MTS
Annual Report 2018

Plain-text annual report

ANNUAL REPORT AND FINANCIAL STATEMENTS for the year ended 31 December 2018 Mobile Tornado Group Plc Company Registration Number: 5136300 Contents Strategic report Directors’ report Independent auditors’ report Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the financial statements Company balance sheet – prepared under FRS102 Company statement of changes in equity Notes to the Company financial statements – prepared under FRS102 Notice of Annual General Meeting Corporate information Page 2 8 18 24 24 25 26 27 28 52 53 54 63 70 Page 1 Strategic report Introduction Mobile Tornado Group plc, the leading provider of instant communication mobile applications to the enterprise market, announces its results for the year ended 31 December 2018. Financial Highlights 2018 2017 £’000 £’000 Recurring revenue 2,049 2,070 Non-recurring revenue* 925 460 Total revenue 2,974 2,530 Gross profit 2,659 2,424 Administrative expenses (3,547) (4,147) Adjusted EBITDA** (888) (1,724) Group operating loss (1,283) (1,755) Loss before tax (1,902) (2,453) • Total revenue increased by 18% to £2.97m (2017: £2.53m) •• Recurring revenues remained largely unchanged at £2.05m (2017: £2.07m) •• Non-recurring revenues* increased by 101% to £0.93m (2017: £0.46m) • Gross profit increased by 10% to £2.66m (2017: £2.42m) • Operating expenses before depreciation, amortisation, exceptional items and exchange differences decreased by 14% to £3.55m (2017: £4.15m) • Adjusted EBITDA** loss of £0.89m (2017: £1.72m) • Group operating loss for the year decreased to £1.28m (2017: £1.76m) • Loss after tax of £1.54m (2017: £1.60m) • Basic loss per share of 0.47p (2017: 0.61p) • Cash at bank of £0.35m (2017: £0.73m) with net debt of £8.07m (2017: £9.81m) * Non-recurring revenues comprising installation fees, hardware, professional services and capex license fees ** Earnings before interest, tax, depreciation, amortisation, exceptional items and excluding exchange differences Operating highlights • Development of Bundled push-to-talk (“PTT”) sales solution successfully deployed in volume resulting in significant license and handset sales improvement • Sustained R&D investment in platform now delivering material operational cost benefit • Technical improvements have widened addressable market, with numerous engagements for the first time with high value Public Safety and Government Agency customers • Total Cost of Ownership reductions increase accessibility for workforce efficiency enterprise customers • Expanding pipeline of reseller and Independent Solution Vendors (“ISV”) engagement following improvement to third party integration solutions Financial results and key performance indicators Total revenue for the year ended 31 December 2018 increased by 18% to £2.97m (2017: £2.53m). Recurring revenues remained largely unchanged at £2.05m (2017: £2.07m). Non- recurring revenues, comprising installation fees, hardware, professional services and capex license fees increased to £0.93m (2017: £0.46m). This was a target area for delivering growth Page 2 Strategic report during the financial year and the Board is pleased with the increase of 101%. As a result, gross profit increased by 10% to £2.66m (2017: £2.42m). Our operating expenses before depreciation, amortisation, exceptional items and exchange differences in the year decreased by 14% to £3.55m (2017: £4.15m), reflecting the positive impact those previous investments in the development and operating efficiencies of our enhanced technical platform have delivered. Due to the annual revaluation of certain financial liabilities on the balance sheet, the Group reported a translation loss of £0.14m (2017: gain of £0.14m) arising from the depreciation of sterling relative to other operating currencies as at 31 December 2018 versus the previous year end. The Group recorded an income tax credit in respect of our qualifying investment in R&D activities of £0.37m (2017: £0.85m). The loss after tax for the year decreased to £1.54m (2017: loss of £1.60m) and a reduced basic loss per share of 0.47p (2017: 0.61p). The net cash outflow from operating activities was £1.85m (2017: £1.53m). At 31 December 2018, the Group had £0.35m cash at bank (31 December 2017: £0.73m) and net debt of £8.07m (31 December 2017: £9.81m). Results and dividends The Directors do not recommend the payment of a dividend in respect of the year ended 31 December 2018 (year ended 31 December 2017: nil). The Company currently intends to reinvest future earnings to finance the growth of the business over the near term. Review of operations 2018 was the second full year under Avi Tooba’s tenure as CEO of the business. The significant improvements made to the platform under his guidance in addition to and alongside the strengthening of his team translated into real sales traction in 2018. As initially reported in our half year report, and subsequent trading update, our sales improvements started to show in the second half of the year and we are hugely encouraged by the transition we are now witnessing in our financial performance. A major contributing factor to this has been the development and successful deployment of a Bundled PTT sales solution that combines a perpetual software license, handset and dispatch console. This helped to deliver a non-recurring revenue increase of 101% over the period. We made the strategic decision in consultation with our Israeli Mobile Network Operator (“MNO”) partner in the early part of the year to develop this package that involved the sourcing of a select number of dedicated PTT handset types. From the Group’s perspective, a Bundled PTT solution has multiple commercial benefits; it reduces the sales cycle considerably allowing for large numbers of the same PTT configured handsets to be sold into large enterprises without significant intervention from our MNO partner. It also allows us to capture additional sales margin on the handset itself, an entirely new revenue stream, and which is highly cash-flow generative as both handset sales and license revenue are received upfront. The initial uptake of our proposition has been encouraging as we have seen large multinational enterprises, taxi companies, international logistics businesses, government entities and municipalities amongst others select our solutions over the competition. Migration has tended to be in batches of users, and so whilst the initial numbers might appear small on a relative basis, we see significant intrinsic value in the initial sales we have already made and we anticipate material upsizing in these deployments, an expectation supported by the pipeline forecasts of our MNO partner. Page 3 Strategic report Having successfully launched this solution in Israel, we will selectively make the bundled solution more widely available. We do not see it replacing our recurring license model, but we see it as a complementary proposition, widening the addressable markets we can serve, especially in business critical and workforce efficiency markets where lower cost cellular PTT handsets are most relevant. Despite the considerable resource we put behind the launch of the bundled solution, it was particularly pleasing to see that we were able to maintain our levels of recurring revenues. Mobile Network Operators (MNOs) The strategy and focus around Mobile Tornado’s route to market for its products, regionally and segmented by partner type, did not change substantially over the past 12 months. On the MNO side, key markets for the business remain Africa, South America and Israel and we are already partnered with the leading MNO in each market. We have already highlighted the progress in Israel with our bundled solution, but I would reiterate that we recognise the unique strategic opportunity to capture a large number of PTT users on the back of the planned iDEN switch off now scheduled for the end of 2019. We have already converted a number of high-quality customers and progress with both enterprise and government agency prospects is very positive and we expect sales momentum will continue to build. In Africa, where we are also engaged with the leading operators, our strategic advantage is the technical superiority we have. Cellular infrastructure on this continent is still largely 2G and 3G, and we are currently the only cellular PTT carrier grade market solution that can transition seamlessly across 2G, 3G, 4G and WiFi networks, delivering an uninterrupted service to the user. We have made good progress with our partner in this territory and have several trials running with public safety and government agency customers. South Africa is also a major security market and we are pleased to have deployed our solution into several multinational blue-chip security companies. In South America, our partners have continued to support our direct to enterprise offering and trials are being conducted with a number of large enterprise customers. We are also in the process of implementing substantial platform upgrades with our MNO partners in Colombia and Mexico, designed to cater for a material increase in new users. We anticipate that this investment is a precursor to the increased deployment of our proposition in the region in the medium term. The market dynamics of these markets, which are also iDEN influenced, are similar to Israel in some respects so we are being patient. Independent Solution Vendors (ISVs) and Software Integrators We continue to see ever more integrated productivity solutions that connect the physical and digital worlds to deliver new and impactful answers to enterprise business challenges. Instant communication solutions are at the centre of this and we are engaged with numerous reseller partners involved in supply chain efficiency across a broad spectrum of business sectors including distribution, retail, remote operator, mining and resources, delivery services and manufacturing. Under this model our solution forms part of a wider bespoke solution to that workforce efficiency customer. Key to our traction in this area has been the successful work we have completed to improve and simplify our Software Development Kit (“SDK”) which now allows a third party system integrator to implement our software solution into their own platform in a matter of minutes under remote guidance from our technical team. This market is a source of huge recurring revenue potential for the business and having identified numerous sector specialists to partner with we anticipate third party reseller Page 4 Strategic report solutions will become an area of increasing focus for the business over the coming 12 month period. Investment and R&D Moving onto the investment and operating expense side of the business, I would like to highlight that the improvement in our financial performance was not driven entirely from our sales successes. The multiple enhancements made to our technical platform following sustained investment over the last two years has allowed us to operate our technical platform more efficiently and was the primary reason for the £600k reduction in administrative expenses during the year. This was achieved despite widening our sales channels with the development of our Bundled PTT solution, and further increasing the overall functionality and available features of our products. The focus of our technical investment activity continues to centre on the robustness and efficiency of our platform, and its complimentary feature set. The costs of deploying our platform in terms of servers, devices and consoles continues to fall, widening our addressable market at both the higher and lower end of the market. At the higher end, which encompasses Public Safety and Government Agency customers, the quality, relevance and efficiency of our technology solution cannot be ignored and there are developments to be excited about in this regard. Meeting the needs of this market from a technology perspective has not been easy but we have made four key improvements in this area over the period. First, is our user and channel capacity. Our dual redundant servers can now be deployed to comfortably cater for up to 200,000 users, and our dispatch console solution can now simultaneously handle 18 independent PTT channels. This is a key threshold for most government agencies from a public safety perspective. Secondly, we have increased security by introducing end-to-end encryption where we now have a different encryption key on every transmission. Thirdly, we are about to launch our recording server that will enable customers to record all private and group communications across the system to support any necessary investigations. And finally, on the efficiency side, we have made significant improvements to the server and application to materially improve battery consumption on the device. This is particularly relevant to the public safety customers we are engaged with where operators can be field based for long periods. We recognise that the barriers to entry for cellular based PTT solution providers like Mobile Tornado into the public safety markets are very high, in large part due to the control exerted by the incumbent players offering radio-based solutions which operate on their own high cost bespoke infrastructure and handsets. They will not give up their control of these markets easily, but we believe that, with our constantly improving cellular based solution, we are well placed to secure Public Safety contracts for the first time. These system improvements aimed specifically at the Public Safety market ensure we are at the forefront of cellular PTT communications technology and give us confidence that the trials and negotiations we are engaged in will bring us success in due course. At the lower end of the market, enterprise engagement is largely about the “Total Cost of Ownership” and ensuring that we are widening the accessibility of our solutions to workforce efficiency customers. We have already covered some aspects of this that surround the efforts we made around our bundled PTT offering with lower cost handsets. Alongside this, we can now make our server platform available for as little as $20k, which allows an enterprise to deploy a bespoke system at a very reasonable price. A good example of the relevance of this is the interest seen from certain mining groups in Africa who are interested to deploy dedicated bespoke platforms within each of their mines. Page 5 Strategic report Principal risks and uncertainties The management of the business and the nature of the Group’s strategy are subject to a number of risks. The Directors have set out below the principal risks facing the business. The Directors are of the opinion that a thorough risk management process is adopted, which involves the formal review of all the risks identified below. Where possible, processes are in place to monitor and mitigate such risks. Product obsolescence Due to the nature of the market in which the Group operates, products are subject to technological advances and as a result, obsolescence. The Directors are committed to the research and development strategy in place and are confident that the Group is able to react effectively to the developments within the market. Indirect route to market As described above, one of the Group’s primary channels to market are MNOs reselling our services to their enterprise customers. Whilst MNOs are ideally positioned to forward sell our services and are likely to possess material resources for doing so, there remains an inherent uncertainty arising from the Group’s inability to exert full control over the sales and marketing strategies of these customers. Going concern and funding The Financial Statements are prepared on a going concern basis. When determining the adoption of this approach the Directors have considered a wide range of information relating to present and future conditions, including the current state of the Balance Sheet, future projections, cash flow forecasts, access to funding, ability to successfully secure additional investment, available mitigating actions and the medium-term strategy of the business. As noted above, 2018 represented a significant year of delivery for the Group, both in terms of financial performance and technical development and as we look ahead into 2019, the Group expects to continue this upward trajectory across its three key geographical markets. In common with many businesses at this stage of development, the Group is dependent on its ability to meet its cash flow forecasts. Within those forecasts the Group has included a number of significant payments and receipts based on its best estimate but, as with all forecasts, there does exist some uncertainty as to the timing and size of those payments and receipts. In particular the forecasts assume receipt of a significant outstanding customer debt, the ongoing deferral and phased payment of some of the Group’s creditors, and the continuation at the current level of both the recurring revenue and a significant increase in the level of non-recurring revenues, including receipts from new services to existing customers in the current quarter. In the event that some or all of these receipts are delayed, deferred or reduced, or payments not deferred, management has considered the actions that it would need to take to conserve cash. These actions would include significant cost savings (principally payroll based) and/or seeking additional funding from its shareholders, for which there is currently no shareholder commitment requested. These conditions, along with the other matters explained in note 1 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern. Page 6 Strategic report The Directors, while noting the existence of a material uncertainty and having considered the possible management actions as noted above, are of the view that the Group is a going concern and will be able to meet its debts as and when they fall due for a period of at least 12 months from the date of signing these accounts. Outlook This year has been a landmark year and one of substantial development for the Group. Our improved operating efficiency following a long period of sustained investment is clearly paying off and the successful launch of our Bundled PTT offering which delivers a complete solution to end users has driven significantly improved financial performance. We are seeing increasing interest in the Group’s products and solutions, and where we encounter inevitable competition we are demonstrating that we can succeed against established providers based on the superior quality, flexibility, robustness and features of our technical platform. The improved functionality and flexibility we now have has also driven down the total cost of ownership of our solutions widening our addressable market. Under Avi Tooba’s leadership we have a strong team focused on consistent execution. We expect that the rapidly improving operating performance of the business will now deliver durable long term cash flows and we are confident this will start to drive meaningful returns to our shareholders. Approved by the Board of Directors and signed on behalf of the Board Jeremy Fenn Chairman 16 April 2019 Page 7 Directors’ report The Directors present their annual report and audited financial statements of the Company and the Group for the year ended 31 December 2018. Share issues The Company completed on 10 January 2018 a placing of 27.0m shares at 5p per share to raise £1.35m to support the working capital requirements of the Company. On 12 June 2018, the Company issued 50.8m new ordinary shares to Intechnology plc at 5p per share as capitalisation of £2.54m indebtedness owed by the Company to Intechnology plc. Directors The Directors of the Company who were in office during the year and up to the date of signing the financial statements were: • Peter Wilkinson became Non-Executive Director on 30 September 2016, having previously served as Non-Executive Chairman since his appointment to the Board on 24 November 2006. Peter is currently Chief Executive of InTechnology plc. Peter was formerly Chairman of Sports Internet Group plc which was sold to BSkyB plc for £301 million in May 2000. He also founded the free ISP model Freeserve, the internet access service which was launched by Dixons Group plc. • Jeremy Fenn became Executive Chairman on 30 September 2016, having previously served as Chief Executive Officer and acting Finance Director since his appointment to the Board on 24 November 2006. Jeremy is a qualified chartered accountant and was formerly Chief Executive of Sports Internet Group plc. Following the sale of that business he remained as a Director of Skysports.com until December 2003. Prior to this he was Managing Director of Leeds United Football Club from 1996 to 1999. • Avi Tooba was appointed as Chief Executive Officer on 30 September 2016. Avi was previously the senior Director of engineering at Motorola Solutions overseeing engineering and some 500 engineers at the Israel Design Centre. He managed the Public Safety LTE subscriber devices, TETRA subscribers (European standards) and P25 devices and infrastructure (US standards). Prior to that, he was Director of engineering at Motorola Networks which was later sold to Nokia for an estimated US$1 billion. • Jonathan Freeland was appointed to the Board as an independent Non-Executive Director on 9 February 2018. Jonathan has 20 years' experience in financial services across wealth and investment banking, private equity and commercial lending. He was a Partner at Venn Partners LLP, the specialist private credit investment manager, from 2011-2015. He is currently CEO of Waveney Capital Management Ltd, a credit focussed investment business he founded in 2016. Page 8 Directors’ report The Directors and their families have the following beneficial interests in the ordinary share capital of the Company: 31 December 31 December 2018 2017 number % number % Peter Wilkinson 38,146,141 10.9 34,146,141 12.6 Jeremy Fenn 12,184,752 3.5 11,434,752 4.2 Avi Tooba 4,000,000 1.1 3,000,000 1.1 Jonathan Freeland (appointed 9 February 2018) 3,181,014 0.9 2,581,014 1.0 Third party indemnity insurance is in place for the four Directors above. This was in force during the year and at the date of this report. Details of related party transactions involving Directors of the Company are given in note 21 to the Group financial statements. Directors’ emoluments The remuneration of the Directors of the Company was as follows: Benefits 2017 Salary Fees in kind Total Total £’000 £’000 £’000 £’000 £’000 Peter Wilkinson – 66 – 66 66 Jeremy Fenn 6 120 1 127 127 Richard James – – – – 8 Avi Tooba 108 – 39 147 151 Jonathan Freeland (appointed 9 February 2018) – 17 – 17 – Aggregate emoluments 114 203 40 357 352 Interests in share options Set out below are details of share options that have been granted to Directors: No. of share Exercise Earliest No. of share options price Grant exercise Expiry options 2018 pence date date date 2017 Jeremy Fenn 3,000,000 7.5 03/01/12 03/01/15 03/01/22 3,000,000 Jeremy Fenn 3,000,000 6.5 15/06/17 15/06/20 15/06/27 3,000,000 Total 6,000,000 6,000,000 Avi Tooba 2,000,000 2.0 16/05/16 16/05/19 31/12/26 2,000,000 Avi Tooba 2,000,000 4.0 04/11/16 04/11/19 31/12/26 2,000,000 Avi Tooba 3,000,000 6.5 15/06/17 15/06/20 15/06/27 3,000,000 Total 7,000,000 7,000,000 Page 9 Directors’ report Substantial shareholdings Following the capitalisation transaction noted above, Intechnology plc held 177,509,135 shares (31 December 2017: 126,709,135) in the Company representing 50.8% of the issued ordinary share capital and 71,276,735 non-convertible cumulative redeemable preference shares with aggregate nominal value of £5.7m. Corporate governance Since September 2018 all AIM Companies have been required to comply with a recognised corporate governance code. Mobile Tornado Group plc has chosen the Quoted Companies Alliance (QCA) Corporate Governance Code published in April 2018 for this purpose. High standards of corporate governance are a priority for the Board and details of how Mobile Tornado addresses key governance principles defined in the QCA code are set out below. 1. Establish a strategy and business model which promote long-term value for shareholders The strategy and business operations of the Group are set out in the Strategic Report on pages 2 to 7. The Group’s strategy and business model and amendments thereto, are developed by the Chief Executive Officer and his senior management team and approved by the Board. The management team, led by the Chief Executive Officer, is responsible for implementing the strategy and managing the business at an operational level. The Group operates in an inherently high risk sector and this is reflected in the principal risks and uncertainties set out on pages 6 and 14. In executing the Group’s strategy and operational plans, management will typically confront a range of day-to-day challenges associated with these key risks and uncertainties and will seek to deploy the identified mitigation steps to manage these risks as they manifest themselves. 2. Seek to understand and meet shareholder needs and expectations The Group seeks to maintain a regular dialogue with both existing and potential new shareholders in order to communicate the Group’s strategy and to progress and understand the needs and expectations of shareholders. Beyond the Annual General Meeting, the Chief Executive Officer and, where appropriate, other members of the Board meet regularly with investors and analysts to provide them with updates on the Group’s business and to obtain feedback regarding the market’s expectations of the Group. The Group’s investor relations activities encompass dialogue with both institutional and private investors and which the Board considers have proved beneficial. The Company’s AGM provides an opportunity for all shareholders to address their needs and expectations to the Board so we encourage our shareholders to attend the AGM. 3. Take into account wider stakeholder and social responsibilities and their implications for long-term success The Group is aware of its corporate social responsibilities and the need to maintain effective working relationships across a range of stakeholder groups. These include the Group’s: investors, employees, partners, suppliers and regulatory authorities. The Group’s operations and working methodologies take account of the requirement to balance the needs of all these stakeholder groups while maintaining focus on the Board’s primary responsibility to promote the success of the Group for the benefit of its members as a whole. The Group endeavours to take account of feedback received from stakeholders, making amendments to working Page 10 Directors’ report arrangements and operational plans where appropriate and where such amendments are consistent with the Group’s longer term strategy. The Group takes due account of any impact that its activities may have on the environment and seeks to minimise this impact wherever possible. Through the various procedures and systems it operates, the Group ensures full compliance with health and safety and environmental legislation relevant to its activities. 4. Embed effective risk management, considering both opportunities and threats, throughout the organisation The Board is responsible for the systems of risk management and internal control and for reviewing their effectiveness. The internal controls are designed to manage rather than eliminate risk and provide reasonable but not absolute assurance against material misstatement or loss. The Audit Committee evaluates the effectiveness of these internal controls on an annual basis or as required. A summary of the principal risks and uncertainties facing the Group, as well as mitigating actions, are set out on pages 6 and 14. A comprehensive budgeting process is completed by the Finance Director once a year and is reviewed and approved by the Board. The Group’s results, compared with the budget, are reported to the Board on a monthly basis. The Group maintains appropriate insurance cover in respect of actions taken against the Directors because of their roles, as well as against material loss or claims against the Group. The insured values and type of cover are comprehensively reviewed by the Board on a periodic basis. The senior management team meet at least twice monthly to consider new risks and opportunities presented to the Group, making recommendations to the Board and/or the Audit Committee as appropriate. 5. Maintain the Board as a well-functioning, balanced team led by the Chair Mobile Tornado’s Board currently comprises two Non-Executive Directors and two Executive Directors. All of the Directors are subject to election by shareholders at the first Annual General Meeting after their appointment to the Board and will continue to seek re-election at least once every three years. Directors’ biographies are set out on page 8. The Board is responsible to the shareholders for the proper management of the Group and meets at least six times a year to set the overall direction and strategy of the Group, to review operational and financial performance and to advise on management appointments. All key operational and investment decisions are subject to Board approval. The Board considers itself to be sufficiently independent. Whilst Jonathan Freeland is the only one of the two Non-Executive Directors who sit on the Board of the Company regarded as independent under the Code’s guidance for determining such independence, the Board considers this to be appropriate for the Group’s current size. The Board will regularly review the value to the Group and its stakeholders of making further appointments to the Board. Non-Executive Directors receive their fees in the form of a basic cash fee. No equity-based fee arrangements are currently in place. The current remuneration structure for the Board’s Non- Executive Directors is deemed to be proportionate to the time they are required to commit to their roles. Page 11 Directors’ report 6. Ensure that between them, the Directors have the necessary up-to-date experience, skills and capabilities The Board considers that all of the Non-Executive Directors are of sufficient competence and calibre to add strength and objectivity to its activities and bring considerable experience in operational and financial development of mobile applications services. Directors’ biographies are set out on page 8. The Board regularly reviews the composition of the Board to ensure that it has the necessary breadth and depth of skills to support the ongoing development of the Group. The Chairman ensures that the Directors’ knowledge is kept up to date on key issues and developments pertaining to the Group, its operational environment and to the Directors’ responsibilities as members of the Board. The Board also receives regular guidance from its legal advisers and nominated adviser on key regulatory developments. Directors’ service contracts or appointment letters make provision for a Director to seek personal advice in furtherance of his or her duties and responsibilities. No external advisers have been appointed to assist the Board or any of its committees in the past 12 months. 7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement Evaluation of the performance of the Board is implemented in an informal manner. On an ongoing basis, Board members maintain a watching brief to identify relevant internal and external candidates who may be suitable additions to, backup for or succession planning for current Board members. Given the size of the business, the primary evaluation metric utilised by the Board is the financial performance of the Company. The Board does not consider that the Company requires a Nominations Committee, given the size and nature of the business. As the Company progresses, the Board will consider the implementation of a Nominations Committee and more formal internal and external Board appraisal procedures. 8. Promote a corporate culture that is based on ethical values and behaviours The Board seeks to maintain the highest standards of integrity and probity in the conduct of the Group’s operations. These values are enshrined in the written policies and working practices adopted by all employees in the Group. An open culture is encouraged within the Group, with regular communications to staff regarding progress and staff feedback regularly sought. The management team regularly monitors the Group’s cultural environment and seeks to address any concerns that may arise, escalating these to Board level as necessary. 9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board The Board has overall responsibility for promoting the success of the Group. The Executive Directors have day-to-day responsibility for the operational management of the Group’s activities. The Non-Executive Directors are responsible for bringing independent and objective judgment to Board decisions. There is a clear separation of the roles of Chief Executive Officer and Chairman. The Chairman is responsible for overseeing the running of the Board, ensuring that no individual or group dominates the Board’s decision-making and ensuring the Non-Executive Directors are properly briefed on matters. The Chairman has overall responsibility for corporate governance matters in the Group and chairs the Nomination Committee and the Corporate Governance Committee. The Chief Executive Officer has the responsibility for implementing the strategy of the Board and managing the day-to-day business activities of the Group. Page 12 Directors’ report The Board has established an Audit Committee and Remuneration Committee with formally delegated duties and responsibilities. The Audit Committee is chaired by Peter Wilkinson and its other member is Executive Chairman, Jeremy Fenn and normally meets twice a year and has responsibility for, amongst other things, planning and reviewing the annual report and accounts and interim statements involving, where appropriate, the external auditors. The Committee also approves external auditors’ fees and ensures the auditors’ independence as well as focusing on compliance with legal requirements and accounting standards. It is also responsible for ensuring that an effective system of internal control is maintained. The ultimate responsibility for reviewing and approving the annual financial statements and interim statements remains with the Board. The Remuneration Committee is chaired by Peter Wilkinson and its other member is Executive Chairman, Jeremy Fenn and meets as required, but at least once a year, has responsibility for making recommendations to the Board on the compensation of senior executives and determining, within agreed terms of reference, the specific remuneration packages for each of the Executive Directors. It also supervises the Company’s share incentive schemes and sets performance conditions for share options granted under the schemes. 10. Communicate how the Group is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders The Group places a high priority on regular communications with its various stakeholder groups and aims to ensure that all communications concerning the Group’s activities are clear, fair and accurate. The Group’s website is regularly updated with announcements or details of presentations and events as well as the Group’s financial reports. At the Company’s last AGM, all votes were passed by a significant majority. The Company will provide details of any resolutions at the Company’s AGMs which receive significant votes against and seek to understand from shareholders the reasons behind that vote result. All of the Company’s AGM notices and annual reports and accounts for the past five years are available to view in the Report and Accounts section of the website. Audit Committee The Audit Committee is chaired by Peter Wilkinson and its other member is Executive Chairman, Jeremy Fenn. Meetings are also attended, by invitation, by the other two Directors. This committee normally meets twice during the financial year, around the time of the preparation of the Group’s interim and final results. The committee assists the Board in ensuring that appropriate accounting policies, internal financial controls and compliance procedures are in place. Internal control The Directors acknowledge their responsibility for the Group’s systems of internal control. The Group maintains systems of internal controls, including suitable monitoring procedures, in order to provide reasonable, but not absolute, assurance of the maintenance of adequate accounting records and the consequent reliability of the financial information used within the business to identify and deal with any problems on a timely basis. The monitoring and control procedures include the specification of defined lines of responsibility and authorisation limits, the delegation of authority, the identification of risks and the continual process of the preparation of, and reporting against, annual budgets, forecasts and strategic plans. Financial risk management The Group’s financial instruments comprise, principally, cash and short-term deposits and preference shares from its principal shareholder – Intechnology plc, and various items, such Page 13 Directors’ report as trade receivables and trade payables, arising directly from its operations. The main purpose of these financial instruments is to raise finance for the Group’s operations. The main risks arising from the Group’s financial instruments are currency risk, interest risk, liquidity risk and credit risk. The Board’s policies for managing these risks are summarised as follows: Currency risk – the Group has no borrowings in foreign currency, and foreign currency liabilities are matched wherever possible by corresponding foreign currency assets, however, no formal hedging is performed. Foreign currency bank accounts are utilised where appropriate. No foreign currency transactions of a speculative nature are undertaken. Interest risk – the Group is exposed to interest rate risk as it has loans outstanding on variable rate terms. Borrowing costs are minimised by ongoing review of the Group’s cashflow requirements. Liquidity risk – the Group seeks to ensure sufficient liquidity is available to meet its foreseeable needs. The Board regularly reviews cash flow projections and the headroom position to ensure the Group is adequately funded. Credit risk – the Group’s exposure to credit risk is limited to the carrying amount of its financial assets at 31 December. In respect of trade and other receivables, the Group is not exposed to any significant credit risk exposure to any single counterparty or group of counterparties having similar characteristics. The Group’s customers are generally Companies with whom the Group has strong trading relationships with no recent history of default. The Group continually monitors its trade receivables and incorporates this information into its credit risk controls. Going concern In preparing the consolidated financial statements the Directors must satisfy themselves that it is reasonable to adopt the going concern basis. Projections for the Group have been prepared concerning its future financial performance, its cash flow forecasts and its liquidity for a period of at least 12 months from the signing of these financial statements. Within those cash flow forecasts, the Group has included a number of significant payments and receipts based on its best estimate but, as with all forecasts, there does exist some uncertainty as to the timing and size of those payments and receipts. In particular, the forecasts assume receipt of a significant outstanding customer debt, the ongoing deferral and phased payment of some of the Group’s creditors, and the continuation at the current level of both the recurring revenue and a significant increase in the level of non-recurring revenue including receipts from new services to existing customers in the current quarter. In the event that some or all of these receipts are delayed, deferred or reduced, or payments not deferred, management has considered the actions that it would need to take to conserve cash. These actions would include significant cost savings (principally payroll based) and/or seeking additional funding from its shareholders (for which there is currently no shareholder commitment requested). These conditions, along with the other matters explained in note 1 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern. The Directors, while noting the existence of a material uncertainty and having considered the possible management actions as noted above, are of the view that the Group is a going concern and will be able to meet its debts as and when they fall due for a period of at least 12 months from the date of signing these accounts. Page 14 Directors’ report Results, dividends & future outlook Detailed commentary of the Group’s results, dividends and future outlook are provided in the Strategic report on pages 2 to 7. Employees The Group places considerable value on the involvement of its employees and has continued its practice of keeping them informed of matters affecting them as employees and the various factors affecting the performance of the Group. The Directors recognise that continued and sustained improvement in the performance of the Group depends on its ability to attract, motivate and retain employees of the highest calibre. Furthermore, the Directors believe that the Group’s ability to sustain a competitive advantage over the long-term depends in a large part on ensuring that all employees contribute to the maximum of their potential. The Group is committed to improving the performance of all employees through development and training. The Group is an equal opportunity employer. The Group’s policies seek to promote an environment free from discrimination, harassment and victimisation and to ensure that no employee or applicant is treated less favourably on the grounds of gender, marital status, age, race, colour, nationality or national origin, disability or sexual orientation or is disadvantaged by conditions or requirements which cannot objectively be justified. Entry into, and progression within the Group, is solely determined on the basis of work criteria and individual merit. The Group continues to give full and fair consideration to applications for employment made by disabled persons, having regard to their respective aptitudes and abilities. The policy includes, where practicable, the continued employment of those who may become disabled during their employment and the provision of training and career development and promotion, where appropriate. Share schemes Share ownership is at the heart of the Group’s remuneration philosophy and the Directors believe that the key to the Group’s future success lies in a motivated workforce holding a stake in the Company. Details of share options granted are set out in note 16 to the financial statements. Pension costs The Group operates a pension scheme and makes contributions to its employees in adherence with its auto-enrolment obligations. These contributions are charged against profits. No pension contribution payments have been made to Directors during the year. Research and development The Group continues to undertake research and development of new products with the objective of increasing future profitability. The cost to the Group of £1,161,000 (2017: £1,479,000) is charged to the income statement as incurred after consideration of the criteria for capitalisation under IAS 38. Environment The Group recognises the importance of environmental responsibility. The nature of its activities has a minimal effect on the environment but where it does, the Group acts responsibly and is aware of its obligations at all times. Page 15 Directors’ report Statement of Directors’ responsibilities in respect of the financial statements The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 102, have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements; • make judgements and accounting estimates that are reasonable and prudent; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business. The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006. The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors' confirmations In the case of each Director in office at the date the Directors’ Report is approved: • so far as the Director is aware, there is no relevant audit information of which the Group and Company’s auditors are unaware; and • they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group and Company’s auditors are aware of that information. Annual General Meeting The next AGM of the Company will be held on 17 June 2019. Details of the business to be proposed at the AGM are contained within the Notice of Meeting, which is set out on pages 63 to 69. Page 16 Directors’ report Independent auditors PricewaterhouseCoopers LLP have indicated their willingness to continue in office and a resolution proposing that they be reappointed as independent auditors and authorising the Directors to fix their remuneration will be proposed at the Annual General Meeting. On behalf of the Board Jeremy Fenn Chairman 16 April 2019 Page 17 Independent auditors’ report to the members of Mobile Tornado Group plc Report on the audit of the financial statements Our opinion In our opinion: • Mobile Tornado Group plc’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2018 and of the Group’s loss and cash flows for the year then ended; • the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; • the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, and applicable law); and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report and Financial Statements (the “Annual Report”), which comprise: the Consolidated statement of financial position and Company balance sheet as at 31 December 2018; the Consolidated income statement and Consolidated statement of comprehensive income, the Consolidated statement of cash flows, and the Consolidated and Company statements of changes in equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Material uncertainty related to going concern – Group and Company In forming our opinion on the Group and Company financial statements, which is not modified, we have considered the adequacy of the disclosures made in the financial statements concerning the Group’s ability to continue as a going concern. As described in note 1.2 to the Group financial statements and note 3.2 to the Company financial statements, the Group and Company are dependent on the Group’s ability to meet its cashflow forecasts, which include a number of important assumptions over specific receipts, timing of payments and expected growth in revenue. If these forecasts are not met then there may be a need for management to take action to reduce costs, or to raise additional funds from the Group’s shareholders (for which there is currently no commitment requested). These conditions, along with the other matters explained in note 1.2 to the Group financial statements and note 3.2 to the Company Page 18 Independent auditors’ report to the members of Mobile Tornado Group plc financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the Group’s and Company’s ability to continue as a going concern. The Group and Company financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern. In considering whether there is a material uncertainty in relation to going concern, we have: obtained and reviewed the cashflow forecasts prepared by management; re-performed the calculations included in those forecasts; considered the accuracy of managements’ previous forecasts; assessed the risks around the timing and extent of the significant cash flows, including the specific receipts from and payments to significant customers and creditors; assessed the likelihood of achieving the projected revenues and operating expense plans; and considered the level of headroom that exists on the Group’s currently available facilities. We also obtained and reviewed the confirmation that the Group has received from its main shareholder which allows the Group to defer repayment of its shareholder loans for at least the next 12 months. Our audit approach Overview • • • Overall Group materiality: £125,000 (2017: £131,000), based on 5% of average losses before tax for the last three years. Overall Company materiality: £112,500 (2017: £118,000), based on 5% of average losses before tax for the last three years, capped at 90% of Group materiality. The Group consist of two components, the Company and its one subsidiary. We as the Group engagement team, audited the UK component covering 98.5% of the Group's external revenues and 99% of the Group's Loss before tax. • Goodwill in the Parent entity may be impaired. The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to going concern, described in the material uncertainty related to going concern Page 19 Independent auditors’ report to the members of Mobile Tornado Group plc section above, we determined the matter described below to be the key audit matter to be communicated in our report. This is not a complete list of all risks identified by our audit. Key audit matter How our audit addressed the key audit matter Goodwill in the Parent entity may be impaired We have reviewed management’s forecasts and challenged assumptions within them. On 31 October 2009 the trade and assets of a wholly owned subsidiary were transferred to Mobile Tornado Group plc at book value. The transfer of the trade and assets was accounted for as a hive up resulting in de- recognition of an investment in a subsidiary and recognition of goodwill. Given that the Company is loss making and is in a net liabilities position impairment indicators are present. We have evaluated the adequacy of support for significant assumptions underlying the forecasts based on our discussion with management, knowledge of the entity, its business and its Directors. Particular attention has been given to assumptions that are material to the forecasts, which includes the viability of revenue growth rates, discount rate and terminal growth rate assumptions. We performed sensitivity analyses in order to assess the potential impact of changes in the inputs used on the recoverable amount. We reviewed the analyst’s reports on the Company and the market capitalisation of the Company to evaluate its consistency with the forecasts. We believe that based on the work we have performed, it is reasonable for management to assess that the Company does not require an impairment to goodwill in the year. We also checked that the disclosures made in the financial statements are adequate. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. The Group consists of the Company, incorporated and operating within the UK, and one subsidiary, located in Israel. The Group is considered to have one significant component (the UK Company). The UK Company is considered to require a full scope audit for the Group audit engagement, as it is considered a significant component due to its financial significance (UK contributes 99% of both Group revenue and losses before tax). Israel is not considered a significant component as it contributes less than 2% of the Group’s revenues and losses before tax. Specified procedures are performed over specific balances, where the balance contributes 15% or more of the total balance for the Group. Both components are audited by the Group engagement team based in the UK. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating Page 20 Independent auditors’ report to the members of Mobile Tornado Group plc the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Company financial Group financial statements statements Overall materiality £125,000 (2017: £131,000). £112,500 (2017: £118,000). How we determined it 5% of average losses before tax for the last three years. 5% of average losses before tax for the last three years, capped at 90% of Group materiality. Rationale for benchmark applied by Based on the benchmarks used in the Annual Report, loss before tax is the primary measure the used shareholders in assessing the performance, a generally accepted auditing benchmark. It is considered appropriate to use the average loss over the last three years whilst the Group is in the initial stages of its life cycle. and is Based on the benchmarks used in the Annual Report, loss is the primary before tax measure the by used shareholders in assessing the performance, a generally accepted auditing benchmark. It is considered appropriate to use the average loss over the last three years whilst the Company is in the initial stages of its life cycle. and is For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £100,000 and £112,500. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £6,250 (Group audit) (2017: £6,550) and £5,625 (Company audit) (2017: £5,900) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement Page 21 Independent auditors’ report to the members of Mobile Tornado Group plc of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain opinions and matters as described below. Strategic Report and Directors’ Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended 31 December 2018 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report. Responsibilities for the financial statements and the audit Responsibilities of the Directors for the financial statements As explained more fully in the Statement of Directors’ Responsibilities set out on page 16, the Directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for Page 22 Independent auditors’ report to the members of Mobile Tornado Group plc any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or • certain disclosures of Directors’ remuneration specified by law are not made; or • the Company financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Randal Casson (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Leeds 16 April 2019 Page 23 Consolidated income statement For the year ended 31 December 2018 2018 2017 Note £’000 £’000 Continuing operations Revenue 2 2,974 2,530 Cost of sales (315) (106) Gross profit 2,659 2,424 Operating expenses Administrative expenses (3,547) (4,147) Exchange differences 138 135 Exceptional items 3 (49) (54) Depreciation and amortisation expense (208) (112) Total operating expenses (3,942) (4,179) Group operating loss before exchange differences, exceptional items & depreciation & amortisation expense (888) (1,724) Group operating loss 4 (1,283) (1,755) Finance costs 5 (619) (698) Loss before tax (1,902) (2,453) Income tax credit 6 367 852 Loss for the year (1,535) (1,601) Loss per share (pence) Basic and diluted 7 (0.47) (0.61) Consolidated statement of comprehensive income For the year ended 31 December 2018 2018 2017 £’000 £’000 Loss for the year (1,535) (1,601) Other comprehensive loss Item that will subsequently be reclassified to profit or loss: Exchange differences on translation of foreign operations (28) 41 Total comprehensive loss for the year (1,563) (1,560) Attributable to: Equity holders of the parent (1,563) (1,560) The accompanying accounting policies and notes form an integral part of these financial statements. Page 24 Consolidated statement of financial position As at 31 December 2018 2018 2017 Note £’000 £’000 Assets Non-current assets Property, plant and equipment 8 219 276 Intangible assets 9 88 125 307 401 Current assets Trade and other receivables 10 1,705 1,721 Inventories 11 151 1 Cash and cash equivalents 12 354 732 2,210 2,454 Liabilities Current liabilities Trade and other payables 13 (4,555) (5,085) Borrowings 14 (2,796) (10,545) Net current liabilities (5,141) (13,176) Non-current liabilities Trade and other payables 13 (2,257) (2,241) Borrowings 14 (5,624) – (7,881) (2,241) Net liabilities (12,715) (15,016) Equity attributable to the owners of the parent Share capital 15 6,985 5,427 Share premium 15 14,924 12,672 Reverse acquisition reserve (7,620) (7,620) Merger reserve 10,938 10,938 Foreign currency translation reserve (2,241) (2,213) Accumulated losses (35,701) (34,220) Total equity (12,715) (15,016) The financial statements on pages 24 to 51 were approved by the Board of Directors on 16 April 2019 and were signed on its behalf by: Jeremy Fenn Chairman 16 April 2019 Company Number: 5136300 Page 25 Consolidated statement of changes in equity For the year ended 31 December 2018 Foreign Reverse currency Share Share acquisition Merger translation Accumulated Total capital premium reserve reserve reserve losses equity £’000 £’000 £’000 £’000 £’000 £’000 £’000 Balance at 1 January 2017 4,951 12,012 (7,620) 10,938 (2,254) (32,664) (14,637) Equity settled share-based payments – – – – – 45 45 Issue of share capital 476 660 – – – – 1,136 Transactions with owners 476 660 – – – 45 1,181 Loss for the year – – – – – (1,601) (1,601) Exchange differences on translation of foreign operations – – – – 41 – 41 Total comprehensive loss for the year – – – – 41 (1,601) (1,560) Balance at 31 December 2017 5,427 12,672 (7,620) 10,938 (2,213) (34,220) (15,016) Foreign Reverse currency Share Share acquisition Merger translation Accumulated Total capital premium reserve reserve reserve losses equity £’000 £’000 £’000 £’000 £’000 £’000 £’000 Balance at 1 January 2018 5,427 12,672 (7,620) 10,938 (2,213) (34,220) (15,016) Equity settled share-based payments – – – – – 54 54 Issue of share capital 1,558 2,252 – – – – 3,810 Transactions with owners 1,558 2,252 – – – 54 3,864 Loss for the year – – – – – (1,535) (1,535) Exchange differences on translation of foreign operations – – – – (28) – (28) Total comprehensive loss for the year – – – – (28) (1,535) (1,563) Balance at 31 December 2018 6,985 14,924 (7,620) 10,938 (2,241) (35,701) (12,715) The accompanying accounting policies and notes form an integral part of these financial statements. Page 26 Consolidated statement of cash flows For the year ended 31 December 2018 2018 2017 Note £’000 £’000 Operating activities Cash used in operations 17 (1,849) (1,528) Tax received 493 431 Net cash used in operating activities (1,356) (1,097) Investing activities Purchase of property, plant & equipment (101) (80) Net cash used in investing activities (101) (80) Financing activities Issue of ordinary share capital 1,351 1,190 Share issue costs (81) (54) (Repayment of)/Proceeds from borrowings 14 (200) 620 Net cash inflow from financing activities 1,070 1,756 Effects of exchange rates on cash and cash equivalents 9 (12) Net (decrease)/increase in cash and cash equivalents in the year (378) 567 Cash and cash equivalents at beginning of year 732 165 Cash and cash equivalents at end of year 354 732 The accompanying accounting policies and notes form an integral part of these financial statements. Page 27 Notes to the financial statements For the year ended 31 December 2018 1 Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 1.1 Nature of operations The principal activity of the Group is the provision of instant communication mobile applications which serve the mobile communication industry. The Company is a public limited company which is listed on the Alternative Investment Market and incorporated and domiciled in England within the UK. The address of the registered office is Cardale House, Cardale Court, Beckwith Head Road, Harrogate, HG3 1RY. the market of mobile data services in 1.2 Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), International Financial Reporting Interpretations Committee (IFRS IC) interpretations endorsed by the European Union and those parts of the Companies Act 2006 that remain applicable to companies reporting under IFRS. The financial statements have been prepared on the historical cost basis with the exception of certain items which are measured at fair value as disclosed in the principal accounting policies set out below. These policies have been consistently applied to both years presented unless otherwise stated. The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from these estimates. Going concern In preparing the consolidated financial statements the Directors must satisfy themselves that it is reasonable to adopt the going concern basis. Projections for the Group have been prepared concerning its future financial performance, its cash flow forecasts and its liquidity for a period of at least 12 months from the signing of these financial statements. Within those cash flow forecasts the Group has included a number of significant payments and receipts based on its best estimate but, as with all forecasts, there does exist some uncertainty as to the timing and size of those payments and receipts. In particular the forecasts assume receipt of a significant outstanding customer debt, the ongoing deferral and phased payment of some of the Group’s creditors, and the continuation at the current level of both the recurring revenue and a significant increase in the level of non-recurring revenue including receipts from new services to existing customers in the current quarter. In the event that some or all of these receipts are delayed, deferred or reduced, or payments not deferred, management has considered the actions that it would need to take to conserve cash. These actions would include significant cost savings (principally payroll based) and/or seeking additional funding from its shareholders (for which there is currently no shareholder commitment requested). These conditions, along with the other matters explained in note 1 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern. The financial Page 28 Notes to the financial statements For the year ended 31 December 2018 statements do not include the adjustments that would result if the Group was unable to continue as a going concern. The Directors, while noting the existence of a material uncertainty and having considered the possible management actions as noted above, are of the view that the Group is a going concern and will be able to meet its debts as and when they fall due for a period of at least 12 months from the date of signing these accounts. Significant accounting estimates and judgements The preparation of these financial statements requires management to make estimates and judgements that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue during the reporting period. Actual results could differ from these estimates. The key sources of estimation and judgement are: Contingent consideration – payments are dependent on estimates of future license sales revenues (note 13). Trade and other receivables – recognition of any impairment provisions in respect of amounts recorded as trade and other receivables is dependent on judgements made on the recoverability of such items (note 10). Research and development – distinguishing the research and development phases of the Group’s research and development expenditure and determining whether the recognition requirements for the capitalisation of development costs are met requires judgement. Satisfaction of performance obligations – The Group is required to assess each of its contracts with customers to determine whether performance obligations are satisfied over time or at a point in time in order to determine the appropriate method for recognising revenue. 1.3 Basis of consolidation The Group financial statements consolidate those of the Company and its subsidiary undertakings at 31 December 2018. A subsidiary is an entity controlled by the Group. Control is achieved where the Group has the power over the investee; exposure, or rights, to variable returns from its involvement with the investee; and the ability to use its power over the investee to affect the amount of the investor’s returns. All subsidiaries have a reporting date of 31 December. All transactions and balances between Group companies are eliminated on consolidation including unrealised gains and losses on transactions between Group companies. 1.4 Business combinations Acquisitions of subsidiaries are dealt with using the acquisition method of accounting. The acquisition method of accounting involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities, of the subsidiary at the acquisition date regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated statement of financial position at their fair values, which are also used as the bases for subsequent measurement in accordance with the Group’s accounting policies. Goodwill is stated after separating out identifiable intangible assets. Any difference between the fair value of assets acquired and the consideration paid is treated as goodwill in the consolidated Page 29 Notes to the financial statements For the year ended 31 December 2018 statement of financial position. The results of subsidiaries are included from the date that control commences to the date that control ceases. Business combinations that preceded the Group’s transition to IFRS on 1 July 2006 have not been restated. 1.5 Revenue recognition The Group recognises revenue from contracts with customers based on a five-step model as set out in IFRS 15: Step 1. Identify contract(s) with a customer: A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations and sets out the criteria for every contract that must be met. Step 2. Identify performance obligations in the contract: A performance obligation is a promise in a contract with a customer to transfer a good or service to the customer. Step 3. Determine the transaction price: The transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. Step 4. Allocate the transaction price to the performance obligations in the contract: For a contract that has more than one performance obligation, the Group allocates the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the Group expects to be entitled in exchange for satisfying each performance obligation. Step 5. Recognise revenue when (or as) the Group satisfies a performance obligation. Revenue comprises the fair value of consideration receivable for the sale of licenses, services and goods, excluding inter-company sales and value-added taxes, and represents net invoice value less estimated rebates, returns and settlement discounts. Revenue is recognised to the extent it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably. License fee License fees are recognised when the license is sold and activated by the customer. Service fee Service fees are recognised on a straight line basis over the contractual service period. Hardware sales Revenue from hardware sales is recognised when the goods have been received and accepted by the customer. 1.6 Interest Interest is recognised on an accruals basis using the effective interest method. Page 30 Notes to the financial statements For the year ended 31 December 2018 1.7 Operating expenses Operating expenses are recognised in the income statement upon utilisation of the service or as incurred. 1.8 Exceptional items Exceptional items are non-recurring items which are outside the normal scope of the Group’s ordinary activities such as liabilities and costs arising from a fundamental restructuring of the Group’s operations. Such items are disclosed separately within the financial statements. 1.9 Employee benefits Pension obligations The Group does not operate a pension scheme but makes contributions to the personal schemes of some of its employees. These contributions are charged to the income statement in the period to which the contributions relate. Share-based payments The Group operates equity-settled share-based remuneration plans for its employees. Vesting conditions are non-market based. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using the Black-Scholes pricing model, which takes into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest. 1.10 Foreign currency translation The consolidated financial statements are presented in UK Sterling (GBP £’000). Sterling is also the functional currency of the Company. Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the re-measurement of monetary items at year-end exchange rates are recognised in profit or loss. Non-monetary items measured at historical cost are translated using the exchange rates at the date of the transaction (not retranslated). Foreign operations In the Group’s financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than sterling (the Group’s presentation currency) are translated into sterling upon consolidation. The functional currency of the entities in the Group have remained unchanged during the reporting period. On consolidation, assets and liabilities of foreign operations have been translated into sterling at the closing rate at the reporting date. Income and expenses have been translated into the Group’s presentation currency at the average rate over the reporting Page 31 Notes to the financial statements For the year ended 31 December 2018 period given that these rates do not fluctuate significantly over the year. Exchange differences are charged/credited to other comprehensive income and recognised in the currency translation reserve in equity. On disposal of a foreign operation, the cumulative translation differences recognised in equity are reclassified to profit or loss and recognised as part of the gain or loss on disposal. 1.11 Segmental reporting The Group presents its results in accordance with internal management reporting information to the chief operating decision maker (Board of Directors). The Group has only one operating segment. At 31 December, the Board continue to monitor operating results by category of revenue. 1.12 Taxation Current tax Current tax is provided at amounts expected to be paid (or recovered) using tax rates and laws that have been enacted or substantively enacted at the statement of financial position date. The tax currently payable is based on taxable profit for the year. Taxable loss differs from net loss as reported in income statement because it excludes items of income that are taxable or deductible in other years and it further excludes items that are never tax deductible. Deferred tax The charge for taxation is based on the profits for the year and takes into account taxation deferred because of temporary differences between the treatment of certain items for taxation and for accounting purposes. Temporary differences arise from the inclusion of profits and losses in the accounts in different periods from which they are recognised in tax assessments and primarily arise as a result of the difference between tax allowances on property, plant & equipment and the corresponding depreciation charge. Full provision is made for the tax effects of these differences using tax rates and laws enacted or substantively enacted at the balance sheet date. No provision is made for unremitted earnings of foreign subsidiaries where there is no commitment to remit such earnings. Similarly, no provision is made for temporary differences relating to investments in subsidiaries since realisation of such differences can be controlled and is not probable in the foreseeable future. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. 1.13 Property, plant and equipment Property, plant and equipment is stated at historical cost less depreciation. The Group’s policy is to write off the difference between the cost of all property, plant and equipment and their residual value on a straight line basis over their estimated useful lives as follows: Office equipment 3 years Computer equipment 3 years Leasehold improvement 10 years Page 32 Notes to the financial statements For the year ended 31 December 2018 Reviews are made annually of the estimated remaining lives and residual values of individual productive assets, taking account of commercial and technological obsolescence as well as normal wear and tear, and adjustments are made where appropriate. All individual assets are reviewed for impairment when there are indications that the carrying value may not be recoverable. 1.14 Operating leases Where the Group is a lessee, payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred. 1.15 Inventories Inventories are stated at the lower of historical cost and net realisable amount. Net realisable amount is the estimated selling price in the ordinary course of business less any applicable variable selling costs. Provision is made for obsolete, slow moving and defective inventory where appropriate. 1.16 Intangible assets – research and development Research expenditure, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is charged to income in the year in which it is incurred. Internal development expenditure, whereby research findings are applied to a plan for the production of new or substantially improved products or processes, is charged to income in the year in which it is incurred unless it meets the recognition criteria of IAS 38 ‘Intangible Assets’ which are; ▪ ▪ ▪ ▪ ▪ the development costs can be measured reliably; the project is technically and commercially feasible; the Group intends to and has sufficient resources to complete the project; the Group has the ability to use or sell the resulting technology; and the resulting technology will generate probable future economic benefits. Measurement uncertainties over economic benefits generally mean that such criteria are not met. Where, however, the recognition criteria are met, intangible assets are capitalised and amortised over their useful economic lives from product launch. Intangible assets relating to products in development are subject to impairment testing at each balance sheet date or earlier upon indication of impairment. Any impairment losses are written off immediately to the income statement in operating expenses. 1.17 Equity Equity comprises the following: ▪ ▪ ▪ “Share capital” represents the nominal value of equity shares. “Share premium” represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue. “Reverse acquisition reserve” represents the difference between the required total of the Group’s equity instruments and the reported equity of the legal parent. Page 33 Notes to the financial statements For the year ended 31 December 2018 ▪ ▪ ▪ “Merger reserve” represents the difference between the nominal value of the share capital issued by the Company and their fair value at 7 March 2006, the date of the acquisition of Mobile Tornado International Ltd. “Foreign currency translation reserve” represents the differences arising from translation of investments in overseas subsidiaries into Sterling. “Accumulated losses” represents retained losses. All transactions with owners of the parent are recorded separately within equity. Reverse acquisition and merger reserves were frozen at their previous GAAP values from 1 July 2006, the date of transition to IFRS. The foreign currency translation reserve was reset to zero at this date. 1.18 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash with maturities of three months or less from inception and which are subject to an insignificant risk of changes in value. 1.19 Financial assets Initial recognition and measurement In accordance with IFRS9, ‘Financial Instruments’ the Group has classified its financial assets as ‘Financial assets at amortised cost’. The Group determines the classification of its financial assets at initial recognition. All financial assets are recognised initially at fair value plus, in the case of assets not at fair value through the Statement of Comprehensive Income, transaction costs that are attributable to the acquisition of the financial asset. Subsequent measurement The subsequent measurement of financial assets depends on their classification as described below: Financial assets carried at amortised cost This category applies to trade and other receivables due from customers in the normal course of business. All amounts which are not interest bearing are stated at their recoverable amount, being invoice value less provision for any expected credit losses. These assets are held at amortised cost. The group classifies its financial assets as at amortised cost only if both of the following criteria are met: (i) (ii) the asset is held within a business model with the objective of collecting the contractual cash flows; and the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. Page 34 Notes to the financial statements For the year ended 31 December 2018 Financial assets at amortised cost comprise current trade and other receivables due from customers in the normal course of business and cash and cash equivalents. The Group does not hold any material financial assets at fair value through other comprehensive income or at fair value through the Statement of Comprehensive Income. The Group does not hold any derivatives and does not undertake any hedging activities. Trade receivables are initially recognised at their transaction price. The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money. Other financial assets are recognised initially at fair value plus transaction costs that are directly attributable to the acquisition of the financial asset. Trade and other receivables are measured at amortised cost less provision for expected credit losses. Impairment of financial assets The Group assesses on a forward looking basis the expected credit losses associated with its financial assets measured at amortised cost. The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. For other financial assets at amortised cost, the Group determines whether there has been a significant increase in credit risk since initial recognition. The Group recognises twelve month expected credit losses if there has not been a significant increase in credit risk and lifetime expected credit losses if there has been a significant increase in credit risk. Expected credit losses incorporate forward looking information, take into account the time value of money when there is a significant financing component and are based on days past due; the external credit ratings of its customers; and significant changes in the expected performance and behaviour of the borrower. Financial assets are written off when there is no reasonable expectation of recovery. Where receivables have been written off, the Group continues to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognised in the Statement of Comprehensive Income. Derecognition A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: • • The rights to receive cash flows from the asset have expired, or The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement, and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the assets. Page 35 Notes to the financial statements For the year ended 31 December 2018 1.20 Financial liabilities Initial recognition and measurement All financial liabilities are recognised initially at fair value net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables and previously included loans and other borrowings including directors loans. Subsequent measurement After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method (EIR). Gains and losses are recognised in the Statement of Comprehensive Income when the liabilities are derecognised as well as through the (EIR) amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the Statement of Comprehensive Income. This category generally applies to interest-bearing loans and borrowings. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the Statement of Comprehensive Income. 1.21 Contingent consideration Contingent consideration arising on the acquisition of a business is held as a creditor in the balance sheet until such time as those amounts are paid. Amounts arising on business combinations before 1 July 2006, the date of transition to IFRS, were not restated at this date. 1.22 Standards in issue not yet effective At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective: • • • • • IFRS 16 ‘Leases’ (for more detail see below) IFRS 17 ‘Insurance contracts’ IFRIC 23 Uncertainty over Income Tax Treatments Amendments to IAS 19 Plan Amendment, Curtailment or Settlement Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures Page 36 Notes to the financial statements For the year ended 31 December 2018 • • • Annual Improvements to IFRS Standards 2015-2017 cycle, including IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income taxes and IAS 23 Borrowing Costs Amendments to References to the Conceptual Framework in IFRS Standards Amendment to IFRS 3 Business Combinations, IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of material IFRS 16 ‘Leases’ is a replacement for IAS 17 ‘Leases’ and will be effective for the period ending 31 December 2019 onwards. IFRS 16 required lessees to recognise a lease liability reflecting future lease payments and a right-of-use asset for lease contracts. The impact of this will depend upon the facts and circumstances as at the time of adoption and the transition choices adopted. The impact is expected to be an increase in the assets and liabilities of the Group, in a similar quantum to the operating lease commitments mentioned in note 20. Apart from above, the impact of adoption of new standards and interpretations is immaterial on the Group’s financial statements. 1.23 New standards and amendments The following amendments to existing standards and IFRIC interpretations have been issued, and are effective from 1 January 2018 or earlier, and do not have a material impact on the Group’s financial statements: • • • • • • • IFRS 9; Financial Instruments IFRS 15, Revenue from Contracts with Customers IFRS 17, Insurance Contracts Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions Amendments to IAS 40 Transfers of Investment Property IFRIC 22 Foreign Currency Transactions and Advance Consideration Annual Improvements to IFRSs 2014-2016, including IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investments in Associates. 2 Segmental analysis The Group presents its results in accordance with internal management reporting information to the chief operating decision maker (Board of Directors). At 31 December 2018 the Board continued to monitor operating results by category of revenue within a single operating segment, the provision of instant communication solutions. Under IFRS 8 the Group has only one operating segment. Therefore the results presented in the income statement are the same as those required under IFRS 8, save for the year end entry of IFRS 2 share option charge of £54,000 (year ended 31 December 2017: £45,000). Page 37 Notes to the financial statements For the year ended 31 December 2018 Revenue by category 2018 2017 £’000 £’000 License fees 2,124 1,972 Hardware & software 307 38 Professional services 319 319 Other 224 201 Total 2,974 2,530 Revenue is reported by geographical location of customers. Non-current assets are reported by geographical location of assets. 2018 2018 2017 2017 Non-current Non-current Revenue assets Revenue assets £’000 £’000 £’000 £’000 UK 31 10 33 15 Europe 352 – 437 – North America 1,146 – 1,018 – South America 421 17 367 28 Israel 695 269 274 358 Africa 329 11 401 – Total 2,974 307 2,530 401 Our mobile network operator customer in Canada represents £1,050,000 (2017: £886,000) of the total revenue of the Group. 3 Exceptional costs These comprise: • • Trade receivable provision of £49,000 (2017: £nil) representing an 8% discount to the total debt of one particular customer and granted on the basis of a full and single settlement of the total debt balance as at 31 December 2018. Property costs of £nil (2017: £54,000) arising from our previous joint lessee – Alvarion Technologies Ltd entering receivership. Under the terms of the lease, MT Labs Ltd, became liable for that proportion of the office previously utilised by Alvarion Technologies Ltd. Effective 1 May 2017, our property lease was re-signed on improved terms and removed this onerous expense. Page 38 Notes to the financial statements For the year ended 31 December 2018 4 Group operating loss 2018 2017 £’000 £’000 Group operating loss before taxation is stated after charging: Staff costs (note 18) 2,380 2,809 Depreciation of owned property, plant and equipment (note 8) 171 75 Amortisation of intangible assets (note 9) 37 37 Research and development expenditure 1,161 1,479 Other operating lease rentals 279 344 Net exchange loss/(gain) 138 (135) Auditors’ remuneration During the year the Group obtained the following services from the Group’s auditors as detailed below: 2018 2017 £’000 £’000 Fees payable to the Company's auditors for the audit of the Company's financial statements 37 26 5 Finance costs 2018 2017 £’000 £’000 Finance charge on preference shares (614) (698) Other interest payable (5) – Total finance costs (619) (698) 6 Income tax credit (a) Analysis of credit for the year 2018 2017 £’000 £’000 United Kingdom current tax Adjustment in respect of prior years (17) (431) Current year research & development tax credit claimed (364) (476) Overseas current tax in respect of prior years 14 55 Total credit for the year (367) (852) Page 39 Notes to the financial statements For the year ended 31 December 2018 (b) Factors affecting the tax credit for the year Deferred tax: At 31 December 2018 the Group had accumulated tax losses of £28,857,000 (31 December 2017: £28,857,000) which are available for offset against future trading profits of certain Group operations, subject to agreement with the relevant tax authorities. No deferred tax asset has been recognised in respect of these losses given the level of uncertainty over their recoverability. 2018 2017 £’000 £’000 Loss before tax (1,902) (2,453) At standard rate of corporation tax of 19.00% (2017: 19.25%) (361) (472) Effects of: Expenses not deductible for tax purposes 118 140 Un-utilised tax losses 243 332 Current year research & development tax credit claimed (364) (476) Prior year overseas current tax 14 55 Prior year research & development tax credit claimed (17) (431) Total credit for the year (367) (852) 7 Loss per share Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders of £1,535,000 (2017: £1,601,000) by the weighted average number of ordinary shares in issue during the year of 326,694,121 (2017: 263,398,121). 2017 Basic and diluted Loss Loss Loss Loss per share per share £’000 pence £’000 pence Loss attributable to ordinary shareholders (1,535) (0.47) (1,601) (0.61) Adjusted basic loss per share (1,535) (0.47) (1,601) (0.61) 2018 Basic and diluted The loss attributable to ordinary shareholders and the weighted average number of ordinary shares for the purpose of calculating the diluted earnings per ordinary share are identical to those used for basic earnings per ordinary share. This is because the exercise of share options are anti-dilutive under the terms of IAS 33. Page 40 Notes to the financial statements For the year ended 31 December 2018 8 Property, plant and equipment Office Computer Leasehold equipment equipment improvement Total £’000 £’000 £’000 £’000 Cost At 1 January 2017 82 1,253 130 1,465 Additions – 66 13 79 Exchange adjustments (5) (77) (11) (93) At 31 December 2017 77 1,242 133 1,451 Additions 6 31 65 102 Exchange adjustments 3 47 8 58 At 31 December 2018 86 1,320 206 1,613 Accumulated depreciation At 1 January 2017 50 1,040 81 1,171 Charge for the year 5 63 4 72 Exchange adjustments (2) (59) (7) (68) At 31 December 2017 53 1,044 78 1,175 Charge for the year 7 154 11 172 Exchange adjustments 2 40 5 47 At 31 December 2018 62 1,238 94 1,394 Net book amount at 31 December 2018 24 82 112 219 Net book amount at 31 December 2017 24 198 55 276 9 Intangible assets Software £’000 At 1 January 2018 125 Amortisation for the year (37) At 31 December 2018 88 These comprise third party services and internal staff costs in relation to a quality assurance automation project. 10 Trade and other receivables 2018 2017 £’000 £’000 Trade receivables 1,082 891 Less: provision for impairment of trade receivables (72) (56) Trade receivables – net 1,010 835 Other receivables 429 679 Prepayments and accrued income 266 207 1,705 1,721 Current portion 1,705 1,721 Page 41 Notes to the financial statements For the year ended 31 December 2018 The age of the Group’s year end overdue receivables is as follows: 2018 2017 £’000 £’000 Impaired Three to six months – – Over six months 72 56 72 56 Not impaired Less than three months 182 96 Three to six months 87 – Over six months 513 478 782 574 Of the overdue receivables, £638,000 (2017: £480,000) relates to one particular customer against which a provision of £49,000 (2017: £nil) has been made and which reflects a repayment plan agreed since the year end. The Directors have maintained an open dialogue with this customer throughout the year and since the year end as to their financial position. In parallel, an assessment of this customer’s ability to pay has been made by reference to its anticipated capital funding transaction, its current and projected operating cash flows as well as the level of cash payments received during the year, post year-end from the customer and, on the basis of this, no further provision has been made. The carrying amounts of the Group’s receivables are denominated in US dollar, Canadian dollar and Euros. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security. Movement on the Group’s provision for impairment of receivables is as follows: 2018 2017 £’000 £’000 At 1 January 56 330 Provision for receivables impairment 72 56 Receivables written off during the year as uncollectable (56) (330) 72 56 11 Inventories 2018 2017 £’000 £’000 Hardware 151 1 The cost of inventories recognised as an expense and included within cost of sales amounted to £200,000 (2017: £nil). Inventories put to internal use during the year and therefore transferred to property, plant and equipment amounted to £nil (2017: £nil). Page 42 Notes to the financial statements For the year ended 31 December 2018 12 Cash and cash equivalents 2018 2017 £’000 £’000 Cash at bank and in hand: Sterling 54 515 US Dollar 53 17 Canadian dollar 96 57 Euro 11 6 New israel shekel 140 137 354 732 13 Trade and other payables 2018 2017 £’000 £’000 Trade payables 787 876 Accruals 542 492 Social security and other taxes 91 91 Other payables 4 415 Deferred income 2,426 2,384 Contingent consideration 2,962 3,068 6,812 7,326 Less non-current portion: contingent consideration (2,257) (2,241) Current portion 4,555 5,085 The contingent consideration arose on the purchase of intellectual property from Tersync Limited in 2001 and represents a royalty payable on future sales of Push to Talk related products by Mobile Tornado, payable in part as consideration for the acquisition of the rights to the technology underlying such product. The royalty is payable quarterly on any relevant sales (on a cash receipts basis) as follows: (i) 50% of the first US$200,000 relevant sales. (ii) 15% of any additional relevant sales, subject to any related cumulative royalty payments being capped at a maximum of US$5.3 million. Direct reseller and other third party costs may be deducted in arriving at these royalty payments, subject to such costs not exceeding 10% of the relevant sales. The deferred income balance includes an amount of £2,135,000 (2017: £2,110,000) received from Intechnology plc in respect of 12 month licenses that had not been brought into use at the balance sheet date. The Group will recognise related income from the date of activation of each license, or the expiration of its obligations if sooner. 14 Borrowings, other financial liabilities and other financial assets 2018 2017 £’000 £’000 Preference shares 6,330 8,255 Loans from related party undertakings 2,090 2,290 Total borrowings 8,420 10,545 Page 43 Notes to the financial statements For the year ended 31 December 2018 Maturity analysis 2018 2017 £’000 £’000 In one year or less 2,796 10,545 Between two and five years 5,624 – Total 8,420 10,545 Intechnology plc provided the Group with a £300,000 loan facility during the year which has been fully drawn down subsequent to the year end (note 21). Intechnology plc has agreed not to demand repayment of all amounts due for payment in one year or less, for a period of at least 12 months from the date of signing of the financial statements. The Group do not have any derivative financial liabilities at 31 December 2018 or 31 December 2017. Financial risks The main financial risks faced by the Group include interest rate risk, liquidity risk, credit risk and foreign currency risk. The Board reviews and agrees policies for managing each of these risks. The Group’s financial instruments comprise cash, liquid resources and various items, such as receivables and payables that arise directly from its operations. It is, and has been throughout the year under review, the Group’s policy that no trading in financial instruments shall be undertaken. The year end position reflects these policies and there have been no changes in policies or risks since the year end. Financial asset returns are maximised by ongoing review of the Group’s cash flow requirements. Any funds surplus to short-term working capital requirements are placed on interest bearing deposit. Interest rate risk profile of financial assets The interest rate risk profile of the financial assets of the Group comprise cash of £354,000 (2017: £732,000) as follows: Floating rate 2018 2017 £’000 £’000 Currency Sterling 54 515 US dollar 53 17 Canadian dollar 96 57 Euro 11 6 Israel shekel 140 137 Total 354 732 The Sterling, US dollar and Euro financial assets relate to cash at bank and bear interest based on GBP LIBOR, US dollar LIBOR and EURIBOR respectively. There are no fixed rate financial assets (2017: £nil). Page 44 Notes to the financial statements For the year ended 31 December 2018 Interest rate risk profile of financial liabilities The interest rate profile of the financial liabilities of the Group is as follows: 2018 2017 £’000 £’000 Loans from related party undertakings 2,090 2,290 Total 2,090 2,290 Floating Further details of which can be found in note 21. Currency risk The table below shows the extent to which the Company held monetary assets and liabilities in currencies other than their local currency. 2018 2017 £’000 £’000 Functional currency of operation: Sterling US Dollar (net liabilities) (1,889) (2,324) Euro (net liabilities) (2,106) (2,049) Canadian Dollar (net liabilities) (54) (57) Total (4,049) (4,430) Sensitivity analysis Financial assets and liabilities are sensitive to movements in interest rates and foreign exchange rates. A 10% movement in both sterling to US dollar and Euro exchange rates would result in a charge or credit to profit and equity of £368,000 (2017: £583,000). A 1% movement in interest rates would result in a charge or credit to profit and equity of £7,000 (2017: £26,000). Capital management Managed capital is cash to meet working capital needs. The Group’s capital management objectives are: ▪ To ensure the Group’s ability to continue as a going concern; and ▪ To provide an adequate return to shareholders. These objectives are maintained by pricing products and services commensurately with the level of risk. The Group’s goal in capital management is to maintain adequate cash balances with the minimum necessary borrowing. There are no externally imposed capital requirements during the year covered by the financial statements. Page 45 Notes to the financial statements For the year ended 31 December 2018 Summary of the Group’s financial assets and liabilities 2018 2017 £’000 £’000 Current assets – financial assets at amortised cost Trade and other receivables 1,439 1,514 Cash and cash equivalents 354 732 1,793 2,246 Current liabilities – held at amortised cost Trade and other payables (2,038) (2,610) Preference shares (706) (8,255) Loans (2,090) (2,290) (4,834) (13,155) Non-current liabilities – held at amortised cost Trade and other payables (2,257) (2,241) Preference shares (5,624) – (7,881) (2,241) Net financial assets and liabilities (10,922) (13,150) The Directors consider that the fair value of financial assets and liabilities approximates to the carrying value for both 2018 and 2017. 15 Share capital and share premium Number of issued and fully paid Share Share shares capital premium Total ’000 £’000 £’000 £’000 At 1 January 2018 271,353 5,427 12,672 18,099 Issue of shares 77,887 1,558 2,252 3,810 As at 31 December 2018 349,240 6,985 14,924 21,909 The total authorised number of ordinary shares is 475 million (2017: 475 million) with a par value of 2p per share (2017: 2p per share). Non-voting preference shares – included in financial liabilities Number of Nominal shares Value ’000 £’000 As at 31 December 2017 and 2018 71,277 5,702 All preference shares are non-voting, non-convertible cumulative redeemable preference shares. They are currently redeemable at par value on 31 December 2020, or, at the Company’s discretion, at any earlier date and will accrue interest at a fixed rate of 10 per cent. per annum. Unpaid dividends accrue interest at 3% above Bank of England base rate until settled. Page 46 Notes to the financial statements For the year ended 31 December 2018 16 Share-based payments The Group has a share option scheme for certain employees and Directors. Options are exercisable at a price equal to the average market price of the Company’s shares on the date of grant. The options are settled in equity. The number of shares subject to options, the periods in which they were granted and the dates on which they may be exercised are as follows: Number of shares Exercise Earliest 2018 2017 price exercise Vesting Expiry Name of scheme ’000 ’000 pence date condition date Israel scheme 1,082 1,169 2.0 02/02/09 – 31/12/19 Israel scheme 800 800 5.0 02/02/09 100,000 subscribers 31/12/19 UK scheme – 200 5.0 03/12/11 100,000 subscribers 03/12/18 UK scheme 100 100 5.0 07/07/13 100,000 subscribers 07/07/20 Israel scheme 400 400 7.5 03/01/15 – 31/12/19 UK scheme 3,300 3,300 7.5 03/01/15 – 03/01/22 UK scheme 200 200 6.0 18/06/18 – 18/06/25 Israel scheme 1,500 1,500 6.0 07/09/18 – 31/12/23 Israel scheme 2,500 2,500 2.0 16/05/19 – 31/12/26 Israel scheme 3,500 4,250 4.0 04/11/19 – 31/12/26 Israel scheme 5,900 5,950 6.5 15/06/20 Group reports positive annual EBITDA 15/06/27 UK scheme 3,200 3,200 6.5 15/06/20 Group reports positive annual EBITDA 15/06/27 Total 22,482 23,569 Options were valued using the Black-Scholes option-pricing model. The expected volatility is based on historical volatility over the last year. The expected life is assumed as being equal to the earliest exercise date. The risk-free rate of return is taken as the Bank of England base-rate at the date of grant. Page 47 Notes to the financial statements For the year ended 31 December 2018 A reconciliation of option movements over the year to 31 December 2018 is shown below: 2018 Weighted Weighted average average exercise exercise Number price Number price ’000 pence ’000 pence 2017 Outstanding at 1 January 23,569 5.4 15,869 4.8 Granted – – 9,350 6.5 Forfeited (800) 4.2 (1,650) 6.0 Exercised (87) 2.0 – – Expired (200) – – – Outstanding at 31 December 22,482 5.5 23,569 5.4 Exercisable at 31 December 5,682 6.5 5,969 6.0 The closing mid-market share price on 12 April 2019 was 5.1 pence. The weighted average remaining contractual life of the share options outstanding at 31 December 2018 was 6.5 years at exercise prices ranging from 2.0 pence to 7.5 pence. Those options exercisable at 31 December 2018 are at exercise prices of 2.0 pence, 5.0 pence and 7.5 pence. The total charge for the year relating to employee share-based payment plans was £54,000 (2017: £45,000), all of which related to equity-settled share-based payment transactions. 17 Cash used in operations 2018 2017 £’000 £’000 Loss before taxation (1,902) (2,453) Adjustments for: Depreciation and amortisation 208 112 Share-based payment charge 54 45 Interest expense 619 698 Changes in working capital: Increase in inventories (149) (1) Increase in trade and other receivables (200) (1) (Decrease)/Increase in trade and other payables (479) 72 Net cash used in operations (1,849) (1,528) Page 48 Notes to the financial statements For the year ended 31 December 2018 Changes in liabilities arising from financing activities For the year ended 31 December 2018 Non-cash changes Cash Finance conversion Exchange 2017 flows charge to equity differences 2018 £’000 £’000 £’000 £’000 £’000 £’000 Preference shares 8,255 – 614 (2,539) – 6,330 Loans from related party undertakings 2,290 (200) – – – 2,090 Total liabilities from financing activities 10,545 (200) 614 (2,539) – 8,420 Cash and cash equivalents (732) 369 – – 9 (354) Net debt 9,813 169 614 (2,539) 9 8,066 18 Employee information The average monthly number of persons (including Executive Directors) employed by the Group during the year was: 2018 2017 Number Number Sales 4 3 Product development & operations 35 39 Finance & administration 6 6 Total 45 48 Included in the table above are 23 persons that are contractors (2017: 23). These are included as employees on the basis of their providing services to the company on a material time basis over the year. Staff costs for the persons above were: 2018 2017 £’000 £’000 Wages and salaries 2,055 2,465 Social security costs 91 93 Other pension costs 76 90 Share-based payment charge 54 45 Other benefits 104 116 Total 2,380 2,809 Directors’ costs included within the above are as separately detailed in the Directors’ report under the heading Directors’ emoluments. 19 Capital commitments The Group had no capital commitments at 31 December 2018 (2017: £nil). Page 49 Notes to the financial statements For the year ended 31 December 2018 20 Operating leases Details of operating lease arrangements for the Group are as follows: 2018 2017 £’000 £’000 Lease payments under operating leases charged to operating costs in the year 279 344 At the balance sheet date the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases as follows: 2018 2017 £’000 £’000 Within one year 216 223 One to five years 447 754 Total 663 977 Operating lease payments represent rentals payable by the Group for vehicles and certain properties. Upon adoption of IFRS16, the net present value of future minimum lease payments will be included in the balance sheet as both a right of use asset and a lease liability. The amount of this balance sheet gross up will be c£0.6million. 21 Related party transactions For the purposes of IAS 24, key management of the Group are the same as those of the Board of Directors. There were no share options issued to key management personnel during the year. Key management personnel remuneration includes the following expenses: 2018 2017 £’000 £’000 Salaries including bonuses 114 118 Other benefits 40 40 Total remuneration 154 158 Sums paid to third parties for services 203 194 Total short-term employee benefits 357 352 Directors’ remuneration and the remuneration of each Director is presented in the Directors’ Report on page 9. Peter Wilkinson is a shareholder and Director of Intechnology plc. Mobile Tornado Group plc has bought goods and services totalling £157,000 (year ended 31 December 2017; £174,000) from Intechnology plc in the year to 31 December 2018. As at 31 December 2018, Mobile Tornado Group plc owed Intechnology plc £850,000 (31 December 2017; £693,000). Peter Wilkinson has provided loan finance of £nil to Mobile Tornado Group plc in the year ended 31 December 2018 (year ended 31 December 2017; £100,000). As at 31 December 2018, Mobile Tornado Group plc owed Peter Wilkinson £nil (31 December 2017; £100,000). Page 50 Notes to the financial statements For the year ended 31 December 2018 Intechnology plc has provided loan finance of £nil to Mobile Tornado Group plc in the year ended 31 December 2018 (year ended 31 December 2017; £420,000). As at 31 December 2018, Mobile Tornado Group plc owed Intechnology plc £2,090,000 (31 December 2017; £2,090,000). Intechnology plc has provided preference share finance of £nil to Mobile Tornado Group plc in the year ended 31 December 2018 (year ended 31 December 2017; £nil). During the year, the Company issued 50,800,000 new ordinary shares to Intechnology plc at 5p per share as capitalisation of £2.54m preference share indebtedness owed by the Company to Intechnology plc (year ended 31 December 2017; £nil). As at 31 December 2018, Mobile Tornado Group plc had total preference share indebtedness to Intechnology plc of £6,330,000 (31 December 2017; £8,255,000). On 26 September 2018, the Company entered into a revolving loan facility agreement with Intechnology Plc. Pursuant to the facility agreement, which is for a period of two years from date entered into, Intechnology has made available to the Company a revolving loan facility of up to a maximum principal amount of £300,000. Any new amounts drawn down by the Company pursuant to the facility agreement will be subject to a 2% facility fee and will bear interest at a rate of 10% per annum. The facility agreement allows for monies to be drawn down, repaid and redrawn again in any manner and any number of times by the Company until the agreement expires, however, any monies repaid and subsequently redrawn will not incur a further facility fee. At the expiration date of the facility agreement, all monies shall be repayable by the Company to Intechnology together with any facility fee and accrued interest thereon. As at 31 December 2018, Mobile Tornado Group plc owed Intechnology plc £nil in respect of this agreement. Payments to a third party, Mainstream Capital Partners LLP, are made in respect of the services provided by Jeremy Fenn, Executive Chairman. As at 31 December 2018, Mobile Tornado Group Plc owed £nil (31 December 2017: £4,000) to Jeremy Fenn. Jeremy Fenn has provided loan finance of £nil to Mobile Tornado Group plc in the year ended 31 December 2018 (year ended 31 December 2017; £100,000). As at 31 December 2018, Mobile Tornado Group plc owed Jeremy Fenn £nil (31 December 2017; £100,000). The Group is controlled by Intechnology plc (incorporated in the UK), which owns 50.8% of the Company’s ordinary shares. The Group’s ultimate parent and controlling party is Peter Wilkinson. 22 Investments Details of the principal investments at 31 December 2018 in which the Company holds more than 20% of the nominal value of ordinary share capital are as follows: Country of Group Company incorporation Nature of proportion proportion or registration business held held M.T. Labs Limited Israel Sale of instant 100% 100% communication services With registered address: 13 Amal street, Afek Industrial Park, Rosh Ha’ayin 4809249, Israel Page 51 Company balance sheet As at 31 December 2018 2018 2017 Note £’000 £’000 Fixed assets Intangible assets 4 6,275 6,888 Tangible assets 5 47 42 6,322 6,930 Current assets Debtors 7 2,288 2,020 Stock 22 – Cash at bank and in hand 214 595 2,524 2,615 Creditors – amounts falling due within one year 8 (6,960) (15,164) Net current liabilities (4,436) (12,549) Total assets less current liabilities 1,886 (5,619) Creditors – amounts falling due after more than one year 8 (7,959) (2,241) Net liabilities (6,073) (7,860) Capital and reserves Called up share capital 9 6,985 5,427 Share premium account 14,924 12,672 Merger reserve 10,938 10,938 Share option reserve 225 171 Accumulated losses (39,145) (37,068) Total shareholders’ deficit (6,073) (7,860) The Company’s loss for the financial year was £2,077,000 (2017: £2,042,000 loss). The financial statements on pages 52 to 62 were approved by the Board of Directors on 16 April 2019 and were signed on its behalf by: Jeremy Fenn Chairman 16 April 2019 Company Number: 5136300 The accompanying notes form an integral part of these financial statements. Page 52 Company statement of changes in equity for the year ended 31 December 2018 Called up Share Share Accumu- Share- share premium Merger option lated holders’ capital account reserve reserve losses deficit £’000 £’000 £’000 £’000 £’000 £’000 Balance at 1 January 2017 4,951 12,012 10,938 126 (35,026) (6,999) Equity settled share-based payments – – – 45 – 45 Issue of share capital 476 660 – – – 1,136 Loss for the financial year – – – – (2,042) (2,042) Balance at 31 December 2017 5,427 12,672 10,938 171 (37,068) (7,860) Called up Share Share Accumu- Share- share premium Merger option lated holders’ capital account reserve reserve losses deficit £’000 £’000 £’000 £’000 £’000 £’000 Balance at 1 January 2018 5,427 12,672 10,938 171 (37,068) (7,860) Equity settled share-based payments – – – 54 – 54 Issue of share capital 1,558 2,252 – – – 3,810 Loss for the financial year – – – – (2,077) (2,077) Balance at 31 December 2018 6,985 14,924 10,938 225 (39,145) (6,073) Page 53 Notes to the Company financial statements For the year ended 31 December 2018 1 General information The principal activity of the Company is the provision of instant communication mobile applications which serve the market of mobile data services in the mobile communication industry. The Company is a public limited company which is listed on the Alternative Investment Market and incorporated and domiciled in England within the UK. The address of the registered office is Cardale House, Cardale Court, Beckwith Head Road, Harrogate, HG3 1RY. 2 Statement of compliance The individual financial statements of Mobile Tornado Group plc have been prepared in compliance with United Kingdom Accounting Standards, including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland” (“FRS 102”) and the Companies Act 2006. 3 Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 3.1 Basis of preparation The financial statements are presented in sterling, rounded to the nearest thousand. They are prepared on a going concern basis and under the historical cost convention. The preparation of financial statements in conformity with FRS 102 requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.3. The Company has taken advantage of the following exemptions in its individual financial statements: • From preparing a statement of cashflows; • Disclosure of related party transactions with and between wholly-owned subsidiaries; • Disclosures relating to financial instruments. 3.2 Going concern The Financial Statements are prepared on a going concern basis. When determining the adoption of this approach the Directors have considered a wide range of information relating to present and future conditions, including the current state of the Balance Sheet, future projections, cash flow forecasts, access to funding, ability to successfully secure additional investment, available mitigating actions and the medium-term strategy of the business. As noted earlier, 2018 represented a significant year of delivery for the Group, both in financial performance and technical development and as we look ahead into 2019, the Company expects to continue this upward trajectory across its three key geographical markets. In common with many businesses at this stage of development, the Company is dependent on its ability to meet its cash flow forecasts. Within those forecasts the Company has included Page 54 Notes to the Company financial statements For the year ended 31 December 2018 a number of significant payments and receipts based on its best estimate but, as with all forecasts, there does exist some uncertainty as to the timing and size of those payments and receipts. In particular the forecasts assume receipt of a significant outstanding customer debt, the ongoing deferral and phased payment of some of the Company’s creditors, and the continuation at the current level of both the recurring revenue and a significant increase in the level of non-recurring revenues, including receipts from new services to existing customers in the current quarter. In the event that some or all of these receipts are delayed, deferred or reduced, or payments not deferred, management has considered the actions that it would need to take to conserve cash. These actions would include significant cost savings (principally payroll based) and/or seeking additional funding from its shareholders (for which there is currently no shareholder commitment requested). These conditions, along with the other matters explained in note 1 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the Company’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern. The Directors, while noting the existence of a material uncertainty and having considered the possible management actions as noted above, are of the view that the Company is a going concern and will be able to meet its debts as and when they fall due for a period of at least 12 months from the date of signing these accounts. 3.3 Critical accounting estimates and judgements The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below: Contingent consideration – payments are dependent on estimates of future license sales revenues. Trade and other receivables – recognition of any impairment provisions in respect of amounts recorded as trade and other receivables is dependent on judgements made on the recoverability of such items. Research and development – distinguishing the research and development phases of the Group’s research and development expenditure and determining whether the recognition requirements for the capitalisation of development costs are met requires judgement. Valuation of goodwill – the carrying value of goodwill is reviewed for impairment at least annually. In determining whether goodwill is impaired an estimation of the fair value and/or the value in use of the cash generating unit (CGU) to which the goodwill has been allocated is required. This calculation of value in use requires estimates to be made relating to the timing and amount of future cash flows expected from the CGU, and suitable discount rates based on the Company’s weighted average cost of capital adjusted to reflect the specific economic environment of the relevant CGU. The calculation of fair value requires estimates of the market value of the Company by reference to existing market data for the Company or for similar entities. 3.4 Share options The Company grants share options to employees and Directors on a discretionary basis. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the Page 55 Notes to the Company financial statements For the year ended 31 December 2018 options granted is measured using the Black-Scholes pricing model, which takes into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest. 3.5 Foreign currencies Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to sterling at the exchange rates ruling at the balance sheet date. All exchange differences are taken to the profit and loss account. 3.6 Tangible fixed assets The cost of tangible fixed assets is their purchase cost. Depreciation is calculated so as to write-off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows: Computer & other equipment 3 years The Directors review tangible fixed assets for impairment if events or changes in circumstances indicate that the carrying value of may not be recoverable. 3.7 Goodwill The Directors continue to assess that the goodwill has a finite life of 20 years and therefore will continue to amortise the goodwill over the remaining 10 years of this period. After initial recognition, goodwill is measured at cost less amortisation and accumulated impairment losses. At each year end date goodwill is reviewed for impairment using a discounted cash flow method applied to business forecasts. If this review demonstrates that impairment has occurred, this is expensed to the Company’s income statement. Goodwill is allocated to cash generating units for the purpose of impairment testing. 3.8 Intangible assets Research expenditure, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is charged to income in the year in which it is incurred. Internal development expenditure, whereby research findings are applied to a plan for the production of new or substantially improved products or processes, is charged to income in the year in which it is incurred unless it meets the recognition criteria of FRS102 Section 18 ‘Intangible Assets which, other than for goodwill’, are; ▪ ▪ ▪ ▪ The technical feasibility of completing the intangible asset so that it will be available for use or sale. Its intention to complete the intangible asset and use or sell it. Its ability to use or sell the intangible asset How the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset. Page 56 Notes to the Company financial statements For the year ended 31 December 2018 ▪ ▪ The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset. Its ability to measure reliably the expenditure attributable to the intangible asset during its development. Measurement uncertainties over economic benefits generally mean that such criteria are not met. Where, however, the recognition criteria are met, intangible assets are capitalised and amortised over their useful economic lives from product launch. Intangible assets relating to products in development are subject to impairment testing at each balance sheet date or earlier upon indication of impairment. Any impairment losses are written off immediately to income. 3.9 Investments Investments are stated at cost less provision for any permanent impairment in value. The carrying value of investments is reviewed annually to determine the need for any provision for impairment. The investment has been fully impaired in previous periods. 3.10 Financial liabilities Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities. Where the contractual obligation of the financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are presented as such in the balance sheet. Finance costs and gains and losses relating to financial liabilities are included in the profit and loss account. Finance costs are calculated so as to produce a constant rate of return on the outstanding liability. Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument. Dividend and distributions relating to equity instruments are debited direct to equity. Page 57 Notes to the Company financial statements For the year ended 31 December 2018 4 Intangible assets Goodwill Software Total £’000 £’000 £’000 Cost At 1 January 2018 12,758 187 12,945 Additions – – – At 31 December 2018 12,758 187 12,945 Accumulated amortisation At 1 January 2018 5,995 62 6,057 Charge for the year 576 37 613 At 31 December 2018 6,571 99 6,670 Net book amount at 31 December 2018 6,187 88 6,275 Net book amount at 31 December 2017 6,763 125 6,888 A 10% reduction in the revenue growth assumption will not result in an impairment of goodwill. 5 Tangible assets Computer equipment Vehicles Total £’000 £’000 £’000 Cost At 1 January 2018 410 24 434 Additions 26 – 26 At 31 December 2018 436 24 460 Accumulated depreciation At 1 January 2018 368 24 392 Charge for the year 21 – 21 At 31 December 2018 389 24 413 Net book amount at 31 December 2018 47 – 47 Net book amount at 31 December 2017 42 – 42 Page 58 Notes to the Company financial statements For the year ended 31 December 2018 6 Fixed asset investments Details of the investments at 31 December 2018 in which the Company holds more than 20% of the nominal value of ordinary share capital are as follows: Country of Group Company incorporation Nature of proportion proportion or registration business held held M.T. Labs Limited Israel Sale of instant 100% 100% communication services With registered address:13 Amal street, Afek Industrial Park, Rosh Ha’ayin 4809249, Israel On 31 October 2009 the trade and net assets of Mobile Tornado International Limited were transferred to Mobile Tornado Group plc at book value, following which the net investment held by Mobile Tornado Group plc in Mobile Tornado International Limited was £12,758,000. Consequently, the value of the investment held in Mobile Tornado International Limited is not supported by any net assets or future cash flows. As the transfer did not impair the future profitability of the Company, £12,758,000 was transferred from investments to goodwill in the Company balance sheet. Mobile Tornado International Limited was subsequently dissolved. 7 Debtors 2018 2017 £’000 £’000 Trade receivables 1,003 835 Prepayments and accrued income 157 180 Other debtors 384 482 Amounts owed by Group undertakings 744 523 2,288 2,020 Trade receivables includes £nil (2017: £nil) falling due after more than one year. Trade receivables are stated after provisions for impairment of £72,000 (2017: £56,000). Amounts due from Group undertakings are unsecured, interest free and repayable on demand. Page 59 Notes to the Company financial statements For the year ended 31 December 2018 8 Creditors 2018 2017 £’000 £’000 Trade creditors 740 649 Accruals 268 249 Other taxation and social security 21 16 10% cumulative preference shares 6,408 8,334 Other creditors 4 415 Deferred income 2,426 2,384 Loans owed to related party undertakings 2,090 2,290 Contingent consideration 2,962 3,068 14,919 17,405 Less non-current portion: Deferred consideration (2,257) (2,241) 10% cumulative preference shares (5,702) – Amounts due within 1 year 6,960 15,164 The contingent consideration arose on the purchase of intellectual property from Tersync Limited in 2001 and represents a royalty payable on future sales of Push to Talk related products by Mobile Tornado, payable in part as consideration for the acquisition of the rights to the technology underlying such product. The royalty is payable quarterly on any relevant sales (on a cash receipts basis) as follows: (i) 50% of the first US$200,000 relevant sales. (ii) 15% of any additional relevant sales, subject to any related cumulative royalty payments being capped at a maximum of US$5.3 million. Direct reseller and other third party costs may be deducted in arriving at these royalty payments, subject to such costs not exceeding 10% of the relevant sales. The deferred income balance includes an amount of £2,135,000 (2017: £2,110,000) received from Intechnology plc in respect of 12 month licenses that had not been brought into use at the balance sheet date. The Group will recognise related income from the date of activation of each licence, or the expiration of its obligations if sooner. 9 Called up share capital 2018 2017 £’000 £’000 Allotted, called up and fully paid 349,240,236 (2017: 271,353,189) Ordinary shares of 2p each 6,985 5,427 Total 6,985 5,427 There is a single class of ordinary shares. There are no restrictions on the distributions. Page 60 Notes to the Company financial statements For the year ended 31 December 2018 Non-voting preference shares – classified as liability Number of Nominal shares Value ’000 £’000 As at 31 December 2017 and 2018 71,277 5,702 All preference shares are non-voting, non-convertible cumulative redeemable preference shares. They are redeemable at par value on 31 December 2018, or, at the Company’s discretion, at any earlier date and will accrue interest at a fixed rate of 10 per cent. per annum. Unpaid dividends accrue interest at 3% above Bank of England base rate until settled. 10 Capital and other commitments At the balance sheet date the Company had outstanding commitments for future minimum lease payments under non-cancellable operating leases as follows: 2018 2017 £’000 £’000 One to five years 5 11 Total 5 11 Operating lease payments represent rentals payable by the Company for certain properties. 11 Related party transactions The Company has taken advantage of the exemption available under FRS 102 ‘Related Party Disclosures’ from disclosing transactions between the Company and its wholly owned subsidiary undertaking as these have been eliminated on consolidation of these financial statements. Peter Wilkinson is a shareholder and Director of Intechnology plc. Mobile Tornado Group plc has bought goods and services totalling £157,000 (year ended 31 December 2017; £174,000) from Intechnology plc in the year to 31 December 2018. As at 31 December 2018, Mobile Tornado Group plc owed Intechnology plc £850,000 (31 December 2017; £693,000). Peter Wilkinson has provided loan finance of £nil to Mobile Tornado Group plc in the year ended 31 December 2018 (year ended 31 December 2017; £100,000). As at 31 December 2018, Mobile Tornado Group plc owed Peter Wilkinson £nil (31 December 2017; £100,000). Intechnology plc has provided loan finance of £nil to Mobile Tornado Group plc in the year ended 31 December 2018 (year ended 31 December 2017; £420,000). As at 31 December 2018, Mobile Tornado Group plc owed Intechnology plc £2,090,000 (31 December 2017; £2,090,000). Intechnology plc has provided preference share finance of £nil to Mobile Tornado Group plc in the year ended 31 December 2018 (year ended 31 December 2017; £nil). During the year, the Company issued 50,800,000 new ordinary shares to Intechnology plc at 5p per share as capitalisation of £2.54m preference share indebtedness owed by the Company to Intechnology plc (year ended 31 December 2017; £nil). As at 31 December 2018, Mobile Tornado Group plc had total preference share indebtedness to Intechnology plc of £6,330,000 (31 December 2017; £8,255,000). On 26 September 2018, the Company entered into a revolving loan facility agreement with Intechnology Plc. Pursuant to the facility agreement, which is for a period of two years from Page 61 Notes to the Company financial statements For the year ended 31 December 2018 date entered into, Intechnology has made available to the Company a revolving loan facility of up to a maximum principal amount of £300,000. Any new amounts drawn down by the Company pursuant to the facility agreement will be subject to a 2% facility fee and will bear interest at a rate of 10% per annum. The facility agreement allows for monies to be drawn down, repaid and redrawn again in any manner and any number of times by the Company until the agreement expires, however, any monies repaid and subsequently redrawn will not incur a further facility fee. At the expiration date of the facility agreement, all monies shall be repayable by the Company to Intechnology together with any facility fee and accrued interest thereon. As at 31 December 2018, Mobile Tornado Group plc owed Intechnology plc £nil in respect of this agreement. Payments to a third party, Mainstream Capital Partners LLP, are made in respect of the services provided by Jeremy Fenn, Executive Chairman. As at 31 December 2018, Mobile Tornado Group Plc owed £nil (31 December 2017: £4,000) to Jeremy Fenn. Jeremy Fenn has provided loan finance of £nil to Mobile Tornado Group plc in the year ended 31 December 2018 (year ended 31 December 2017; £100,000). As at 31 December 2018, Mobile Tornado Group plc owed Jeremy Fenn £nil (31 December 2017; £100,000). The Group is controlled by Intechnology plc (incorporated in the UK), which owns 50.8% of the Company’s ordinary shares. The Group’s ultimate parent and controlling party is Peter Wilkinson. 12 Loss for the financial year The Company has taken advantage of Section 408 of the Companies Act 2006 and has not included its own profit and loss account in these financial statements. The Parent Company’s loss for the year ended 31 December 2018 was £2,077,000 (year ended 31 December 2017: £2,042,000 loss). Page 62 Notice of Annual General Meeting NOTICE IS HEREBY GIVEN that an Annual General Meeting of the Company will be held at Cardale House, Cardale Court, Beckwith Head Road, Harrogate, HG3 1RY on 17 June 2019 at 09.00 a.m. to transact the following business. Resolutions 1 to 5 (inclusive) will be proposed as ordinary resolutions and resolution 6 will be proposed as special resolutions. ORDINARY RESOLUTIONS 1. to receive and adopt the report of the Directors and the audited accounts of the Company and its subsidiaries for the financial year ended 31 December 2018 together with the report of the auditors thereon. 2. to re-appoint PricewaterhouseCoopers LLP as auditors of the Company to hold office from the conclusion of this meeting until the conclusion of the next annual general meeting of the Company at which accounts are laid, and to authorise the Directors to fix their remuneration. 3. to re-appoint Jeremy Fenn, who retires in accordance with Article 38 of the Company’s articles of association and who, being eligible, offers himself for re-appointment as a Director. 4. to re-appoint Avi Tooba who retires in accordance with Article 38 of the Company’s articles of association and who, being eligible, offers himself for re-appointment as a Director. 5. THAT pursuant to section 551 of the Companies Act 2006 (the “Act”) the Directors be generally and unconditionally authorised to exercise all powers of the Company to allot shares and grant rights to subscribe for or to convert any security into shares up to an aggregate nominal amount of £4,651,879.94 comprising of: a. an aggregate nominal amount of £2,325,939.97 (being approximately 33 per cent of the Company’s issued share capital at the date of this notice) in the form of equity securities (as defined in section 560 of the Act) in connection with an offer or issue by way of rights, open for acceptance for a period fixed by the directors, to holders of ordinary shares (other than the Company) on the register on any record date fixed by the directors in proportion (as nearly as may be) to the respective number of ordinary shares deemed to be held by them, subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to fractional entitlements, legal or practical problems arising in any overseas territory, the requirements of any regulatory body or stock exchange or any other matter whatsoever; and b. an aggregate nominal amount of £2,325,939.97 (being approximately 33 per cent of the Company’s issued share capital) (whether in connection with the same offer or issue as under (a) above or otherwise), SPECIAL RESOLUTION 6. THAT, subject to the passing of resolution 5, pursuant to section 570 of the Act, the Directors be and are hereby generally empowered to allot equity securities (as defined in section 560 of the Act) for cash or otherwise pursuant to the authority given by resolution 5 and/or to sell ordinary shares held by the Company as treasury shares for cash as if section 561 of the Act did not apply to any such allotment or sale, provided that this authority shall be limited to: a. any such allotment and/or sale of equity securities in connection with the grant of options under any share option scheme of the Company; Page 63 Notice of Annual General Meeting b. any such allotment and/or sale of equity securities in connection with an offer or issue by way of rights or other pre-emptive offer or issue, open for acceptance for a period fixed by the Directors, to holders of Ordinary shares (other than the Company) on the register on any record date fixed by the Directors in proportion (as nearly as may be) to the respective number of Ordinary shares deemed to be held by them, subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements, legal or practical problems arising in any overseas territory, the requirements of any regulatory body or stock exchange or any other matter whatsoever; c. any such allotment and/or sale, otherwise than pursuant to paragraph (a) above, up to an aggregate nominal amount of £698,480.47 (approximately 10% of the Company’s issued share capital at the date of this notice), provided that this authority (unless previously revoked, varied or renewed) shall expire at the conclusion of the next annual general meeting of the Company after the passing of this resolution or on the date falling 15 months after the date on which this resolution is passed (whichever is the earlier), save that the Company may make an offer or agreement before the expiry of this power which would or might require equity securities to be allotted for cash or sold after such expiry and the Directors may allot for cash or sell equity securities pursuant to any such offer or agreement as if the power conferred by this resolution had not expired. By Order of the Board Jeremy Fenn Executive Chairman 3 May 2019 Registered office: Cardale House Cardale Court Beckwith Head Road Harrogate HG3 1RY Page 64 Notice of Annual General Meeting Notes: Appointment of proxies 1. As a member of the Company, you are entitled to appoint a proxy to exercise all or any of your rights to attend, speak and vote at the Meeting and you should have received a proxy form with this notice of Meeting. You can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form. 2. A proxy does not need to be a member of the Company but must attend the Meeting to represent you. Details of how to appoint the Chairman of the Meeting or another person as your proxy using the proxy form are set out in the notes to the proxy form. 3. 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 Link Asset Services at PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU or you may photocopy the enclosed proxy form. 4. If you do not give your proxy an indication of how to vote on any resolution, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote or abstain from voting as he or she thinks fit in relation to any other matter which is put before the Meeting. Appointment of proxy using hard copy proxy form 5. The notes to the proxy form explain how to direct your proxy how to vote on each resolution or withhold their vote. To appoint a proxy using the proxy form, the form must be: • completed and signed; • sent or delivered to Link Asset Services at PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU; and • received by Link Asset Services by no later than 9.00 a.m. on 13 June 2019. In the case of a member which is a company, the proxy form must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company stating their capacity (e.g. director, secretary). Any power of attorney or any other authority which the proxy form is signed (or a duly certified copy of such power or attorney) must be included with the proxy form. Appointment of proxy by CREST 6. If you are a CREST member and wish to appoint a proxy or proxies through the CREST electronic proxy appointment service you may do so by using the procedures described in the CREST Manual (available via www.euroclear.com/CREST). CREST personal members or other CREST sponsored members, and those CREST members who have appointed a service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications, and must contain the information required for such instruction, as described in the CREST Manual, The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by Link Asset Services (ID: RA10) by the latest time for receipt of proxy appointments specified in this notice of meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp applied to the message by the CREST Application Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. If you are a CREST member or, where applicable, a CREST sponsor, or voting service provider, you should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, you and, where applicable, your CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. Appointment of proxy by joint members 7. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding (the first-named being the most senior). Page 65 Notice of Annual General Meeting Changing proxy instructions 8. 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 cut-off time will be disregarded. Where you have appointed a proxy using the hard-copy form and would like to change the instructions using another hard-copy form, please contact Link Asset Services at PXS, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU. If you submit more than one valid appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. Termination of proxy appointments 9. In order to revoke a proxy instruction you will need to inform Capita Registrars by sending a hard copy notice clearly stating your intention to revoke your proxy appointment to Link Asset Services at PXS, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU. 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 Link Asset Services by no later than 9.00 a.m. on 13 June 2019. If you attempt to revoke your proxy appointment but the revocation is received after the time specified then, subject to the paragraph directly below, your proxy appointment will remain valid. The return of the completed proxy form, other such instruments, or any CREST Proxy Instruction will not prevent you from attending the Meeting and voting in person if you wish to do so. If you have appointed a proxy and attend the Meeting in person, your proxy application will automatically be terminated. Communication 10. Except as provided above, members who wish to communicate with the Company in relation to the Meeting should write to the Company Secretary, Mobile Tornado Group plc, Cardale House, Cardale Court, Beckwith Head Road, Harrogate, HG3 1RY. No other methods of communication will be accepted. Corporate representatives 11. If a corporation is a member of the Company, it may by resolution or other governing body authorise one or more persons to act as its representative or representatives at the Meeting and any such representative or representatives shall be entitled to exercise on behalf of the corporation all the powers that the corporation could exercise if it were an individual member of the Company, provided that they do not do so in relation to the same shares. Corporate representatives should bring with them either an original or certified copy of the appropriate board resolution or an original letter confirming the appointment, provided it is on the corporation’s letterhead and is signed by an authorised signatory and accompanied by evidence of the signatory’s authority. Uncertificated Securities Regulations 12. Pursuant to regulation 41(1) of the Uncertificated Securities Regulations 2001 (2001 No. 3755), the Company has specified that only those members registered on the register of members of the Company at close of business on 13 June 2019 (or if the Meeting is adjourned, close of business on the day two days prior to the date of the adjourned Meeting) shall be entitled to attend and vote at the Meeting in respect of the number of shares registered in their name at that time. Changes to the register of members after that date shall be disregarded in determining the rights of any person to attend and vote at the Meeting. Page 66 Notice of Annual General Meeting Explanatory notes to the resolutions to be proposed at the Annual General Meeting of the Company The resolutions to be proposed at the Annual General Meeting to be held on 17 June 2019 at 09.00 a.m. are set out in the Notice of Annual General Meeting. The following notes provide brief explanations of the resolutions being put to shareholders. Ordinary resolutions Resolutions 1 to 5 are proposed as ordinary resolutions. These resolutions will be passed if more than 50% of the votes are cast in favour of them. Resolution 1 – Laying of financial statements The Directors are required to present to shareholders at the Annual General Meeting the audited financial statements of the Company and the reports of the Directors and auditors for the financial year ended 31 December 2018. Resolution 2 – Appointment of auditors and fixing the remuneration of the auditors laid The Companies Act 2006 requires that auditors be appointed at each general meeting at which financial statements are the next such meeting. PricewaterhouseCoopers LLP have indicated their willingness to stand for re-appointment as auditors of the Company until the conclusion of the next Annual General Meeting. The Company’s Audit Committee keeps under review the independence and objectivity of the external auditors and further information can be found in the Annual Report and Financial Statements on page 13. After considering the relevant information, the Audit Committee has recommended to the Board that PricewaterhouseCoopers LLP be appointed auditors. to hold office until It is normal practice for shareholders to resolve at the Annual General Meeting that the Directors decide on the level of remuneration of the auditors for the audit work to be carried out by them in the next financial year. The amount of the remuneration paid to the auditors for the next financial year will be disclosed in the next audited financial statements of the Company. Resolution 3 and Resolution 4 – Re-appointment of Directors The Company’s Articles of Association require one third of the Directors or, if their number is not a multiple of three, then the number nearest to but not less than one third, to retire from office each year. Jeremy Fenn and Avi Tooba are retiring and seek re-appointment at the Annual General Meeting. Having considered the performance of and contribution made by the Directors standing for re-appointment, the Board remains satisfied that their performances continue to be effective and to demonstrate commitment to the role and as such the Board recommends their re-appointment. A biography of Jeremy Fenn and Avi Tooba appears on page 8 of the Company’s Annual Report and Financial Statements and on the Company’s website at https://www.mobiletornado.com/. Resolution 5 – Authority to allot shares The Directors may only allot shares or grant rights over shares if authorised to do so by shareholders. The authority granted at the last Annual General Meeting to allot shares or grant rights to subscribe for, or convert any security into, shares is due to expire at the conclusion of this year’s Annual General Meeting. The Investment Association (IA) guidelines on authority to allot shares state that IA members will permit, and treat as routine, resolutions seeking authority to allot shares representing up Page 67 Notice of Annual General Meeting to one-third of a company’s issued share capital. In addition they will treat as routine a request for authority to allot shares representing an additional one third of the Company’s issued share capital provided that it is only used to allot shares for the purpose of a fully pre-emptive rights issue. Accordingly, resolution 5, if passed, would authorise the Directors under Section 551 of the Companies Act 2006 to allot new shares or grant rights to subscribe for, or convert any security into, new shares (subject to shareholders’ pre-emption rights) up to a maximum nominal amount of £4,651,879.94, representing the IA guideline limit of approximately 66% of the Company’s issued share capital. Resolution 5(a) would give the Directors authority to allot new shares or grant rights to subscribe for, or convert any security into, new shares up to an aggregate nominal value of £2,325,939.97, representing approximately one third of the Company’s existing issued share capital, in connection with a rights issue in favour of Ordinary shareholders. Resolution 5(b), if passed, would give the Directors general authority to allot new shares or grant rights to subscribe for, or convert any security into, new shares up to an aggregate nominal value of £2,325,939.97 representing approximately one third of the Company’s existing issued share capital. As resolution 5(b) imposes no restrictions on the way the authority may be exercised, it could be used in conjunction with resolution 5(a) so as to enable the whole two-thirds to be used in connection with a rights issue. Where the usage of this authority exceeds one-third of the issued share capital, the Directors intend to follow best practice as regards its use (including as to the requirement for all Directors to stand for re-election at the next Annual General Meeting of the Company). The authority will expire at the earlier of the conclusion of the next Annual General Meeting of the Company and close of business on the date falling 15 months after the passing of this resolution 5. Passing this resolution 5 will ensure that the Directors continue to have the flexibility to act in the best interests of shareholders, when opportunities arise, by issuing new shares. The Company does not at present hold any shares in treasury. Special resolutions Resolution 6 is proposed as a special resolution. This resolution will be passed if not less than 75% of the votes are cast in favour. Resolution 6 – Disapplication of pre-emption rights The Companies Act 2006 requires that if the Company issues new shares or grants rights to subscribe for or to convert any security into shares for cash, it must first offer them to existing shareholders in proportion to their current holdings. In certain circumstances, it may be in the best interests of the Company to allot shares (or to grant rights over shares) for cash without first offering them proportionately to existing shareholders. This cannot be done under the Companies Act 2006 unless the shareholders have first waived their pre-emption rights. In accordance with investor guidelines, therefore, approval is sought by the Directors to issue a limited number of Ordinary shares for cash without first offering them to existing shareholders. Page 68 Notice of Annual General Meeting Resolution 6 seeks to renew the Directors’ authority to issue equity securities of the Company for cash without application of pre-emption rights pursuant to Section 561 of the Companies Act 2006. Other than in connection with the grant of options under any share option scheme of the Company, a rights or other pre-emptive issue, scrip dividend or other similar issue, the authority contained in this resolution would be limited to a maximum nominal amount of £698,480.47 (for general headroom). Resolution 6 seeks a disapplication of the pre-emption rights on a rights issue or other pre- emptive offer so as to allow the Directors to make exclusions or such other arrangements as may be appropriate to resolve legal or practical problems which might arise, for example, with overseas shareholders. If passed, this authority will expire at the same time as the authority to allot shares given pursuant to resolution 5 (Authority to allot shares). The Directors have no other plans to utilise either of the authorities sought by resolutions 5 (Authority to allot shares) and 6 (Disapplication of pre-emption rights), although they consider their renewal appropriate in order to retain maximum flexibility to take advantage of business opportunities as they arise. Page 69 Corporate information Company Registration Number: 5136300 Registered Office: Directors: Nominated Advisor and Broker: Bankers: Solicitors: Registrars: Auditors: Cardale House Cardale Court Beckwith Head Road Harrogate North Yorkshire HG3 1RY Peter Wilkinson Jeremy Fenn Avi Tooba Jonathan Freeland (Non-Executive Director) (Executive Chairman) (Chief Executive Officer) (Non-Executive Director) Allenby Capital Ltd 5 St Helen’s Place London EC3A 6AB Barclays Bank Plc Hanover Square 50 Pall Mall London SW1Y 5AX Schofield Sweeney LLP 76 Wellington Street Leeds LS1 2AY Link Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU PricewaterhouseCoopers LLP Central Square 29 Wellington Street Leeds LS1 4DL Internet address: www.mobiletornado.com Page 70 sterling 172621 www.mobiletornado.com 

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