilities assumed (incomplete estimate): Cash Debtors Intangible Asset Fixed Assets Other liabilities Net assets acquired Goodwill arising on acquisition Fair value of consideration transferred Satisfied by: Cash paid on completion Ordinary shares issued on completion Deferred shares contingent consideration Total consideration £’000 586 78 323 79 (512) 554 1,477 2,031 321 640 1,070 2,031 DeepMatter Group Plc Annual Report 2018 33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2018 The recognised amounts of all the net assets acquired and liabilities assumed are incomplete estimates. The goodwill arising on the acquisition of InfoChem is largely attributable to the premium payable for a pre-existing, well positioned business that has revenues, together with the benefits of anticipated future synergies from the DeepMatter enlarged group combination. The directors have determined that the fair value of Intangible technology assets, representing software developed by InfoChem, amounts to an estimated £323,000 (€379,000) and the directors are at the present time, giving further consideration to whether there are any other Identifiable Intangible Assets that can be recognized separately from goodwill. An update of the recognised amounts of net assets acquired and liabilities assumed on the acquisition of InfoChem will be reported in the Group’s Annual Report to 31 December 2019. Given that InfoChem was acquired post 31 December 2018, no revenues or profits relating to that company have been included in the DeepMatter Group’s consolidated results for 2018. As accounting for the acquisition is incomplete, the Group has not disclosed the total comprehensive income result of InfoChem GmbH for the financial year ending 31 December 2018. Divestment of Scanning Ion Conductance Microscope (“SICM”) trade On 15 January 2019, the SICM trade of OpenIOlabs was sold to Scientific Digital Imaging Plc by way of an asset purchase agreement for a cash consideration of £49, 220 and which after allowing for the net assets sold and the costs of disposal, is expected to generate a profit of approximately £18,000 on disposal. OpenIOLabs was acquired in November 2017 to complement the strategic digitization of chemistry operations of the Group by securing its one point of control technology platform developed to bridge the language and compatibility gap between various hardware and software systems. The SICM trade has never been part of the continuing operations of the DeepMatter Group. 25. Related Parties and Directors’ Transactions Group DeepMatter Group has paid companies that are part of IP Group, a significant shareholder, £14,395 in respect of the provision of administrative services and the recharge of business expensed incurred by Mark Warne as a Non-Executive Director of the Group prior to his appointment as Chief Executive in July 2018 (2017: £14,543). There were no amounts outstanding at the end of the year (2017: £nil). DeepMatter Group also paid £14,500 (2017: £nil) to Cleevely & Partners Ltd, a company owned by David Cleevely, a Non-Executive Director. There were no amounts outstanding at the end of the year (2017: £nil). Key employees At the year end the Board did not consider any employees to be key management to the Group other than the Directors. The remuneration of the directors is disclosed in the Directors’ Report on page 8. 26. Ultimate Controlling Party In the opinion of the Directors, there is no ultimate controlling party. 34 DeepMatter Group Plc Annual Report 2018 COMPANY STATEMENT OF FINANCIAL POSITION As at 31 December 2018 Assets Non-current assets Investments Current assets Trade and other receivables Cash and cash equivalents Liabilities Current liabilities Trade and other payables Net current assets Net assets Equity and liabilities Shareholder's equity Called up share capital Share premium Merger reserve Shares to be issued reserve Share based payments reserve Retained earnings Total equity attributable to shareholders of the Company At At 31 December 31 December 2018 £’000 5,569 5,569 3,289 1,027 4,316 (132) 4,184 9,753 55 3,287 5,334 204 7 866 9,753 2017 £’000 5,563 5,563 1,501 3,135 4,636 (60) 4,576 10,139 55 3,287 5,334 204 1 1,258 10,139 Notes C2 C4 C5 19 21 21 21 23 The Company has taken advantage of Section 408 of the Companies Act 2006 and has not included its own statement of comprehensive income in these financial statements. The parent Company’s loss for the year to 31 December 2018 was £392,000 (2017: £187,000). The financial statements were approved by the Board of Directors on 11 April 2019 and were signed on its behalf by: Michael Bretherton Director Company Number: 05845469 DeepMatter Group Plc Annual Report 2018 35 COMPANY STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2018 Share Shares to based Share Share Merger Retained be issued payment Total equity premium reserve earnings reserve reserve equity £’000 £’000 £’000 £’000 £’000 £’000 Balance at 31 December 2015 53 3,287 4,880 1,540 – – Total comprehensive loss for the year to 31 December 2016 – – – (95) – – Balance at 31 December 2016 53 3,287 4,880 1,445 – – £’000 9,760 (95) 9,665 Total comprehensive loss for the year to 31 December 2017 – – – (187) – – (187) Transactions with owners: Share based payment charge – – – – – 1 Shares issued and issuable on acquisition of subsidiary 2 – 454 – 204 – 1 660 Balance at 31 December 2017 55 3,287 5,334 1,258 204 1 10,139 Total comprehensive loss for the year to 31 December 2018 – – – (392) – – (392) Transactions with owners: Share based payment charge – – – – – 6 6 Balance at 31 December 2018 55 3,287 5,334 866 204 7 9,753 36 DeepMatter Group Plc Annual Report 2018 COMPANY STATEMENT OF CASH FLOWS For the year ended 31 December 2018 Loss before tax Share based payment charge Finance Income Operating cash outflows before movements in working capital Increase in trade and other receivables Increase in trade and other payables Cash used in operations Interest received Net cash used in operating activities Investment in subsidiary undertaking Cash used in investing activities (Decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Notes 2018 £’000 (392) 6 (12) (398) (1,787) 71 (2,114) 12 (2,102) (6) (6) (2,108) 3,135 1,027 2017 £’000 (187) 1 (22) (208) (1,377) 13 (1,572) 22 (1,550) – – (1,550) 4,685 3,135 DeepMatter Group Plc Annual Report 2018 37 NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31 December 2018 C1. Basis of preparation The Company separate financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention and all values have been rounded to the nearest thousand, except where otherwise indicated. The Company’s functional currency is Sterling. The principal accounting policies adopted are the same as for those set out in the Group financial statements. Investments in subsidiaries Investments in subsidiaries are stated in the Company statement of financial position at cost less provision for any impairment. Any impairment is charged to the Company income statement. C2. Investments Shares in subsidiary Other undertakings Investments Notes £’000 £’000 Cost At 31 December 2016 Additions At 31 December 2017 Additions 15 At 31 December 2018 Impairment At 31 December 2016 Impairment At 31 December 2017 Impairment At 31 December 2018 Net book value At 31 December 2017 At 31 December 2018 4,900 660 5,560 6 5,566 – – – – – 5,560 5,566 3 – 3 – 3 – – – – – 3 3 Total £’000 4,903 660 5,563 6 5,569 – – – – – 5,563 5,569 The directors have considered whether there are any indicators of impairment to the Shares in Subsidiary Undertakings investment figure of £5,566,000 and concluded that no impairment charge is required. The directors acknowledge, however, that whilst the operations of the subsidiary entities are still at an early stage of development, there is considerable uncertainty regarding the valuation of this investment balance based on any estimate of the net present value of the subsidiaries future cash flows. See note 14 to the Group financial statements for further details. 38 DeepMatter Group Plc Annual Report 2018 NOTES TO THE COMPANY FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 December 2018 As at 31 December 2018, details of the Company’s subsidiaries are as follows: Name of Company Holding % of shares held Nature of business Registered Office Address DeepMatter Limited (incorporated in Scotland) Ordinary 100 Digitization of chemical 38 Queen Street, space and chemical discovery Glasgow, Scotland, G1 3DX OpenIOLabs Limited Ordinary 100 Open source one point St Brandon’s House, (incorporated in England & Wales) of control systems 29 Great George Street, Bristol, BS1 5QT DeepMatter Tech Limited Ordinary 100 Dormant subsidiary The Walbrook Building, (incorporated in England & Wales) 25 Walbrook, London, EC4N 8AF C3. Information regarding parent company employees The 6 (2017: 6) Directors are the only employees of the parent company. Details of the Directors’ emoluments is included at note 8 within the Group accounts. C4. Trade and Other Receivables Current: Intercompany receivables Other receivables Prepayments C5. Trade and Other Payables Current: Trade payables Social security and other taxes Accrued expenses 2018 £’000 3,274 6 9 3,289 2018 £’000 3 10 119 132 2017 £’000 1,464 16 21 1,501 2017 £’000 18 1 41 60 The Directors consider that the carrying amounts of trade and other payables approximates to their fair values. C6. Share Capital The movement in share capital for the Company is detailed in note 19 to the Group financial statements. C7. Other Reserves The movement on all other company reserves is detailed in the statement of changes in equity. DeepMatter Group Plc Annual Report 2018 39 NOTES TO THE COMPANY FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 December 2018 C8. Related Party Transactions For the period ending 31 December 2018, the intercompany receivable increased by £1.8m to £3.3m (2017: £1.5m) . This increase is reflective of the investment made in progressing the Digital Glassware™ platform. Further details of the related party transactions and balances are included in note 25 to the Group financial statements. C9. Financial Risk and Capital Management Financial risk and capital management is managed at a Group level, which is considered appropriate given the similar nature of both the Group and Company statements of financial position. Please refer to note 22 to the Group financial statements. Categories of financial instrument Financial assets liabilities at Financial Financial assets at at amortised amortised fair value cost cost through OCI £’000 £’000 £’000 At 31 December 2017 Investments – Trade and other receivables 1,480 Cash and cash equivalents 3,135 Trade and other payables – Net Total 4,615 At 31 December 2018 Investments – Trade and other receivables 3,289 Cash and cash equivalents 1,027 Trade and other payables – Net Total 4,316 – – – (60) (60) – – – (132) (132) 3 – – – 3 3 – – – 3 Total £’000 3 1,480 3,135 (60) 4,558 3 3,289 1,027 (132) 4,187 All financial liabilities for the Company are payable on demand. The amounts reflected above represent the Company’s maximum exposure to credit risk for such loans and receivables. There were no out of term financial assets or liabilities. Currently the Company does not undertake any material transactions denominated in foreign currencies. 40 DeepMatter Group Plc Annual Report 2018 NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the Annual General Meeting (“Meeting”) of DeepMatter Group Plc (the “Company”) will be held at the Offices of IP Group Plc, Floor 9, The Walbrook Building, 25 Walbrook, London EC4N 8AH on 22 May 2019 at 11.00 a.m. ORDINARY BUSINESS 1. Report and accounts To receive and consider the Directors’ Report, the audited consolidated Financial Statements and Independent Auditors’ Report for the year ended 31 December 2018. 2. Re-appointment of a director To consider and, if thought fit, to approve the re-appointment of Mark Warne as a director of the Company, who retires pursuant to the Article 129 of the Articles of Association of the Company (the “Articles”) and who is recommended by the board of directors of the Company (the ”Board”) for re-appointment. 3. Re-appointment of a director To consider and, if thought fit, to approve the re-appointment of James Ede-Golightly as a director of the Company, who retires pursuant to the Article 129 of the Articles and who is recommended by the Board of directors of the Company for re-appointment. 4. Re-appointment of a director To consider and, if thought fit, to approve the re-appointment of Bettina Goerner as a director of the Company, who retires pursuant to the Article 134 of the Articles and who is recommended by the Board of directors of the Company for re-appointment. 5. Re-appointment of auditors To consider and, if thought fit, to approve the re-appointment of Nexia Smith & Williamson as independent auditors of the Company and to authorise the Board to determine their remuneration. SPECIAL BUSINESS As special business to consider and, if thought fit, pass the following resolutions, of which resolution 6 will be proposed as an ordinary resolution and resolution 7 will be proposed as special resolution: 6. Directors’ authority to allot shares 6.1 That the Directors be generally and unconditionally authorised pursuant to section 551 of the Companies Act 2006 (the “2006 Act”) to exercise all the powers of the Company to allot and make offers to allot Relevant Securities (as defined below): 6.1.1 comprising equity securities (as defined by section 560 of the 2006 Act) up to an aggregate nominal amount of £49,102.26 (such amount to be reduced by the nominal amount of any Relevant Securities allotted under paragraph 6.1.2 below) in connection with an offer by way of a rights issue: (i) (ii) to holders of ordinary shares in proportion (as nearly as may be practicable) to their respective holdings; and to holders of other equity securities as required by the rights of those securities or as the Directors otherwise consider necessary, but subject to such exclusions or other arrangements as the Board may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates, legal or practical problems in or under the laws of any territory or the requirements of any regulatory body or stock exchange; and 6.1.2 in any other case, up to an aggregate nominal amount of £19,584.73 such amount to be reduced by the nominal amount of any equity securities allotted under paragraph 6.1.1 above in excess of £29,517.53, provided that (unless previously revoked, varied or renewed) this authority shall expire 15 months from the date of passing this resolution, or, if earlier, the conclusion of the next Annual General Meeting of the Company held after the passing of this resolution save that the Company may before such expiry make an offer or enter into an agreement which would or might require Relevant Securities to be allotted after such expiry and the Directors may allot Relevant Securities in pursuance of such offer or agreement as if the authority conferred hereby had not expired. 6.2 This resolution revokes and replaces all unexercised authorities previously granted to the Directors to allot Relevant Securities but without prejudice to any allotment of shares or grant of rights already made, offered or agreed to be made pursuant to such authorities. DeepMatter Group Plc Annual Report 2018 41 NOTICE OF ANNUAL GENERAL MEETING (CONTINUED) 6.3 For the purposes of this resolution, a “Relevant Security” is: 6.3.1 a share in the Company other than a share allotted pursuant to: (i) (ii) (iii) an employee share scheme (as defined by section 1166 of the 2006 Act); a right to subscribe for a share or shares in the Company where the grant of the right itself constituted a Relevant Security under paragraph 6.3.2 below; or a right to convert securities into a share or shares in the Company where the grant of the right itself constituted a Relevant Security under paragraph 6.3.2 below. 6.3.2 any right to subscribe for or to convert any security into a share or shares in the Company other than a right to subscribe for or convert any security into a share or shares allotted pursuant to an employee share scheme (as defined by section 1166 of the 2006 Act). 6.4 References to the allotment of “Relevant Securities” in this resolution shall be construed accordingly. 7. Disapplication of statutory pre-emption rights 7.1 That subject to the passing of resolution 6 above, the Directors of the Company be authorised and empowered pursuant to section 570 of the 2006 Act to allot equity securities (as defined by section 560 of the 2006 Act) for cash, either pursuant to the authority conferred by resolution 6 or by way of a sale of treasury shares, as if section 561(1) of the 2006 Act did not apply to any such allotment, provided that such power is limited to: 7.1.1 the allotment of equity securities in connection with an offer by way of a rights issue: (i) (ii) to holders of ordinary shares in proportion (as nearly as may be practicable) to their respective holdings; and to holders of other equity securities as required by the rights of those securities or as the Directors otherwise consider necessary, but subject to such exclusions or other arrangements as the Board may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates, legal or practical problems in or under the laws of any territory or the requirements of any regulatory body or stock exchange; and 7.1.2 the allotment of equity securities (otherwise than pursuant to paragraph 7.1.1 above) up to a maximum aggregate nominal amount of £11,048.01 7.2 This authority shall expire 15 months from the date of passing this resolution, or, if earlier, the conclusion of the next Annual General Meeting of the Company held after the passing of this resolution, provided that the Company may, before the expiry of this power, make an offer or agreement which would or might require equity securities to be allotted after the expiry of this power and the Directors may allot equity securities in pursuance of such an offer or agreement as if the power had not expired. 7.3 This resolution revokes and replaces all unexercised authorities previously granted to the Directors to allot equity securities but without prejudice to any allotment of equity securities already made, offered or agreed to be made pursuant to such authorities. On behalf of the Board Michael Bretherton Company secretary 11 April 2019 DeepMatter Group Plc The Walbrook Building 25 Walbrook London EC4N 8AF 42 DeepMatter Group Plc Annual Report 2018 EXPLANATORY NOTES Entitlement to attend and vote 1. The Company specifies that only those members registered on the Company's register of members at: (cid:129) (cid:129) 11.00 a.m. on 20 May 2019; or, if this Meeting is adjourned, at 11.00 a.m. on the day two working days prior to the adjourned meeting (not counting non-working days), shall be entitled to attend and vote at the Annual General Meeting (the “Meeting”). Appointment of proxies 2. If you are a member of the Company at the time set out in note 1 above, you are entitled to appoint one or more proxies to exercise all or any of your rights to attend, speak and vote at the Meeting and you should have received a proxy form with this notice of meeting. You can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form. 3. 4. A proxy does not need to be a member of the Company but must attend the Meeting to represent you. Details of how to appoint the chairman of the Meeting (the “Chairman”) or another person as your proxy using the proxy form are set out in the notes to the proxy form. If you wish your proxy to speak on your behalf at the Meeting you will need to appoint your own choice of proxy (not the Chairman) and give your instructions directly to them. A vote withheld will not be counted in the calculation of votes for or against the resolution. If no voting indication is given, your proxy may vote or abstain from voting at his or her discretion. Your proxy may vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the Meeting. Appointment of proxy using hard copy proxy form 5. The notes to the proxy form explain how to direct your proxy to vote on each resolution or withhold their vote. To appoint a proxy using the proxy form, the form must be: (cid:129) (cid:129) completed (although no voting indication need be given if you wish your proxy to exercise their discretion) and signed; sent or delivered to Neville Registrars, Neville House, Steelpark Road, Halesowen, B62 8HD; and received by Neville Registrars no later than 11.00 a.m. on 20 May 2019. In the case of a member which is a company, the proxy form must be executed under its common seal or signed on its behalf by a duly authorised officer of the company or an attorney for the company. Any power of attorney or any other authority under which the proxy form is signed (or a copy of such power or authority certified notarially or in some other way approved by the board of directors of the Company) must be included with the proxy form. Appointment of proxy by joint members 6. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company's register of members in respect of the joint holding (the first-named being the most senior). Changing proxy instructions 7. To change your proxy instructions simply submit a new proxy appointment using the methods set out above. Note that the cut-off time for receipt of proxy appointments (see above) also apply in relation to amended instructions; any amended proxy appointment received after the relevant cut-off time will be disregarded. Where you have appointed a proxy using the hard-copy proxy form and would like to change the instructions using another hard-copy proxy form, but have not retained a copy of the blank proxy form, please contact Neville Registrars, Neville House, Steelpark Road, Halesowen, B62 8HD. If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. DeepMatter Group Plc Annual Report 2018 43 EXPLANATORY NOTES (CONTINUED) Termination of proxy appointments 8. In order to revoke a proxy instruction you will need to inform the Company by sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment as above. In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed (or a copy of such power or authority certified notarially or in some other way approved by the board of directors of the Company) must be included with the revocation notice. The revocation notice must be received by Neville Registrars no later than 11.00 a.m. on 20 May 2019. If you attempt to revoke your proxy appointment but the revocation is received after the time specified then, subject to the paragraph directly below, your proxy appointment will remain valid. Appointment of a proxy does not preclude you from attending the Meeting and voting in person. If you have appointed a proxy and attend the Meeting in person, your proxy appointment will automatically be terminated. Issued shares and total voting rights 9. As at 6 p.m. on 10 April 2019, the Company's issued ordinary share capital comprised 736,533,946 ordinary shares of £0.0001 each. Each ordinary share carries the right to one vote at a general meeting of the Company. Quorum 10. The quorum for the Meeting is not less than two shareholders present either in person or by proxy. The majority required for the passing of each of the ordinary resolutions is a simple majority of the total number of votes cast on each such ordinary resolution. The majority required for the passing of each of the special resolutions is three- quarters of the total number of votes cast on each such special resolution. 11. At the Meeting the votes may be taken on the resolutions by a show of hands or on a poll. On a show of hands every shareholder whether present in person or by proxy has one vote. On a poll every shareholder who is present, in person or by proxy, shall have one vote for every ordinary share held. A shareholder entitled to more than one vote need not use all of their votes or cast all of their votes in the same way. 12. To allow effective constitution of the meeting, if it is apparent to the Chairman that no shareholders will be present in person or by proxy, other than by proxy in the Chairman’s favour, then the Chairman may appoint a substitute to act as proxy in his stead for any shareholder, provided that such substitute proxy shall vote on the same basis as the Chairman. Documents on display 13. The following documents will be available for inspection at the registered office of the Company during normal business hours on any weekday (weekends excepted) from the date of this notice until and for 15 minutes prior to and during the Meeting: a. b. copies of the service contracts of executive directors of the Company; and copies of letters of appointment of the non-executive directors of the Company. Perivan Financial Print 254085 44 DeepMatter Group Plc Annual Report 2018 Registered office The Walbrook Building 25 Walbrook London EC4N 8AF Company Number 05845469 (England and Wales)
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