FEEDBACK Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 Contents 1 2 4 7 Company Information Chairman’s Statement Strategic Report Directors’ Report FEEDBACK 17 Consolidated Statement of Changes in Equity 18 Consolidated Balance Sheet 19 Company Balance Sheet 20 Consolidated Cash Flow Statement 11 Corporate Governance Statement 21 Company Cash Flow Statement 14 Independent Auditors’ Report 22 Notes to the Financial Statements 16 Statement of Comprehensive Income 43 Notice of Annual General Meeting Company Information For the year ended 31 December 2013 Directors Dr A J Riddell T E Brown T W G Charlton Dr B Ganeshan M P Hayball Dr A H Menys Secretary Temple Secretaries Limited Registered Office Unit 5 Grange Park Broadway Bourn Cambridgeshire CB23 2TA Registered Number 00598696 Auditors haysmacintyre 26 Red Lion Square London WC1R 4AG Nominated Advisor and Joint Broker Allenby Capital Limited 3 St Helen’s Place London EC3A 6AB Joint Broker Peterhouse Corporate Finance Limited 3rd Floor New Liverpool House 15 Eldon Street London EC2M 7LD Bankers NatWest Conqueror House Vision Park Cambridge CB24 9NL Registrars Share Registrars Limited The Courtyard 17 West Street Farnham Surrey GU9 7DR Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 1 FEEDBACK Chairman’s Statement We are pleased to present the results for the year ended 31 May 2016. Revenue for the year was £431,454 (2015: £381,970) and the loss after tax was £183,156 (2015: Loss £1,111,433). Cash as at 31 May 2016 was £105,673 (31 May 2015: £63,261). Cash as at 13 October 2016 was £94,629. The results show growth in revenue and a substantial reduction in the loss after tax. Cash generation has been better than anticipated and reflects payments received from customers in respect of purchase orders before revenue is recognised. Cambridge Computed Imaging Limited (“CCI”) performed steadily during the year as it continued to serve its established customer base. Revenue recognised from TexRAD research version sales was higher than in the previous year. In line with management’s expectations, there was a reduction in new purchase orders for TexRAD research versions during the year although there remained a good deal of customer interest from research institutions which were looking to obtain grant funding. Dr Balaji Ganeshan continued to lead the sales effort and his hard work has led to a high level of orders received after the year end from world-renowned institutions carrying out oncology research. The Company has also signed collaborative agreements with companies in Japan and South Korea to explore further selling opportunities in these markets for TexRAD research versions which has had some success. In order to support our research customers we have been looking at ways to assist them in analysing and interpreting the results of their studies. We are working on one such project and this could prove to be a useful additional source of revenue in the future. Dr Ganeshan has been continuing his work supporting research into new potential applications of TexRAD. This has led to the publication of scientific papers on TexRAD’s use in assessing different types of carcinomas as well as a number of presentations at scientific conferences including the Beijing Society of Radiology in China and participation in Healthtech Week in Auckland, New Zealand. In November 2015 the Company announced that it had signed a Memorandum of Understanding with Alliance Medical Group (“Alliance”) with the intention of integrating Feedback’s TexRAD texture analysis software into Alliance’s PET-CT lung cancer imaging service. The Company has made good progress on a technical solution that would allow the integration of TexRAD into Alliance’s network of PET/CT scanners in UK hospitals and a prototype version has been demonstrated to potential users. The next steps will include applying for a CE mark for a medical device which provides analysis of lung PET/CT images with added prognostication through TexRAD. An abstract has been accepted by the Radiological Society of North America (RSNA) for presentation at its annual conference in November 2016 which will highlight the results from the technical and clinical evaluation. Further abstracts publishing the research findings of our customers using TexRAD have also been accepted for presentation at RSNA. During the financial year the Company formed two joint venture companies, Stone Checker Software Ltd and Prostate Checker Ltd. Both companies offer the prospect of developing innovative solutions where routine medical images can provide useful additional information for clinicians. The Company sold its 50% equity interest in Stone Checker Software Ltd to Free Association Books Ltd in May 2016 resulting in a gain of £45,000. After the year end Feedback announced a large-scale collaboration with Future Processing Sp. z o.o. (“Future Processing”), a software development service provider based in Gliwice, Poland to develop medical imaging software. The collaboration will entail a substantially increased development team working on new products and the sharing of intellectual property and future revenues. This collaboration has resulted from Feedback’s assistance with a successful EU grant application made by Future Processing. The directors of Feedback believe that by CCI working jointly with the Future Processing healthcare team, CCI’s existing product portfolio can be improved and new products developed more rapidly including further applications for TexRAD. Although at this stage only a non-binding letter of intent has been agreed, the intention is for the Company to agree formal licences for new software products to be brought to market in 2017/18 under a shared revenue arrangement. In the current financial year, the Company expects to make substantial savings in software development costs and thereafter expects to benefit from its share of the revenue from sales of new products. 2 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Chairman’s Statement CONTINUED On 1 June 2016, after the year end, the Company announced my appointment as its new chairman with Tom Charlton moving to non-executive deputy chairman. I have extensive experience of managing companies in the healthcare sector and I look forward to assisting the Company to the next stage of its development. We remain encouraged by the continued interest shown in TexRAD and the number of research papers being published which highlight its numerous potential applications. The high level of purchase orders for TexRAD research versions which have been received after the year end should lead to a substantial increase in revenue in the second half of the 2016/17 year and growth in revenue for the year as a whole. We believe there will be opportunities to make further sales of TexRAD research versions in China by partnering with a company with a strong local presence. We are also considering other business relationships which could increase sales of TexRAD research versions in other territories. In addition to the TexRAD sales, Feedback now has the opportunity to grow its revenues through the collaboration with Future Processing and the development of a CE marked product for analysis of lung PET/CT images. We will look at investing in product development, regulatory and marketing resource to support our very positive growth prospects. Dr A J Riddell Chairman 18 October 2016 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 3 FEEDBACK Strategic Report The Directors present their Strategic Report and the audited financial statements for the year ended 31 May 2016. Principal activities of the Group The Company has two subsidiaries in the medical imaging sector, CCI and TexRAD. During the year, CCI acted as sales distributor for TexRAD to reduce operating costs. The Company also entered into two joint ventures, Stone Checker Software Ltd for the potential future clinical application of TexRAD on patients with kidney stones and Prostate Checker Ltd for assisting the detection and diagnosis of prostate cancer. The investment in Stone Checker Software Ltd was sold during the year. Review of the business The Chairman’s Statement on page 2 includes a general review of the Group’s business for the year. Future developments in the business The Group will continue to invest in the development of its products. In addition the Group’s future strategy may involve the formation of further joint ventures and collaborations where Feedback’s valuable intellectual property can be combined with the specialist skills and intellectual property of other companies and research institutions. By adopting this approach the Group is expected to generate licensing and royalty revenue streams and residual equity participation in these joint ventures. Group results and dividends The Group loss for the year after taxation amounted to £183,156 (2015: Loss £1,111,433). In 2015 the loss included exceptional costs in relation to the impairment of the intangible assets of £689,142 and termination costs in respect of the former chief executive of £60,000. During 2015, the Directors took the prudent decision to write down the carrying value of the intangible assets in the balance sheet in order to meet the requirements of International Financial Reporting Standards (‘IFRS’). However the Directors believe the Company’s technology has great potential and this write down does not reflect their commercial assessment of the value of the company’s intellectual property. Future expenditure on software development will be capitalised once the provisions of IAS 38 are met or written off as incurred until the criteria are met. On 3 June 2015 the Company raised £200,000 by the issue of 11,111,111 new ordinary shares at 1.8 pence per share (“Placing Shares”). The Placing included participation by two of Feedback’s directors, Tom Charlton who invested £50,400 for 2,800,000 Placing Shares and Trevor Brown who invested £18,000 for 1,000,000 Placing Shares. On 6 July 2015 the Company issued 216,000 ordinary shares at 1.25 pence per share in lieu of fees for professional services. On 8 July 2015 the Company issued 1,600,000 shares following notification of the exercise of options at 1.25 pence per share. The Company now has 203,673,857 ordinary shares in issue. No dividends are payable for the year under review. 4 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Strategic Report CONTINUED Principal risks and uncertainties Economic and market risks The subsidiary companies are both in the medical imaging market. The market is fragmented and the future success of the business is dependent on the ability of the companies to secure new and renew current contracts. These contracts are often with Government supported organisations and the timing of these can be dependent on market conditions. The Group’s dependence on the award or renewal of contracts means that its revenue stream is not constant and has the potential to be particularly irregular. Joint venture risk The joint ventures and collaborations that have been formed by the Group may not produce any product advancement on the TexRAD product and therefore may not lead to any future income for the Group, although the Group has reduced the cost of any development by forming the joint venture or collaboration. The joint ventures will report progress regularly to the Board and the Board will be able to manage any potential risk to the Group by taking measures to reduce any exposure to the joint ventures. Regulatory approval The development, evaluation and marketing of the Group’s products and ongoing research and development activities are subject to regulation by governments and regulatory agencies in all territories within which the Group intends to market its products (whether itself or through a partner) and there can be no assurance that any of the Group’s products will successfully complete the trial process or that regulatory approvals to market these products will ultimately be obtained. Failure to obtain regulatory approvals for its products could threaten the Group’s ability to trade in the long term. The time taken to obtain regulatory approval varies between territories and there can be no assurance that any of the Group’s products will be approved in any territory within the timescale envisaged by the Board, or at all, and this may result in a delay, or make impossible, the commercial exploitation of the Group’s products. Furthermore, each regulatory authority may impose its own requirements and may refuse to grant, or may require additional data before granting an approval, even though the relevant product may have been approved by another country’s authority. If regulatory approval is obtained, products will be subject to continual review and there can be no assurance that such approvals will not be withdrawn or restricted. Changes in applicable legislation or regulatory policies, or discovery of problems with products may result in the imposition of restrictions on sale, including withdrawal of the product from the market, or may otherwise have an adverse effect on the Group’s business and/or revenue streams. Product Development Risk The products in development may cost more and/or take longer to develop than the current estimates. It is possible that commercially successful products may not be developed. The Board monitors progress on the product on a regular basis and discusses with potential customers their requirements to mitigate this risk. Liquidity Management of liquidity risk concentrated on the maintenance of appropriate credit lines and funding sources to ensure adequate cash resources for the Group’s operations. The Board regularly monitors the cash position of the Group and ongoing cash requirements. The Board believes the Group is likely to have access to adequate cash resources from a combination of operational cash generation and by obtaining equity finance from the financial markets or by way of loans from its major shareholders to support its corporate strategy. Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 5 FEEDBACK Strategic Report CONTINUED Credit Risk The Company’s credit risk is primarily attributable to its cash and cash equivalents and trade receivables. The credit risk on other classes of financial assets is considered insignificant. Other Risks There is a risk that existing and new customer relationships will not lead to the income currently forecast (especially, as noted above, from new products currently in development). As with other technology businesses, the Company is reliant on a small number of highly skilled staff. Post Balance Sheet Events On 28 July 2016 the Company signed a collaboration agreement with Future Processing Sp. z o.o. (“Future Processing”), a software development service provider based in Gliwice, Poland to develop medical imaging software. The collaboration will entail a substantially increased development team working on new products and the sharing of intellectual property and future revenues. The directors of Feedback believe that by CCI working jointly with the Future Processing healthcare team, CCI’s existing product portfolio can be improved and new products developed more rapidly including further applications for TexRAD. Although at this stage only a non-binding letter of intent has been agreed, the intention is for the Company to agree formal licences for new software products to be brought to market in 2017/18 under a shared revenue arrangement. In the current financial year, the Company expects to make substantial savings in software development costs and thereafter expects to benefit from its share of the revenue from sales of new products. Key Performance Indicators During the year the Company maintained its cash position as the key performance indicator. The cash balance at 31 May 2016 was £105,752 (2015 £63,261). Cash at 13 October 2016 was £94,629. Other performance indicators which the board reviews include monthly order intake and recognised revenue. By Order of the Board on 18 October 2016 Dr A J Riddell Director 6 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Directors’ Report The Directors present their report and the Financial Statements for the year ended 31 May 2016. Future developments The future developments for the Group are discussed in the Chairman’s Statement and the Strategic Report. Directors The Directors of the Company during the year were: S G Barrell T E Brown T W G Charlton Dr B Ganeshan M P Hayball Dr A H Menys (Resigned 5 November 2015) (Appointed 5 November 2015) (Appointed 5 November 2015) (Appointed 5 November 2015) On 1 June 2016 Dr A J Riddell was appointed as Non-Executive Chairman. Directors’ shareholdings The shareholdings in the Company of the Directors as at 31 May 2016 were: T E Brown T W G Charlton Dr B Ganeshan M P Hayball Dr A H Menys Significant shareholders No. of Shares 55,089,111 49,517,408 2,860,000 5,670,600 nil Shareholders who have notified the Company of shareholdings in excess of 3% as at 31 May 2016 are: T E Brown T W G Charlton W R Ruffler University of Sussex No. of Shares 55,089,111 49,517,408 12,597,893 9,400,000 % 27.05 24.31 6.19 4.62 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 7 FEEDBACK Directors’ Report CONTINUED Directors’ biographies Dr Alastair Riddell, Non-Executive Chairman (appointed 1 June 2016) Alastair has over 30 years’ experience in the pharmaceutical, life science and biotech industries, with 18 years as a main board director. After 10 years directing phases 1-4 clinical trials of antibiotics, oncology and intensive care products for companies including Lederle (now Pfizer) and Centocor (now J&J), he spent five years managing sales and marketing for oncology and imaging products for Amersham International (now GE Healthcare). This led to 12 years as CEO for three UK biotech companies, Pharmagene, Paradigm Therapeutics and Stem Cell Sciences; in these roles he was the principal involved in an IPO on UK’s main list, trade sales to international companies in Japan and the USA and significant fund raising rounds. He has been Chairman of Silence Therapeutics (AIM listed) and Chairman of Definigen Ltd, a private Cambridge University spinout. He is currently on the Board of three biotechnology companies; AzurRx Biotherapeutics, a private New York based drug development company; Cristal Therapeutics, a Netherlands based company specialising in nanoparticle medicines; and Skyline Vet Pharma, a US based private company repurposing human drugs for use in companion animals. He is also Chairman of the SWAHSN (South West Academic Health Science Network), which seeks to improve and sustain the healthcare provision in the south-west of England by linking innovation from industry, academia and the NHS. Alastair is on the Remuneration Committee. Tom Charlton, Non-Executive Deputy Chairman Tom previously served as a director of Feedback plc between January 2003 and November 2004 and has been a significant shareholder in the Company since December 1997. He acted as chairman of Pinnacle Staffing Group plc from September 2008 until April 2011. Earlier in his career he was a managing director of Merrill Lynch Investment Managers and a director of Mercury Asset Management Ltd. Tom is on both the Audit and Remuneration Committees. Trevor Brown, Non-Executive Director Trevor has been a strategic investor in real estate and equities for more than 30 years. He is the chief executive officer of Braveheart Investment Group plc and Flying Brands Ltd and is a director of Peterhouse Corporate Finance Ltd. Trevor is on the Audit Committee. Dr Balaji Ganeshan, Executive Director (appointed 5 November 2015) Balaji is a Senior Imaging Scientist at the Institute of Nuclear Medicine, University College London and an Honorary Visiting Research Fellow at the Brighton & Sussex Medical School, University of Sussex. He was instrumental in the original development of the TexRAD texture analysis technology which resulted from his PhD in Biomedical Engineering. He is responsible for developing new business opportunities for TexRAD and the Feedback Group. Mike Hayball, Executive Director (appointed 5 November 2015) Mike started his career as a medical physicist at Addenbrooke’s Hospital in Cambridge where he took his MSc in Radiation Physics. From there he worked on cardiac imaging at Papworth Hospital before forming Cambridge Computed Imaging Limited in 2001 where he is Managing Director. Mike is Technical Director for the Feedback Group. Dr Alex Menys, Non-Executive Director (appointed 5 November 2015) Alex obtained his PhD at University College London focusing on imaging of the gastrointestinal tract with MRI. He is the founder and chief executive of Motilent Ltd, a developer of advanced medical imaging software aimed at maximising the effectiveness of radiology in the evaluation of gastrointestinal function. Alex is on both the Audit and Remuneration Committees. 8 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Directors’ Report CONTINUED Employment policies The Group is committed to employee involvement in the business and there are consultative procedures available for management and other employees to discuss matters of mutual interest. The Group has a policy of non-discrimination in respect of sex, colour, religion, race, nationality or ethnic origin and the recruitment of disabled persons is only subject to any overriding consideration of access and safety. Creditor payment policies The Group’s policy for all suppliers is to fix terms of payment when agreeing the terms of each business transaction, to ensure the supplier is aware of those terms and to abide by the agreed terms of payment. Payment terms for the year ended 31 May 2016 averaged 30 days (2015: 30 days). Treasury policy The Group has adopted formal treasury policies to control its financial instruments. It is a Group Treasury policy not to undertake transactions of a speculative nature. Group cash flows are managed centrally and surplus cash is invested in short-term financial instruments. The Group does not undertake hedging transactions in foreign currencies. Foreign currencies are generally converted automatically into sterling on receipt. Compliance with these policies is monitored by the Board. Other than for currency disclosures, the Group has taken advantage of the exemption permitting it not to treat short-term debtors and creditors as financial instruments. Strategic report Information regarding the Group’s principal risks, results, future developments, dividends and key performance indicators is provided in the Strategic Report. Statement of directors’ responsibilities The Directors are responsible for preparing the Group and parent Company financial statements in accordance with applicable laws and regulations. Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. Under that law the Directors are required to prepare the Group and parent Company financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The financial statements are required by law to give a true and fair view of the state of affairs of the Group and parent Company and of the profit and loss of the Group for that period. In preparing each of the Group and parent Company financial statements the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • • state whether they have been prepared in accordance with IFRSs as adopted by the EU subject to any material departures disclosed and explained in the parent Company financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent Company will continue in business. Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 9 FEEDBACK Directors’ Report CONTINUED The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and parent Company and to enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They have general responsibility for taking such steps as are reasonably open to safeguard the assets of the Group and parent Company and to prevent and detect fraud and other irregularities. Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report and a Directors’ Report to comply with that law and those regulations. In determining how amounts are presented within terms in the income statement and balance sheet the Directors have had regard to the substance of the reported transaction or arrangement in accordance with generally accepted accounting principles or practice. The directors are also responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Audit information The Directors who were in office on the date of approval of these financial statements have confirmed, as far as they are aware, there is no relevant audit information of which the auditors are unaware. Each of the Directors have confirmed that they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. A resolution to reappoint haysmacintyre as auditors to the Company will be proposed at the Annual General Meeting. By Order of the Board on 18 October 2016. Dr A J Riddell Director 10 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Corporate Governance Statement Under the AIM rules the Group is not obliged to implement the provisions of the UK Corporate Governance Code (‘the Code’). However, the Group is committed to applying the principles of good governance contained in the Code as appropriate to a group of this size. In common with other organisations of a similar size, the Executive Directors are heavily involved in the day-to-day running of the business. The Board of Directors meets regularly and is responsible for formulating strategy, and for the trading subsidiaries, monitoring financial performance and approving major items of capital expenditure. During the year the Board comprised two Executive Directors and three Non-Executive Directors. In view of the size and management structure of Feedback plc, the Company has not complied with certain aspects of the Combined Code as discussed below. Board of Directors The Board included up to three Non-Executive Directors which was considered appropriate. The Board has scheduled monthly meetings and others as required. The Board retains full responsibility for the direction and control of the Group. No strategic powers have been delegated and for these reasons the Board did not have, during the year, a formal schedule of matters specifically reserved to it (Paragraph A1 of the Code). There is currently no formal agreed procedure for Directors in the furtherance of their duties to take independent professional advice as necessary at the Company’s expense (paragraph B5 of the Code). Non-executive Directors The appointment of Non-Executive Directors is a matter for the Board as a whole. Although recommended by the Code, there is currently no formal selection process. The Non-Executive Directors have contracts for services for an unspecified period. (Paragraph B2 of the Code). Non-Executive Directors are subject to re-election every three years. Terms and conditions of appointment of the Non-Executive Directors are available for inspection. Executive Directors Directors are appointed by the Board of Directors but stand for election by the shareholders at the Annual General Meeting. The Executive Directors are subject to re-election every three years. Board Committees A Remuneration Committee was in place comprising the three Non-Executive Directors. The Remuneration Committee has two scheduled meetings in the year. All serving members attended both meetings held in the year. An Audit Committee was in place comprising three Non-Executive Directors. The Company’s approach to internal control is described below. The Audit Committee has two scheduled meetings in the year. All serving members attended both meetings held in the year. There is no Nomination Committee. Given the size of the Group, the Board do not consider a Nomination Committee appropriate (paragraph B2 of the Code). Performance evaluation There is currently no formal performance evaluation of the board, its committees and its individual directors (paragraph A6.1 of the Code). Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 11 FEEDBACK Corporate Governance Statement CONTINUED Communication with shareholders The Directors are available to shareholders at any time to discuss strategy and governance matters. In addition, all Company announcements are published on the Company’s website, together with financial results. All shareholders have the opportunity to ask questions and express their views at the Company’s Annual General Meeting, at which all Directors are available to take questions. Audit and internal control The primary role of the Audit Committee was to keep under review the Group’s financial systems and controls and its financial reporting procedures. In fulfilling this role, the Committee also received and reviewed work carried out by the external auditors and their findings. The Board had overall responsibility for operating and monitoring the system of internal control within the Group and for monitoring its effectiveness. The system includes an on-going process for identifying, evaluating and managing significant business risks. Although no system of internal control can provide absolute assurance against material misstatement or loss, the Group’s system was designed to provide the directors with reasonable assurance that any material problems were identified on a timely basis and dealt with appropriately. Guidance to Directors of UK Companies on internal control procedures and good practice on risk management is provided by the Financial Reporting Council. The Audit Committee reviewed the effectiveness of the internal controls on an annual basis on behalf of the Board and considered that they have complied throughout the year ended 31 May 2016 with those provisions of the Code which they consider to be practicable and appropriate for a relatively small public company. The key elements of the system, which had been designed to meet the specific needs and business risks of the Group, include: • • • • • clearly defined organisation structures with segregation of duties wherever practicable; agreement of Group short term financial objectives and business plans; regular review by the Board of Group Financial Statements and monitoring of results against budgets; Board control over treasury, taxation, legal, insurance and personnel issues; Board control over appraisal, review and authorisation of capital expenditure. In common with organisations of similar size the Executive Directors and the Non-Executive Directors are heavily involved in the day-to-day running of the business. The directors believe that although the Group’s controls may be slightly less formal than those of larger groups and companies, the continued close involvement of the Non- Executive Directors more than compensated for this. The Board believes that it is not currently appropriate for the Group to maintain an internal audit function because of the small size of the Group. 12 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Corporate Governance Statement CONTINUED The Audit Committee considered the independence and objectivity of the external auditors on an annual basis, with particular regard to non-audit services. The split between audit and non-audit fees for the year and information on the nature of the non-audit fees appear in note 6 to the financial statements. The non-audit fees are considered by the Committee not to affect the independence or objectivity of the auditors. The Audit Committee monitors such costs in the context of the audit fee for the year, ensuring that the value of non-audit services does not increase to a level where it could affect the auditors’ objectivity and independence. With the exception of the matters referred to above the Group has complied throughout the financial year with provisions of The UK Corporate Governance Code (September 2014 edition). Going concern The Directors consider that the Group and the Company are likely to have access to adequate cash resources for at least the next twelve months from the date of this report from a combination of operational cash generation and by obtaining equity finance from the financial markets or by way of loans from the major shareholders. The Directors believe that the Company is a going concern and have therefore prepared the financial statements on a going concern basis. Further information in respect of the Director’s consideration of going concern is included in note 3(c) to the financial statements. Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 13 FEEDBACK Independent Auditors’ Report We have audited the financial statements of Feedback plc for the year ended 31 May 2016 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Company Changes in Equity, the Consolidated and Company Balance Sheets, the Consolidated and Company Cash Flow Statements and the related notes. 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. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an Auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 9, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. Opinion on financial statements In our opinion: • • • • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 May 2016 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 and, as regards the group financial statements, Article 4 of the IAS Regulation. Emphasis of matter – Going Concern In forming our opinion, which is not modified, we have considered the adequacy of the disclosures made within Note 3c of the accounting policies regarding the group and parent company’s ability to continue as a going concern. The group incurred a net loss of £183,156 in the year and had net current assets at the year-end date of £33,741. These factors, along with the matters explained in note 3c of the accounting policies indicate the existence of a material uncertainty which may cast a significant doubt about the group and company’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the group and company were unable to continue as a going concern. 14 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Independent Auditors’ Report CONTINUED Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception 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: • • • 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. George Crowther (Senior statutory auditor) for and on behalf of haysmacintyre, Statutory Auditor 18 October 2016 26 Red Lion Square London WC1R 4AG Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 15 FEEDBACK Statement of Comprehensive Income FOR THE YEAR ENDED 31 MAY 2016 Revenue Cost of sales Gross profit Other operating expenses Impairment of intangible assets Total operating expenses Operating loss Net finance income Loss on ordinary activities before taxation Tax credit Loss on ordinary activities after tax Profit on disposal of investment Loss for the year attributable to the equity shareholders of the Company Other comprehensive income Translation differences on overseas operations Total comprehensive expense for the year Loss per share (pence) Basic and diluted Note 4 5 14 6 7 9 2016 £ 2015 £ 431,454 (7,438) 381,970 (1,434) 424,016 (676,596) – 380,536 (888,600) (689,142) (676,596) (1,577,742) (252,580) 1,361 (1,197,206) 908 (251,219) 23,063 (1,196,298) 84,865 (228,156) 45,000 (1,111,433) – 12 (183,156) (1,111,433) – 108 (183,156) (1,111,325) 11 (0.09) (0.58) The notes on pages 22 to 42 form part of these financial statements. 16 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 31 MAY 2016 Group At 1 June 2014 Share option and warrant costs Total comprehensive expense for the year Share Capital £ Share Premium £ Capital Reserve £ Retained Earnings £ Convertible Translation Debt Option Reserve £ Reserve £ Total £ 476,867 1,409,334 – – 299,900 – (966,339) 1,289 (210,104) – 189,000 1,198,658 1,289 – – – – (1,111,433) 108 – (1,111,325) At 31 May 2015 476,867 1,409,334 299,900 (2,076,483) (209,996) 189,000 88,622 New Shares issued Costs associated with the raising of funds Share option and warrant costs Total comprehensive expense for the year 32,318 190,382 – – – (6,580) – – – – – – – – 8,163 (183,156) – – – – – – – – 222,700 (6,580) 8,163 (183,156) At 31 May 2016 509,185 1,593,136 299,900 (2,251,476) (209,996) 189,000 129,749 Company At 1 June 2014 Share option and warrant costs Total comprehensive expense for the year Share Capital £ Share Premium £ Convertible Retained Debt Option Reserve Earnings £ £ Total £ (875,918) 476,867 1,409,334 – 1,289 – (1,172,124) – – 189,000 1,199,283 – 1,289 – (1,172,124) At 31 May 2015 476,867 1,409,334 (2,046,753) 189,000 28,448 New shares issued Costs associated with the raising of funds Share option and warrant costs Total comprehensive expense for the year 32,318 – – – 190,382 (6,580) – – – – 8,163 (224,563) – – – – 222,700 (6,580) 8,163 (224,563) At 31 May 2016 509,185 1,593,136 (2,263,153) 189,000 28,168 The notes on pages 22 to 42 form part of these financial statements. Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 17 FEEDBACK Consolidated Balance Sheet AT 31 MAY 2016 Assets Non-current assets Property, plant and equipment Intangible assets Investments Current assets Trade receivables Other receivables Cash and cash equivalents Total assets Equity Capital and reserves attributable to the Company’s equity shareholders Called up share capital Share premium account Capital reserve Translation reserve Retained earnings Convertible debt option reserve Total Equity Liabilities Deferred tax liabilities Current Liabilities Trade payables Other payables Total Liabilities Total Equity and Liabilities Notes 2016 £ 2015 £ 13 14 12 15 18 3,639 110,747 1,000 6,915 139,558 – 115,386 146,473 40,894 63,910 105,673 110,870 101,259 63,261 210,477 275,390 325,863 421,863 509,185 1,593,136 299,900 (209,996) (2,251,476) 476,867 1,409,334 299,900 (209,996) (2,076,483) (59,251) 189,000 (100,378) 189,000 19 129,749 88,622 9 19,378 27,911 19,378 27,911 21,546 155,190 40,368 264,962 16 176,736 305,330 196,114 333,241 325,863 421,863 The financial statements were approved and authorised for issue by the Board of Directors on 18 October 2016 and were signed below on its behalf by: Dr A J Riddell Chairman 18 The notes on pages 22 to 42 form part of these financial statements. Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 Company Balance Sheet AT 31 MAY 2016 Company Number 00598696 Assets Non-current assets Investments Current assets Other receivables Cash and cash equivalents Total assets Equity Capital and reserves attributable to the Company’s equity shareholders Called up share capital Share premium account Retained earnings Convertible debt option reserve Total Equity Current liabilities Trade payables Other payables Total current liabilities Total Equity and Liabilities FEEDBACK Notes 2016 £ 2015 £ 12 15 1,000 1,000 – – 16,661 60,492 52,993 43,636 77,153 96,629 78,153 96,629 18 509,185 1,593,136 (2,263,153) 476,867 1,409,334 (2,046,753) (160,832) (160,552) 19 189,000 189,000 28,168 28,448 16,901 33,084 33,723 34,458 16 49,985 68,181 78,153 96,629 The financial statements were approved and authorised for issue by the Board of Directors on 18 October 2016 and were signed below on its behalf by: Dr A J Riddell Chairman The notes on pages 22 to 42 form part of these financial statements. Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 19 FEEDBACK Consolidated Cash Flow Statement FOR THE YEAR ENDED 31 MAY 2016 Cash flows from operating activities Loss before tax Adjustments for: Share option costs Net finance income Depreciation and amortisation Impairment of intangible assets Decrease/(Increase) in trade receivables Decrease in other receivables Decrease in trade payables Decrease in other payables Corporation tax received Net cash used in operating activities Cash flows from investing activities Purchase of tangible fixed assets Purchase of intangible assets Net finance income received Proceeds from sale of joint venture Purchase of shares in joint ventures Net cash generated/(used by) from investing activities Cash flows from financing activities Net proceeds of share issue Net cash generated from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 2016 £ 2015 £ (251,219) (1,196,298) 8,163 (1,361) 46,052 – 69,976 42,402 (18,852) (109,772) 9,506 1,289 (908) 184,170 689,142 (23,260) 52,396 (184,789) (163,588) – 46,114 554,560 (205,105) (641,738) (104) (13,860) 1,361 46,000 (2,000) (9,329) (161,012) 908 – – 31,397 (169,433) 216,120 216,120 – – 42,412 63,261 (811,171) 874,432 105,673 63,261 The notes on pages 22 to 42 form part of these financial statements. 20 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 Company Cash Flow Statement FOR THE YEAR ENDED 31 MAY 2016 Cash flows from operating activities Loss before tax Adjustments for: Share options costs Profit on sale of investments Net finance income Provision against intercompany receivable Provision against investment in subsidiaries (Increase)/decrease in other receivables Decrease in trade payables (Decrease)/increase in other payables Net cash used in operating activities Cash flows from investing activities Loans to subsidiary undertakings Net finance income Purchase of joint ventures Proceeds on sale of joint venture Net cash generated from/(used in) investing activities Cash flows from financing activities Net proceeds of share issue Net cash generated from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year FEEDBACK 2016 £ 2015 £ (224,563) (1,172,124) 8,163 (45,000) (1,356) 49,880 – (13,548) (16,822) (1,374) 1,289 – – 356,693 467,455 49,221 (125,014) 2,670 (20,057) 752,314 (244,620) (419,810) – 1,356 (2,000) 46,000 (155,000) – – – 45,356 (155,000) 216,120 216,120 – – 16,856 43,636 (574,810) 618,446 60,492 43,636 The notes on pages 22 to 42 form part of these financial statements. Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 21 FEEDBACK Notes to the Financial Statements 1. General information The Company is a public limited company domiciled in the United Kingdom and incorporated under registered number 00598696 in England and Wales. The Company’s registered office is Unit 5, Grange Park, Broadway, Bourn, Cambridgeshire, CB23 2TA. The Company is admitted to trading on the AIM market of the London Stock Exchange. These Financial Statements were authorised for issue by the Board of Directors on the 18 October 2016. 2. Adoption of new and revised International Financial Reporting Standards No new International Financial Reporting Standards (“IFRS”), amendments or interpretations became effective in the year ended 31 May 2016 which had a material effect on this financial information. At the date of approval of this financial information, the following IFRS Standards and Interpretations, which have not been applied in these Financial Statements, were in issue but not yet effective. These new Standards, Amendments and Interpretations are those in issue but not yet effective which are expected to apply to the Group and are effective for accounting periods beginning on or after the dates shown below: IFRS Standards and Interpretations issued (and EU adopted) but not yet effective: IFRS 9 Financial Instruments (effective periods beginning 1 January 2018) IFRS 15 Revenue from Contracts with Customers (effective periods beginning 1 January 2018) IFRS 16 Leases (effective periods beginning 1 January 2019) The Group has not early adopted these amended standards and interpretations. The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the reported results. 3. Significant accounting policies (a) Basis of preparation These financial statements have been prepared in accordance with those IFRS standards and IFRIC interpretations issued and effective or issued and early adopted as at the time of preparing these statements. The policies set out below have been consistently applied to all the years presented. No separate income statement is presented for the parent Company as provided by Section 408, Companies Act 2006. (b) Basis of consolidation The Group financial statements consolidate the financial statements of Feedback plc and its subsidiaries (the “Group”) for the years ended 31 May 2015 and 2016 using the acquisition method. The financial statements of subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. All inter-company balances and transactions, including unrealised profits arising from them, are eliminated. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Interests in joint ventures are accounted for using the equity method, after initially being recognised at cost within the consolidated balance sheet. The Group’s joint ventures did not trade in the year. 22 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Notes to the Financial Statements CONTINUED 3. Significant accounting policies (continued) (c) Going Concern The Directors consider that the Group and the Company are likely to have access to adequate cash resources for at least the next twelve months from the date of this report from a combination of operational cash generation and by obtaining equity finance from the financial markets or by way of loans from the major shareholders. The Directors believe that the company is a going concern and have therefore prepared the financial statements on a going concern basis. (d) Intangible assets Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. An intangible asset acquired as part of a business combination is recognised outside goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be reliably measured. The significant intangible asset cost related to software development of products which are integral to the trade of the Group’s medical imaging products. Amortisation is recognised in other operating expenses in the income and expenditure account. The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstance indicate that the carrying value may not be recoverable. Impairment losses are recognised in other operating expenses in the income and expenditure account. Impairment reviews are carried out annually. Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success, considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditure is recognised as an expense as incurred. Development costs that have a finite useful life and that have been capitalised were amortised from the commencement of the commercial production of the product on a straight line basis as follows: Intangible asset Patents Customer relationships Useful economic life Over the life of the patent 4 years (e) Valuation of Investments Investments held as non-current assets are stated at cost less provision for impairment. (f) Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. When used, bank overdrafts are shown within borrowings in current liabilities on the balance sheet. (g) Goodwill Business combinations on or after 1 April 2006 are accounted for under IFRS 3 using the acquisition method. Any excess of the cost of business combinations over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities is recognised in the balance sheet as goodwill and is not amortised. After initial recognition, goodwill is not amortised but is stated at cost less accumulated impairment loss, with the carrying value being reviewed for impairment, at least annually and whenever events or changes in circumstance indicate that the carrying value may be impaired. Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 23 FEEDBACK Notes to the Financial Statements CONTINUED 3. Significant accounting policies (continued) For the purposes of impairment testing, goodwill is allocated to the related cash generating units monitored by management. Where the recoverable amount of the cash generating unit is less than its carrying amount, including goodwill, an impairment loss is recognised in the income statement. (h) Property, plant and equipment All property, plant and equipment is stated at historical cost less depreciation. Depreciation on other assets is provided on cost or valuation less estimated residual value in equal annual instalments over the estimated lives of the assets. The rates of depreciation are as follows: Plant and equipment Motor vehicles 10 – 50% p.a. 25 – 33% p.a. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the income statement. (i) Leases Rental costs under operating leases are charged to the income statement in equal annual amounts over the period of the lease. (j) Foreign currency Transactions denominated in foreign currencies are translated into sterling at the rates ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the rates ruling at that date. These translation differences are dealt with in the income statement. (k) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of VAT. The Company recognises revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the Company’s activities, as described below. Revenue relating to software development that is contracted on a time and materials basis is recognised as the services are performed and the group has a right to receive income. Revenue relating to the sale of software licences is recognised over the period to which the licence relates. Revenue from services provided is determined by management’s assessment of the percentage completed of each contract. Management determine the percentage of completion by considering the work performed to date based upon internal reports and agreed project milestones. This assessment includes a consideration of when the group has a right to receive income. (l) Pension Costs The Group operated a defined contribution pension scheme during the year. The pension charge represents the amounts payable by the Group to the scheme in respect of that year. 24 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Notes to the Financial Statements CONTINUED 3. Significant accounting policies (continued) (m) Taxation The tax credit represents the sum of the current tax credit and deferred tax credit. The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based upon tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. (n) Financial instruments In relation to the disclosures made in note 17: • • short term debtors and creditors are not treated as financial assets or financial liabilities except for the currency disclosures. the Group does not hold or issue derivative financial instruments for trading purposes. (o) Employee share options and warrants The Group has applied the requirements of IFRS 2 Share-based Payment. The Group issues equity-settled share-based payment transactions to certain employees and has issued warrants to the vendors of the acquired subsidiary, TexRAD Limited. Equity-settled share-based payment transactions are measured at fair value at the date of grant. The fair value determined at the grant date of equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. Fair value is measured by use of the Black Scholes option pricing model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effect of non-transferability, exercise restrictions, and behavioural considerations. Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 25 FEEDBACK Notes to the Financial Statements CONTINUED 3. Significant accounting policies (continued) (p) Key sources of estimating uncertainty The preparation of financial statements requires the Board of Directors to make estimates and judgments that affect reported amounts of assets, liabilities, revenues and expenses. These estimates are based on historical experience and various other assumptions that management and the Board of Directors believe are reasonable under the circumstances, the results which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. • • Intangible assets – Patents are included at cost less amortisation and impairment. Customer lists are included at cost less amortisation. Other intangible assets are recognised only when it is probable that a project will be a success. There is a risk therefore that a project previously assessed as likely to be successful fails to reach the desired level of commercial or technological feasibility. Where there is no probable income to be generated from these assets an estimation of the carrying value and the impairment of the intangible assets, including goodwill, is made. Fair value measurement – a number of assets included in the Group’s and Company’s financial statements require measurement at fair value. The following items are carried in the financial statements at fair value: o o The fair value of the intercompany receivables less the estimate of any provision in respect of the recoverability of those receivables. The fair value of the share options and warrants issued. 4. Segmental reporting The Directors have determined that the operating segments based on the management reports which are used to make strategic decisions are medical imaging and head office. Year ended 31 May 2016 Revenue External Expenditure Impairment Executive directors remuneration Loss before tax Balance sheet External Assets External Liabilities Capital expenditure Medical Imaging £ Head Office £ Total £ 431,454 – 122,970 – – – 431,454 – 122,970 (26,657) (224,562) (251,219) 247,710 (146,129) 78,153 (49,985) 325,863 (196,114) 101,581 28,168 129,749 13,964 – 13,964 26 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 Notes to the Financial Statements CONTINUED 4. Segmental reporting (continued) Year ended 31 May 2015 Revenue External Expenditure Impairment Executive directors remuneration Loss before tax Balance sheet External Assets External Liabilities Capital expenditure FEEDBACK Medical Imaging £ Head Office £ Total £ 381,970 689,142 170,000 – – – 381,970 689,142 170,000 (848,281) (348,017) (1,196,298) 342,143 (265,060) 79,720 (68,181) 421,863 (333,241) 77,083 11,539 88,622 170,341 – 170,341 Reported segments’ assets are reconciled to total assets as follows: United Kingdom Europe Rest of the world Total External revenue by location of customer Total assets by location of assets Capital expenditure by location of assets 2016 £ 2015 £ 2016 £ 2015 £ 325,190 47,751 58,513 268,053 74,882 39,035 320,817 – – 421,863 – – 2016 £ 13,964 – – 2015 £ 170,341 – – 431,454 381,970 320,817 421,863 13,964 170,341 5. Other operating expenses Administrative costs: Other Amortisation and depreciation costs Termination costs Impairment of intangible assets 2016 £ 2015 £ 630,544 46,052 – – 644,430 184,170 60,000 689,142 676,596 1,577,742 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 27 FEEDBACK Notes to the Financial Statements CONTINUED 6. Operating loss This is stated after charging Depreciation and amortisation Owned assets Amortisation of intangible assets Impairment of intangible assets Development Expenditure Auditors’ remuneration Audit of parent company and group financial statements Audit of subsidiaries Tax and other services Operating lease rentals Land and buildings 7. Net finance income Interest received 8. Directors and employees Number of employees Selling and distribution Administration Research and development Staff costs Wages and salaries Redundancy payments Social security costs Payments to defined contribution pension scheme 2016 £ 2015 £ 3,380 42,671 – 53,540 10,500 9,000 4,000 3,858 180,312 689,142 128,100 10,000 9,000 4,000 8,643 8,115 2016 £ 1,361 1,361 2015 £ 908 908 2016 2015 Average Year end Average Year end 4 3 2 9 4 3 2 9 1 4 2 8 4 3 2 9 2016 £ 2015 £ 251,461 – 23,731 25,291 358,445 60,000 42,627 9,345 300,483 470,417 28 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Notes to the Financial Statements CONTINUED 8. Directors and employees (continued) The value of all elements of remuneration received by each Director in the year was as follows: Year ended 31 May 2016 Executive Directors M P Hayball B Ganeshan Non-executive Directors S G Barrell* T E Brown A H Menys T W G Charlton Total Year ended 31 May 2015 Executive Director N S Shepheard Non-executive Directors S G Barrell* T E Brown T W G Charlton Total Termination payments £ Fees £ Total £ Salary £ 36,729 35,000 – – 10,286 – – – 17,100 15,500 – – 82,015 32,600 – – – – – – – 36,729 35,000 17,100 15,500 10,286 – 114,615 110,000 – 60,000 170,000 – – – 47,650 – – – – – 47,650 – – 110,000 47,650 60,000 217,650 Prior to their appointment as Directors, M P Hayball and B Ganeshan were considered to be Key Management Personnel. Their combined remuneration was £51,241. During the year, retirement benefits under money purchase pension schemes were accruing to 2 directors (2015: 2). * S G Barrell was paid consultancy fees through an agreement with SGB Consulting. M P Hayball holds interests in share options over 5,200,000 ordinary shares (2015: 5,200,000). Dr B Ganeshan holds interests in 3,575,000 warrants exercisable into ordinary shares (2015: 3,575,000). Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 29 FEEDBACK Notes to the Financial Statements CONTINUED 9. Taxation on loss on ordinary activities (a) The tax credit for the year: UK Corporation tax Current tax credit Under provision in prior year Deferred tax charge (b) Tax reconciliation Loss on ordinary activities before tax Loss on ordinary activities at the standard rate of corporation tax in the UK of 20.00% (2015 – 20.83 %) Effects of: Expenses non-deductible for tax purposes Additional deduction for R&D expenditure Gain on disposal of investment Other timing differences and goodwill amortisation Tax charge for the year 2016 £ 2015 £ (23,063) (84,865) (5,046) (9,483) (8,534) (32,776) – (52,089) (23,063) (84,865) (251,219) (1,196,298) (50,244) (249,215) 10,593 (7,134) 9,000 14,722 1,436 (11,884) – 174,668 (23,063) (84,865) (c) Factors which may affect future tax charges In view of the tax losses carried forward there is a deferred tax amount of approximately £295,000 (2015: £299,130) which has not been recognised in these Financial Statements. This contingent asset will be realised when the Group makes sufficient taxable profits in the relevant company. (d) Deferred tax – group The deferred tax included in the balance sheet is as follows: Deferred tax liability Deferred tax on development expenditure As at 1 June 2015 Charge in the year As at 31 May 2016 (e) Deferred tax – company 2016 £ 2015 £ 27,911 (8,533) 80,000 (52,089) 19,378 27,911 In view of the tax losses carried forward there is a deferred tax amount of approximately £249,000 (2015: £268,000) which has not been recognised in these Financial Statements. This contingent asset will be realised when the Company makes sufficient taxable profits. 30 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Notes to the Financial Statements CONTINUED 10. Results of Feedback plc As permitted by Section 408 of the Companies Act 2006, the income and expenditure account of the parent company is not presented as part of these financial statements. The Company’s loss for the financial year is £224,563 (2015: £1,172,124 after provision for the cost of investment and the repayment of intercompany loans following the write down of the intangible assets under the requirements of IFRS). 11. Loss per share Basic earnings per share is calculated by reference to the loss on ordinary activities after taxation of £183,156 (2015: £1,111,433) and on the weighted average of 203,514,709 (2015: 190,746,746) shares in issue. Net loss attributable to ordinary equity holders Weighted average number of ordinary shares for basic earnings per share Effect of dilution: Share Options Warrants Weighted average number of ordinary shares adjusted for the effect of dilution Loss per share (pence) Basic Diluted As at 31 May 2016 £ As at 31 May 2015 £ (183,156) (1,111,433) As at 31 May 2016 As at 31 May 2015 203,514,709 190,746,746 – – – – 203,514,709 190,746,746 (0.09) (0.09) (0.58) (0.58) There is no dilutive effect of the share options and warrants as the dilution would be negative. Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 31 FEEDBACK Notes to the Financial Statements CONTINUED 12. Investments Company Cost At 1 June 2014 At 31 May 2015 Additions Disposals As at 31 May 2016 Provisions At 1 June 2013 Provided in the year At 31 May 2014 Provided in the year At 31 May 2015 Provided in the year At 31 May 2016 Net Book Value At 31 May 2016 At 31 May 2015 At 31 May 2014 Share in group undertakings Shares in joint venture Total £ 2,334,455 2,334,455 – – 2,334,455 2,334,455 – – 2,000 (1,000) 2,000 (1,000) 2,334,455 1,000 2,335,455 1,867,000 – 1,867,000 467,455 2,334,455 – 2,334,455 – – – – – – – 1,867,000 – 1,867,000 467,455 2,334,455 – 2,334,455 – – 467,455 1,000 1,000 – – – 467,455 All of the above investments are unlisted. Following the prudent write down of the intangible assets under the requirements of IFRS in the subsidiaries, the subsidiaries’ financial statements show that they have net liabilities. The directors have made full provision against the cost of investment in the subsidiaries due to the net liabilities shown in the subsidiary financial statements. 32 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Notes to the Financial Statements CONTINUED 12. Investments (continued) Particulars of principal subsidiary and joint venture companies during the year, all the shares of which being beneficially held by Feedback PLC, were as follows: Company Activity Feedback Black Box Company Limited Non trading Feedback Data GmbH Non trading (liquidated October 2015) Brickshield Limited Non trading Cambridge Computed Imaging Limited Medical Imaging TexRAD Limited Prostate Checker Ltd Medical Imaging Non trading Country of and incorporation operation Proportion of Shares held England Germany 100% Ordinary £1 100% Specific capital England England England England 100% Ordinary £1 100% A Ordinary £1 100% B Ordinary 1p 100% Ordinary 1p 50% Ordinary £1 TexRAD Limited is owned 100% by virtue of a direct holding by Feedback plc of 91% and an indirect holding via Cambridge Computed Imaging Limited of 9%. Feedback Data GmbH was a subsidiary of Feedback plc following the transfer of ownership from Feedback Data plc on 31 May 2013. The company was liquidated in October 2015. All the subsidiary companies have been included in these consolidated financial statements. During the year Feedback PLC entered into two joint venture arrangements as follows: Stone Checker Software Ltd Feedback plc invested £1,000 in Stone Checker Software Ltd in July 2015 for a 50% equity interest and subsequently licenced its TexRAD software to it for exclusive use in relation to kidney stone analysis. On 3 May 2016 the 50% equity interest was sold to Free Association Books Limited for £46,000 cash. This resulted in a profit of £45,000. Prostate Checker Ltd Feedback plc has a 50% stake in Prostate Checker Ltd with a cost of £1,000, effective 26 August 2015 (date of incorporation) with QUIBIM S.L holding the remaining 50%. This company assists the detection and diagnosis of prostate cancer. The company has not traded during the year. Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 33 FEEDBACK Notes to the Financial Statements CONTINUED 13. Property, plant and equipment Group Cost of valuation At 31 May 2014 Additions At 31 May 2015 Additions As 31 May 2016 Depreciation At 31 May 2014 Charge for the year At 31 May 2015 Charge for the year At 31 May 2016 Net Book Value At 31 May 2016 At 31 May 2015 At 31 May 2014 Plant and Equipment £ Total £ 1,444 9,329 10,773 104 1,444 9,329 10,773 104 10,877 10,877 – 3,858 3,858 3,380 7,238 3,639 6,915 – – 3,858 3,858 3,380 7,238 3,639 6,915 – 34 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 Notes to the Financial Statements CONTINUED FEEDBACK 14. Intangible assets Group Cost 31 May 2014 Additions At 31 May 2015 Additions At 31 May 2016 Amortisation At 31 May 2014 Charge for the year Impairment charge in the year At 31 May 2015 Charge for the year At 31 May 2016 Net Book Value At 31 May 2016 At 31 May 2015 At 31 May 2014 Customer Software relationships £ £ Patents £ Goodwill £ Total £ 435,000 128,099 563,099 – 100,000 – 100,000 – 41,585 32,913 74,498 13,860 271,415 – 848,000 161,012 271,415 – 1,009,012 13,860 563,099 100,000 88,358 271,415 1,022,872 – 145,372 417,727 563,099 – – 25,000 – 25,000 25,000 – 9,940 – 9,940 17,671 – – 271,415 271,415 – – 180,312 689,142 869,454 42,671 563,099 50,000 27,611 271,415 912,125 – – 50,000 60,747 75,000 64,558 – – 110,747 139,558 435,000 100,000 41,585 271,415 848,000 In accordance with the accounting policies and IFRS the Directors have assessed the carrying value of the intangible assets. In the year ended 31 May 2015, the Directors took the prudent decision to write down the carrying value of the software development costs in the balance sheet in order to meet the requirements of IFRS. During the year ended 31 May 2016 all similar development costs have been expensed as incurred. However the Directors believe the Group’s technology has great potential and this write down does not reflect their commercial assessment of the value of the Group’s intellectual property. Expenditure on software development is being written off as incurred until the provisions of IFRS are met. The customer lists and patents are deemed to have ongoing value to the Group. Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 35 FEEDBACK Notes to the Financial Statements CONTINUED 15 Other receivables Amounts falling due within one year Amounts owing by subsidiary undertakings Other receivables Corporation tax recoverable Prepayments 16. Other payables Amounts falling due within one year Other payables Other taxes and social security Accruals Deferred income Group Company 2016 £ 2015 £ 2016 £ 2015 £ – 8,684 37,828 17,398 – 14,290 32,775 54,194 – 5,168 – 11,493 16,909 5,699 – 30,385 63,910 101,259 16,661 52,993 Group Company 2016 £ 2015 £ 2016 £ 2015 £ 4,885 15,386 31,750 103,169 9,396 33,047 28,701 193,818 1,042 292 31,750 – 16 16,418 18,024 – 155,190 264,962 33,084 34,458 17. Financial instruments The Group’s overall risk management programme seeks to minimise potential adverse effects on the Group’s financial performance. The Group’s financial instruments comprise cash and cash equivalents and various items such as trade payables and receivables that arise directly from its operations. The Group is exposed through its operations to the following financial risks: • • • • Credit risk Foreign currency risk Liquidity risk Cash flow interest rate risk Fair value Hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: — Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities — Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly — Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data 36 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Notes to the Financial Statements CONTINUED 17. Financial instruments (continued) The share options and warrants issued by the group during the year are valued under level three above as noted in note 18 below. The Group has no other financial instruments held at fair value. In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks and consequently the objectives, policies and processes are unchanged from the previous period. The Board has overall responsibility for the determination of the Group’s risk management policies. The objective of the Board is to set policies that seek to reduce the risk as far as possible without unduly affecting the Group’s competitiveness and effectiveness. Further details of these policies are set out below: Credit risk The Group is exposed to credit risk primarily on its trade receivables, which are spread over a range of countries, a factor that helps to dilute the concentration of the risk. Group policy, implemented locally, is to assess the credit risk of each new customer before entering into binding contracts. Each customer account is then reviewed on an ongoing basis (at least once a year) based on available information and payment history. The maximum exposure to credit risk is represented by the carrying value in the balance sheet. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date is: Current financial assets Trade and other receivables Cash and cash equivalents Analysis of trade receivables 2016 2015 Cash, loans and receivables 2016 £ 2015 £ 104,804 105,673 212,129 63,261 210,477 275,390 Total Current 30 days past due 60 days past due 90 days past due 40,894 37,052 3,842 – – 110,870 17,957 69,259 3,591 20,063 The Group policy is to make provisions against those debts that are overdue, unless there are grounds for believing that all or some of the debts would be collected. During the year the value of provisions made in respect of bad and doubtful debts was £5,882 (2015: £Nil). The expense is included within the management and administration costs in the Consolidated Income Statement. Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 37 FEEDBACK Notes to the Financial Statements CONTINUED 17. Financial instruments (continued) Foreign currency risk Foreign exchange transaction risk arises when the Group enters into transactions denominated in a currency other than the functional currency. Foreign currency amounts generated from trading are converted back to sterling and required foreign currency amounts for suppliers will be converted from sterling and the use of forward currency contracts is considered. The Group’s main foreign currency risk is the short-term risk associated with accounts receivable and payable denominated in currencies that are not the subsidiaries’ functional currency. The risk arises on the difference in the exchange rate between the time invoices were raised/received and the time invoices were settled/paid. The following table shows the net assets, stated in pounds sterling, exposed to exchange rate risk that the Group has at 31 May 2016: Trade receivables Cash and cash equivalents 2016 £ 16,351 – 2015 £ 43,787 – 16,351 43,787 The Group is exposed to currency risk because of the subsidiaries undertaking trading transactions in US dollars and Euros. The Directors do not generally consider it necessary to enter into derivative financial instruments to manage the exchange risk arising from its operations, but from time to time where the Directors consider foreign currencies are weak and it is known that there would be a requirement to purchase those currencies, forward arrangements may be entered into. There were no outstanding forward arrangements as at 31 May 2016 or at 31 May 2015. Liquidity risk Cash flow forecasting is performed in the operating entities of the Group. Rolling forecasts of the Group’s liquidity requirements are monitored to ensure it has sufficient cash to meet operational needs. Current financial liabilities Trade and other payables Financial liabilities measured at amortised cost 2016 £ 2015 £ 73,567 111,512 The following are maturities of financial liabilities, including estimated contracted interest payments. 2016 Trade and other payables 2015 Trade and other payables 38 Carrying amount Contractual cash flow 6 months or less 6-12 months 1 or more years 73,567 73,567 73,567 111,512 111,512 111,512 – – – – Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Notes to the Financial Statements CONTINUED 17. Financial instruments (continued) Cash flow interest rate risk The Group presently has no substantial interest rate risk exposure. Capital under management The Group considers its capital to comprise its ordinary share capital, share premium, capital reserve, convertible debt option reserve and accumulated retained earnings. The group’s objectives when managing the capital are: • • To safeguard the group’s ability to remain a going concern. To maximise returns for shareholders in order to meet capital requirements and appropriately adjust the capital structure, the group may issue new shares, dispose of assets to pay down debt, return capital to shareholders and vary dividend payments. There have been no changes to the group’s capital management objectives in the year. 18. Share capital and reserves Authorised and issued share capital Ordinary shares of 0.25 pence each Allotted, called up and fully paid share capital: As at 1 June 2015 Issued As at 31 May 2016 2016 £ 2015 £ 509,185 476,867 Number Number 190,746,746 12,927,111 190,746,746 – 203,673,857 190,746,746 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 39 FEEDBACK Notes to the Financial Statements CONTINUED 18. Share capital and reserves (continued) Share Options Share options are granted to directors and employees. Options are conditional on the employee completing a specific length of service (the vesting period). The options are exercisable from the end of the vesting period and lapse after ten years after the grant date. The Group has no legal or constructive obligation to repurchase or settle the options in cash. Share options are valued using the Black-Scholes option pricing model and no performance conditions are included in the fair value calculations. The risk free rate was 1.64%. The expected volatility is based on historical volatility over the last two years and is estimated to be 25%. The average share price during the year was 1.85 pence. During the year the Company had the following share options in issue: Number of options At 1 June 2015 4,800,000 4,000,000 4,000,000 Lapsed Exercised At 31 May 2016 Exercise price (pence) Exercise date 800,000 – – 1,600,000 – – 2,400,000 4,000,000 4,000,000 1.25 3.00 5.00 21/05/14 to19/05/24 21/05/15 to19/05/24 21/05/15 to19/05/24 12,800,000 800,000 1,600,000 10,400,000 All share options vest one year after the grant date. Each option can only be exercised from one year after the grant date to ten years after the date of grant. In June 2015 1,600,000 options were exercised at a price of 1.25p. In March 2016 800,000 options lapsed. Warrants Warrants were issued to the vendors of TexRAD Limited at the time of acquisition. The warrants are exercisable from the end of the vesting period and lapse ten years after the grant date. The Group has no legal or constructive obligation to repurchase or settle the warrants in cash. Warrants are valued using the Black-Scholes pricing model and no performance conditions are included in the fair value calculations. The risk free rate was 1.64%. The expected volatility is based on historical volatility over the last two years and is estimated to be 25%. The average share price during the year was 1.85 pence. During the year the Company had in existence the following warrants: Number of warrants At 1 June 2015 4,550,000 18,200,000 22,750,000 Granted Cancelled At 31 May 2016 Exercise price (pence) Exercise date – – – – – – 4,550,000 18,200,000 22,750,000 1.25 3.00 19/05/16 to 19/05/24 19/05/17 to 19/05/24 40 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Notes to the Financial Statements CONTINUED 18. Share capital and reserves (continued) Reserves The nature and purpose of each reserve within equity is as follows: Share premium Capital reserve Amount subscribed for share capital in excess of nominal value. Reserve on consolidation of subsidiaries. Translation reserve Gains and losses on the translation of overseas operations into GBP. Retained earnings All other net gains and losses and transactions with owners not recognised elsewhere. Convertible debt option reserve Amount of proceeds on issue of convertible debt relating to the equity component of the debt. 19. Convertible debt option reserve Group Company 2016 £ 2015 £ 2016 £ 2015 £ Convertible loan 189,000 189,000 189,000 189,000 The loan is from Tom Charlton a Director and shareholder of the Company and is repayable on the earlier of (i) 1 December 2016 or (ii) such date that certain conditions are satisfied relating to the dilution of Mr Charlton’s shareholding in the Company to less than 10 per cent. of the ordinary shares then in issue. Feedback plc also has the right after 1 June 2016, at its sole discretion, to issue up to 15.12 million new ordinary shares at a deemed issue price of £0.0125 per ordinary share in satisfaction of the loan. No interest shall accrue on the Shareholder Loan. 20. Financial commitments The Group has no financial commitments as 31 May 2016. 21. Pensions The Company operated a defined contribution scheme during the year and the assets of the scheme are held separately from those of the Group in an independently administered fund. The pension cost represents contributions payable and amounted to £25,291 (2015: £9,345). There were no outstanding or prepaid contributions at the year end. Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 41 FEEDBACK Notes to the Financial Statements CONTINUED 22. Related party transactions On the 20 May 2014 a convertible loan of £189,000 was received from Tom Charlton a director of the Company and is repayable on the earlier of (i) 1 December 2016 or (ii) such a date that certain conditions are satisfied relating to the dilution of Mr Charlton’s shareholding in the Company less than 10 per cent. of the Ordinary Shares then in issue. Feedback also has the right after 1 June 2016, at its sole discretion, to issue up to 15.12 million new Ordinary Shares at a deemed issue price of £0.0125 per Ordinary Share in satisfaction of the loan. No interest shall accrue on the shareholder loan. The loan has been classified as an equity instrument and added to the convertible debt option reserve. Trevor Brown is a director and shareholder in Peterhouse Corporate Finance Limited who were appointed as joint brokers to the Company on 6 March 2014 at a fee of £12,000 per annum (2015: £12,000). A fee of £12,000 has been charged to the statement of comprehensive income for the year ended 31 May 2016 and £3,000 was outstanding at the year end. On 3 May 2016, the Company sold its 50% equity interest in Stone Checker Software Ltd to Free Association Books Limited, a company connected to Trevor Brown, for a cash consideration of £46,000. Mr Brown was a director and secretary of Free Association Books Limited until 14 May 2015. Key management personnel Prior to their appointment as directors, Mike Hayball and Balaji Ganeshan were considered to be key management personnel. Further information about the remuneration of directors is provided in note 8. The Directors’ interests in the shares of the Company are contained in the Directors’ Report. 23. Post balance sheet events On 28 July 2016 the Company signed a collaboration agreement with Future Processing Sp. z o.o. (“Future Processing”), a software development service provider based in Gliwice, Poland to develop medical imaging software. The collaboration will entail a substantially increased development team working on new products and the sharing of intellectual property and future revenues. The directors of Feedback believe that by CCI working jointly with the Future Processing healthcare team, CCI’s existing product portfolio can be improved and new products developed more rapidly including further applications for TexRAD. Although at this stage only a non-binding letter of intent has been agreed, the intention is for the Company to agree formal licences for new software products to be brought to market in 2017/18 under a shared revenue arrangement. In the current financial year, the Company expects to make substantial savings in software development costs and thereafter expects to benefit from its share of the revenue from sales of new products. 24. Ultimate controlling party There is no ultimate controlling party. 42 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Notice of Annual General Meeting NOTICE IS HEREBY GIVEN that the annual general meeting of Feedback plc (the “Company”) will be held at the offices of Allenby Capital Limited, 3 St Helen’s Place, London EC3A 6AB at 10 a.m. on 23 November 2016. You will be asked to consider and, if thought fit, pass the resolutions below. Resolution 7 will be proposed as a special resolution. All other resolutions will be proposed as ordinary resolutions. As Ordinary Resolutions: 1. 2. 3. 4. 5. 6. To receive and adopt the Company’s annual accounts for the financial year ended 31 May 2016 together with the Directors’ report and the auditors’ report on those accounts. To re-elect T W G Charlton, who retires by rotation pursuant to the articles of association of the Company and who, being eligible, offers himself for re-election as a Director. To re-elect B Ganeshan, who retires by rotation pursuant to the articles of association of the Company and who, being eligible, offers himself for re-election as a Director. To elect A J Riddell, who retires pursuant to the articles of association of the Company and who, being eligible, offers himself for re-election as a Director. To re-appoint haysmacintyre as auditors of the Company to hold office until the conclusion of the next annual general meeting and to authorise the Directors to fix their remuneration. THAT, in substitution for all previous authorities and in accordance with section 551 of the Act, the Directors be and they are hereby generally and unconditionally authorised to allot shares in the Company or grant rights to subscribe for or convert any securities into shares (“Rights”), provided that this authority shall be limited to the allotment of up to an aggregate nominal amount of £339,456.42 provided that this authority shall expire at the earlier of the next annual general meeting of the Company or 30 November 2017 and that the Company may before such expiry make an offer or agreement which would or might require shares or Rights to be granted in pursuance of any such offer or agreement notwithstanding that the authority conferred hereby has expired. As a Special Resolution: 7. THAT, subject to the passing of resolution 6 above, but in substitution for all previous authorities, and in accordance with section 570 of the Act, the Directors be and they are hereby empowered to allot equity securities (as defined in section 560 of the Act) pursuant to the authority conferred by the previous resolution as if section 561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to the allotment of equity securities for cash: a. b. c. in connection with an offer of such equity securities by way of rights to holders of ordinary shares in proportion (as nearly as may be practicable) to their respective holdings of such shares, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or any legal or practical problems under the laws of any territory, or the requirements of any regulatory body or stock exchange; and the allotment (otherwise than under sub-paragraph (a) above) of equity securities up to an aggregate nominal amount of £101,836.92 (representing 20% of the issued share capital for the time being); provided that this authority shall expire at the earlier of the next annual general meeting of the Company or 30 November 2017 and that the Company may before such expiry make an offer or agreement which would or might require equity securities to be granted in pursuance of any such offer or agreement notwithstanding that the authority conferred hereby has expired. Dated 26 October 2016 By Order of the Board T W G Charlton Director Registered Address: Grange Park, Broadway, Bourn, Cambridgeshire, CB23 2TA Registered Number: 00598696 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 43 FEEDBACK Notice of Annual General Meeting CONTINUED Explanatory Notes to the Notice of Annual General Meeting The notes on the following pages give an explanation of the proposed resolutions. Resolutions 1 to 6 are proposed as ordinary resolutions. This means that for each of those resolutions to be passed, more than half of the votes cast must be in favour of the resolution. Resolution 7 is proposed as a special resolution. This means that for the resolution to be passed, at least three-quarters of the votes cast must be in favour of the resolution. Resolution 1: Approval of the annual report and accounts The Company is required to present its report and accounts to shareholders at its AGM. This provides an opportunity to discuss the performance of the Company during the year, its management and prospects for the future. Resolutions 2-4: Re-election of directors The Company’s articles of association require one-third (but if the number of current Directors of the Board is not three or a multiple of three, as close to one-third as possible), of the Board to retire and seek re-election at each AGM. As a consequence, Tom Charlton and Balaji Ganeshan retire by rotation and being eligible, the Board proposes their re-election as Directors of the Company. Alastair Riddell is retiring at the first AGM since his appointment and the Board proposes him for election as a Director of the Company. Resolution 5: Auditors reappointment and remuneration It is a requirement that the Company’s auditor must be reappointed at each general meeting at which financial statements are laid, in effect, at each AGM. After considering relevant information, the Audit Committee recommended to the Board the reappointment of haysmacintyre. The resolution proposes haysmacintyre’s reappointment and to authorise the Directors to determine their remuneration. Resolution 6: Directors’ power to allot relevant securities Under section 551 of the Act, relevant securities may only be issued with the consent of the shareholders, unless the shareholders pass a resolution generally authorising the Directors to issue shares without further reference to the shareholders. This resolution authorises the general issue of shares up to an aggregate nominal value of £339,456.42 which is equal to two thirds of the nominal value of the current share capital of the Company. Such authority will expire at the conclusion of the next AGM of the Company or six months after the Company’s accounting reference date (whichever is the earlier). Resolution 7: Disapplication of pre-emption rights on equity issues for cash Section 561 of the Act requires that a company issuing shares for cash must first offer them to existing shareholders following a statutory procedure which, in the case of a rights issue, may prove to be both costly and cumbersome. This special resolution excludes that statutory procedure as far as rights issues are concerned. It also enables the Directors to allot shares up to an aggregate nominal value of £101,836.92, which is equal to 20% of the nominal value of the current share capital of the Company, assuming resolution 6 being passed. The Directors believe that the powers provided by this resolution will maintain a desirable degree of flexibility. Unless previously revoked or varied, the disapplication will expire on the conclusion of the next AGM of the Company or six months after the Company’s accounting reference date (whichever is the earlier). 44 Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 FEEDBACK Notice of Annual General Meeting CONTINUED Notes 1. 2. 3. 4. 5. 6. 7. 8. 9. A member of the Company entitled to attend and vote at the meeting convened by this notice is entitled to appoint one or more proxies to exercise any of his rights to attend, speak and vote at that meeting on his behalf. A proxy need not be a member of the Company but must attend the meeting to represent you. You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. You may not appoint more than one proxy to exercise rights attached to any one share. To appoint more than one proxy please contact Share Registrars on 01252 821390, overseas callers should call +44 1252 821390. A Form of Proxy is enclosed. To be effective, the Form of Proxy together with any power of attorney or other written authority under which it is signed, or a notarially certified copy or a certified copy in accordance with the Powers of Attorney Act 1971 of such power or written authority must be completed signed and to be valid the proxy must be duly executed and deposited with the Company at the offices of the Company’s registrars, Share Registrars Limited, The Courtyard, 17 West Street, Farnham, Surrey GU9 7DR or by scan and email to Share Registrars at proxies@shareregistrars.uk.com, not later than 10 a.m. on 21 November 2016. Completion and return of a Form of Proxy will not prevent a member from attending and voting in person if he or she so wishes. Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, only those shareholders entered in the register of members of the Company at the close of business on 21 November 2016 (or in the event of any adjournment, on the day which is two days before the day of the adjourned meeting) shall be entitled to attend and vote at the AGM in respect of the shares registered in their name at that time. Changes to entries in the register of members after that time shall be disregarded in determining the rights of any person to attend or vote at the AGM. In the case of joint holders, the vote of the senior who tenders a vote, whether in person or by proxy, will be accepted to the exclusion of the votes of any other joint holders. For these purposes, seniority shall be determined by the order in which the names stand in the register of members in respect of the joint holding. In the case of a corporation, the Form of Proxy must be executed under its common seal or signed on its behalf by a duly authorised attorney or duly authorised officer of the corporation. A vote withheld option is provided on the Form of Proxy to enable you to instruct your proxy not to vote on any particular resolution. However, it should be noted that a vote withheld in this way is not a “vote’ in law and will not be counted in the calculation of the proportion of votes “For” and “Against” a resolution. 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 and would like to change the instructions using another hard copy Form of Proxy, please contact Share Registrars. 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. 10. In order to revoke a proxy instruction, you will need to inform the Company using one of the following methods: By sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment to Share Registrars Ltd, The Courtyard, 17 West Street, Farnham, Surrey, GU9 7DR. 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 duly certified copy of such power or authority) must be included with the revocation notice. In either case, the revocation notice must be received by Share Registrars no later than 10 a.m. on 21 November 2016. 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. 11. As at 5.00 p.m. on the date immediately prior to this notice the Company’s issued share capital comprised 203,673,857 ordinary shares of 0.25 pence each (“Ordinary Shares”). Each Ordinary Share carries the right to one vote at a general meeting of the Company and therefore the total number of voting rights in the Company as at 5.00 p.m. on the date immediately prior to this Notice is 203,673,857. Feedback plc Report of the Directors and Consolidated Financial Statements For the year ended 31 May 2016 45 Printed by Michael Searle & Son Limited Feedback plc Grange Park, Broadway, Bourn, Cambridgeshire, CB23 2TA www.fbk.com