Polarean Imaging plc
Annual Report 2019

Plain-text annual report

Polarean Imaging Plc Group Annual Report & Accounts 2019 Company Number 10442853  Group Annual Report and Financial Statements for the year ended 31 December 2019 Contents Page 2 3 Company Information Chairman’s Statement 4 Chief Executive Officer’s Statement 6 Strategic Report 15 Directors’ Report 20 Corporate Governance Statement 25 Remuneration Committee Report 27 Independent Auditors’ Report 30 Consolidated Statement of Comprehensive Income 31 Consolidated Statement of Financial Position 32 Company Statement of Financial Position 33 Consolidated Statement of Changes in Equity 34 Company Statement of Changes in Equity 35 Consolidated Statement of Cash Flows 36 Company Statement of Cash Flows 37 Notes to the Financial Statements 60 Notice of the Annual General Meeting Polarean Imaging plc 1  Company Information Directors & Advisers Directors Richard Hullihen Kenneth West Bastiaan Driehuys, PH.D. Jonathan Allis Juergen Laucht Cyrille Petit Chief Executive Officer Chief Operating Officer Chief Technology Officer Non-Executive Chairman Non-Executive Director Non-Executive Director Company Secretary Stephen Austin Chief Financial Officer Charles Osborne Registered Office 27-28 Eastcastle Street London, W1W 8DH Company Number Registered in England and Wales Number 10442853 Nominated Adviser and Broker Independent Auditor Registrar Bankers SP Angel Corporate Finance LLP Prince Frederick House 35-39 Maddox Street London W1S 2PP Crowe U.K. LLP St. Brides House 10 Salisbury Square London EC4Y 8EH Share Registrars Limited The Courtyard 17 West Street Farnham Surrey GU9 7DR Silicon Valley Bank Alphabeta Building 14-18 Finsbury Square London EC2A 1BR Legal Advisers to the Group Reed Smith LLP Financial Public Relations and Investor Relations The Broadgate Tower 20 Primrose Street London EC2A 2RS Walbrook PR 4 Lombard Street London EC3V 9HD Polarean Imaging plc 2  Chairman’s Statement I am excited to have become Chairman of Polarean earlier in 2020. While I have been a Board member for some time, the opportunity to assume the Chairmanship has been the best combination of timing and opportunity having just come from the sale of my former company Blue Earth Diagnostics to Bracco Imaging S.p.A. ("Bracco"). I have a direct background in the history of hyperpolarised noble gas imaging and with the founder of Polarean, it has made for an easy transition. The critical achievements for the Company for 2019 are the successful completion of its Phase III Clinical Trials and the positive top line readout, which was subsequently announced on 29 January 2020. The Company is now moving towards the submission of its New Drug Application (“NDA”) to the US Food and Drug Administration (“FDA”) and simultaneously beginning the process of preparing for commercial launch. In the meanwhile, current events resulting from the COVID-19 pandemic have made clear that medicine is still not fully equipped to analyse and understand the many ways that pulmonary function can be affected by disease. Polarean has the unique ability to visualise and quantify the function of the lungs at the alveolar and capillary level. In this era of COVID-19, we believe that Polarean’s technology will become increasingly important in understanding this disease and in managing post-COVID patients. The Company looks forward to working with its growing installed base of luminary researchers to help understand the diagnosis, methods of action and therapies for all pulmonary disease. Polarean’s Directors have begun to engage with the Pharma industry. Our initial expectations of synergies and clinical trials are now in the early stages of development, leveraging our expanding installed base of top tier institutions and researchers, and we look forward to more fully exploring these potential relationships and perhaps capturing some early movers of those during 2020, based simply on the compelling ability of Polarean’s technology to contribute to their processes. Our primary focus for the coming year will be the planning and preparation for commercial launch, post anticipated FDA approval. This is an important phase in the Company’s development, and we have resource coupled with some skilled service providers engaged in this effort. We look forward to the unique combination of technology and opportunity that defines the future for hyperpolarised noble gas imaging of pulmonary function. The Company has been fortunate in its ability to attract and retain long term professional and institutional investors who I thank for their continued support. I would also like to welcome Bracco to the Company as an investor and Board member. I am aware of their specific insight into the global market for the technologies that so dramatically enhance the contributions of medical imaging equipment to medicine and patient care. On behalf of the Board, I would like to thank the employees, stakeholders, and shareholders for their support, without which none of this would have been possible. Jonathan Allis Non-Executive Chairman 17 June 2020 Polarean Imaging plc 3  Chief Executive Officer’s Statement 2019 – Year of Accomplishment of Critical Goals The Group spent the majority of the year focused on the execution and management of its critical Phase III Clinical Trials. Once launched, discovery of key issues in enrolment required adapting and adjusting to the conditions and environments at each site versus original plans. We added a third site at the University of Cincinnati to accelerate completion of one pathway in the trial. Ultimately, we successfully completed our Trials which had a positive top line readout, and this is a major milestone towards our submission of our New Drug Application to the FDA and towards approval and commercialisation of hyperpolarised noble gas imaging for the assessment of pulmonary function. The Opportunity The US Healthcare system’s annual burden of pulmonary disease continues unabated costing approximately US$150 billion and your Directors still see a tremendous opportunity to bring our technology’s quantitative, reproducible, non- invasive method for diagnostic and therapeutic guidance to medicine. If anything, the events of the global COVID-19 pandemic seem likely to create additional demand for managing post infection patients through extended recovery and therapeutic regimes. We have refined and extended our development of the healthcare economic analyses to support the adoption by providers of our technology, working with experts in the field. Over the planning horizon of the first 48 months post commercial launch, the Group maintains its intent to address the high end of the US academic and teaching hospital market segment, which comprises approximately the top 1,000 institutions nationally having multiple Centers of Excellence in Pulmonary Medicine and Radiology. The combined addressable market there for our products approaches US$500m in equipment sales alone. While working to achieve FDA approval for clinical use, Polarean continues to serve the medical imaging research market by providing xenon polarisers to enable functional MRI of the pulmonary system. This brings dynamic, high- resolution, regional, image-based information to pulmonary physicians and researchers whose best alternative tool is spirometry, with its weaknesses in use for measurement of expired breath. Current imaging technologies using ionizing radiation are not widely used for assessing pulmonary function, despite their revolutionary use in other medical applications. During 2019, our additional new developments in the assessment of pulmonary vascular disease indicate early promise of the extension of our technology into Cardiology via the assessment of microvascular hemodynamics. We expanded our installed base of systems at luminary academic research centers at SickKids Hospital, Toronto, BC Children’s Hospital in Vancouver, and at University of Iowa Hospitals and Clinics. Our Organisation The Group encountered material changes in its shareholder base during the year and as a result its Board composition and Chairmanship changed. Jonathan Allis, PhD - an existing Board member and CEO of Blue Earth Diagnostics, a PET tracer contrast agent company recently acquired by Bracco - became Chairman in February 2020. Dr. Allis, who has direct experience in hyperpolarised noble gas imaging, and whose experience in the commercialisation and launch of medical imaging contrast agents will be invaluable to Polarean in the next phases of development in submission, FDA approval, and commercialisation. In addition, following Bracco’s participation in the Company’s recent £8.4m fundraise (before expenses), we welcomed Mr. Cyrille Petit to the Company's Board as a Non-Executive Director and representative of Bracco. Mr. Cyrille Petit is also on the Audit Committee. Our Operations In 2019, we built and shipped three of our 9820 polariser systems. As we have previously explained, our production tracks the award of grants to major institutions and is historically 3-5 units per year. We see that pattern continuing and welcome the expansion of our installed base in top tier institutions. We made planned advances in our quality systems and engineering infrastructure as we move toward maturing in our new regulated environment. R&D We continued to invest in our intellectual property portfolio during the year. Key new patent filings involving gas exchange and pulmonary vascular disease were added, and an expanded and enhanced license agreement with Duke was finalised including all of the most recent developments in pulmonary vascular disease assessment and data and image analysis software. Our group has continued to push the design of the systems forward, with key advances in ease of use and manufacturability making progress in accordance with our plan. We made valuable progress on our performance and ease of use projects, which will come into play in the future. 2019 Financial results Broadly speaking, our 2019 results are consistent with market expectations, with revenues slightly below expectations but with expenses diligently managed to also be lower than expectations. In addition, we raised US$2.62m (before expenses) in July 2019 in a placing designed to provide additional support for the Company’s Clinical Trials as patient enrolment neared completion. We benefitted from the Year 3 proceeds of the NIH SBIR Grant which we have jointly with the Cincinnati Children’s Hospital Medical Center. We have maintained our pricing and margins throughout the year on equipment, albeit timing of grant receipts slightly diluted overall margins. It is still the case that the majority of our research systems are procured via grant mechanisms and while the outcomes are typically known as their process unfolds, the ultimate fiscal timing of these projects is difficult to predict with certainty as many involve public procurement cycles. Polarean Imaging plc 4  Chief Executive Officer’s Statement continued 2020 and Beyond On 4 May 2020 we had our Pre-NDA meeting with the FDA. In that meeting we discussed many items relating to our submission. We have now received the minutes of that meeting from them and confirm that the market expectation we have previously set with regard to the timing of submission and the expected times for review of the submission and Hatch Waxman request are as previously stated. We plan to file our New Drug Application with the FDA in Q3 2020 and continue to cautiously plan to receive regulatory approval twelve months after filing the NDA. In the meantime, we continue to collaborate with researchers in the US and abroad and look to expand our installed base of research systems, and have a pipeline supporting that plan. The exciting new developments in cardiology and pulmonary vascular disease are deepening, and our knowledge base about these conditions is expanding. We are also excited by and grateful for the investment we received from Bracco in our most recent financing announced in March 2020. We welcome Bracco, who bring a wealth of direct experience in medical imaging contrast agents to the Board of Polarean and we have already benefitted from that relationship even in this short time. The “129Xe MRI Clinical Trials Consortium” is studying the application of our technology to the case of post infection COVID-19 patients to assess the long-term effects and case management of these patients. As this process unfolds, we will make future announcements. We continue to explore opportunities with potential strategic partners in Pharma and in other geographic markets that could lead to important developments in new applications and uses for our technology, expansion into new territories, and which may bring economic benefits to the group going forward. Polarean is fortunate to have an outstanding collection of world-class research collaborators and research customers in both the US and Europe. Additionally, we support the “129Xe MRI Clinical Trials Consortium” and the crucial work they do in collaborative research, training investigators, providing infrastructure for evaluating new techniques, and multi-institution sharing of magnetic resonance (MR) techniques and image analysis methods. We would like to thank the National Heart Lung and Blood Institute for their continued support of our Small Business Innovation Research Program grant with Cincinnati Children’s Hospital Medical Center. In addition, we have developed solid working relationships with MRI systems manufacturers and exclusive relationships with global industrial gas suppliers, all key to our future as we scale the business. Polarean has a dedicated team of professionals without whose efforts these accomplishments would not be possible. On behalf of the entire staff of Polarean Imaging, I would like to thank our shareholders for their support of the Group and we look forward to continuing to develop and deliver this critical life-saving and life-improving technology to physicians and patients everywhere. Richard Hullihen Chief Executive Officer 17 June 2020 Polarean Imaging plc 5  Strategic Report 1. Introduction The Group comprises medical drug-device combination companies operating in the high resolution medical imaging market. The Group develops equipment that enables existing MRI systems to achieve an improved level of pulmonary functional imaging and specialises in the use of polarised Xenon gas (129Xe) as an imaging agent to visualise ventilation (the ability of air to reach the alveoli) and gas exchange (the ability of oxygen to diffuse through the alveolar membrane into the pulmonary vasculature) regionally down to the smallest airways of the lungs, the tissue barrier between the lung and the bloodstream and in the pulmonary vasculature; and now also microvascular hemodynamics within the lung, a novel diagnostic approach. The Group also develops and manufactures the high performance MRI radiofrequency (RF) coils which are a required component for imaging 129Xe in the MRI system. The development of these coils by the Group facilitates the adoption of the Xenon technology by providing application-specific RF coils which optimise the imaging of 129Xe in MRI equipment. The Group was formed on 31 May 2017 when the Company acquired Polarean, Inc (the “Subsidiary”). The Subsidiary was formed as a result of two mergers: the first between Polarean Merger-Sub Inc. and m2m, a company that the Subsidiary had developed a relationship with during the course of previous research and commercialisation programmes in the US and the second between m2m and the Subsidiary. m2m was previously a portfolio company of Amphion Innovations plc (‘Amphion’), developer of medical, life science, and technology businesses, which is itself currently quoted on AIM. 2. Investment Case Pulmonary disease currently affects hundreds of millions of people globally, including approximately 174 million people who suffer from Chronic Obstructive Pulmonary Disease (COPD), which is responsible for approximately 6% of such deaths globally each year. In the US more than 30 million people suffer from a chronic lung disease such as COPD, which includes emphysema, chronic bronchitis and asthma. In addition to its significant human toll, pulmonary disease also represents an economic burden in excess of US$150 billion annually in the US alone. Every type of pulmonary disease involves some combination of ventilation and/or gas exchange impairment, yet the successful and cost-effective treatment of lung disease is hampered by sub-optimal methods for quantifying pulmonary ventilation and gas exchange. Current diagnostic techniques are either imprecise (such as spirometry) and/or expose the patient to potentially dangerous radiation (such as x-rays, CT scans and nuclear scintigraphy). While spirometry has benefits as a screening tool, none of these current methods can visualise ventilation or gas exchange regionally in the smallest airways, where lung disease typically begins and where improvements from new pharmaceutical therapies can first be detected. As such, the Group operates in an area of significant unmet medical need and a number of key milestones were accomplished by the Group during 2019 and additional milestones are expected to be achieved by the Group in the short to medium term. The most important milestone achieved during the last 12 months was the successful completion of the FDA Phase III clinical trials in the US for the Group’s technology. The 80-patient equivalence clinical trials were conducted at Duke University Medical Center, the University of Virginia and The University of Cincinnati - 3 leading US research hospitals. Enrolment of the clinical trials was completed in November 2019. In January 2020, the Company announced that both clinical trials met their primary endpoints, within the prospectively defined equivalence margin (+/-14.7%) when compared to the FDA-approved reference standard, 133Xenon scintigraphy imaging. The Company recently held a Pre-NDA Meeting with the FDA and is incorporating the results of that meeting and the conclusions of the Clinical Trials into the NDA submission. Polarean plans to submit an NDA for the drug-device combination to the FDA during Q3 2020. Upon completion of the filing of the NDA, the Directors anticipate receiving a broad indication for use from the FDA following the FDA’s review period. The Group’s technology overcomes important limitations of current lung diagnostic methods, providing the ability to visualise, quantify and monitor both the structure and function of the smallest airways and alveolar spaces with enhanced sensitivity and without harmful radiation. This provides a unique, valuable and more precise tool to help diagnose disease earlier, identify the type of intervention likely to benefit a patient, monitor the efficacy of treatment and facilitate developing new therapies for pulmonary diseases. Polarean Imaging plc 6  Strategic Report continued 3. Group Structure and History The Company was incorporated in England and Wales on 24 October 2016 with company registration number 10442853. The Company’s registered office is 27-28 Eastcastle Street, London, W1W 8DH. On 31 May 2017, m2m, a company formed in the US State of Delaware on 18 February 1999, was merged into the Company. On 29 March 2018, the Company listed its shares on the AIM Market of the London Stock Exchange. 4. Information on Polarean, m2m and Strategy of Group 4.1 Polarean, Inc. – Background The Subsidiary was co-founded by Dr Bastiaan Driehuys, a current Director of the Company, and John Sudol, a former director of the Subsidiary, in 2011. Prior to co-founding the Subsidiary, Dr Driehuys was a member of a research team at Princeton University in the early 1990s which was amongst the first research teams to focus on hyperpolarised gas MRI technology, in particular isotopically enriched Helium (3He), and developed and held key patents relating to the technology. The technology was acquired in 1999 by Amersham, Inc. (“Amersham”), with the goal of commercialising hyperpolarised Helium products to be marketed and distributed alongside Amersham’s full line of contrast agent products. Dr Driehuys led the development efforts for Amersham, which continued the development of these hyperpolarised Helium products throughout the early 2000s until GE Healthcare (“GE”) acquired Amersham in 2004. GE continued the research and development of hyperpolarised gas MRI after the acquisition of Amersham, focusing on 129Xe as a more effective substitute for 3He in visualising ventilation. GE also began to explore ways in which 129Xe could be used to image gas exchange within the lung in addition to ventilation. These work programmes culminated in the conduct of a Phase I/II clinical trial at Duke University in 2008-2009. GE also filed INDs with the FDA for both 3He and 129Xe. By 2010, after an investment of approximately US$40 million in the technology and with the regulatory path for hyperpolarised gas remaining unclear, GE decided to out-license the hyperpolarised gas technology and the related patent families that it had developed and/or maintained to the Subsidiary, due to the scale at the time and the early stage nature of the technology’s development. In December 2011, the Subsidiary negotiated the acquisition of all of GE’s assets related to the hyperpolarised MRI project, including an inventory of polarisers and parts and the licenses (or outright ownership) of the related patent families. Following the acquisition of GE’s hyperpolarisation assets, the Subsidiary focused on three key objectives: • • • building and selling polarisers to research users to generate operating revenue and to disseminate the technology to academic research institutions that generate clinical data in order to build additional interest in the technology; further developing the xenon hyperpolarisation technology in order to meet clinical use specification requirements; and liaising with the FDA in order to clarify the FDA regulatory path under which the product could achieve clearance to market for clinical use. In July 2012, the US Congress passed the FDA Safety and Innovation Act and the Medical Gas Act, which clarified and simplified the path under which hyperpolarised gas MRI technology could be approved for clinical use by the FDA. As a result of discussions between the Group and the FDA, the Directors believe that a clearer path towards regulatory approval now exists. As such, following Admission the Group began conducting the clinical studies required for FDA approval to market. Between 2012 and May 2017, the Subsidiary generated over US$3.7 million of revenue from selling polarisers to customers in Canada, Germany, the UK and the US for research use, relating to both clinical (human) and pre-clinical (animal) applications. In addition, the Subsidiary received additional funding of approximately US$2.5 million from Nukem and other Series A investors. Prior to the m2m Merger, the Subsidiary was also successful in receiving grant funding, including a US$3 million grant awarded in April 2017 by the US National Heart, Lung and Blood Institute (NHLBI) following a competitive application process (for which the research will be conducted with its clinical collaborator, the Cincinnati Children’s Hospital) and a US$250,000 small business research loan from the North Carolina Biotech Center in March 2017, which was also awarded following a competitive application process. Polarean Imaging plc 7  Strategic Report continued 4.2 The Group’s Technology and Products The Subsidiary is a clinical-stage company and its lead product has been designated as a drug-device combination by the FDA. The Subsidiary’s product enables the visualisation of hyperpolarised 129Xe (“HPX”) via MRI technology to help diagnose lung disease earlier, identify the type of intervention likely to benefit a patient and to monitor the efficacy of treatment. As a result of the FDA’s drug-device designation, the Subsidiary’s products will be approved and sold only for use with each other. The products are currently being used at a number of research sites on a pre-FDA clearance basis to facilitate the research and evaluation of lung function, to assist in making improved disease progression assessment and to clearly visualise the effectiveness of several therapeutics which are under development. The Group currently generates revenue from the sale of products within its 129Xe gas hyperpolarisation platform. Implementing the Group’s technology in a clinical setting is straightforward: prior to the MRI scan a patient breathes in a small amount of inert HPX to provide an extremely strong MRI signal. This transforms the MRI from a technology that is not applicable to the lungs into one that is able to provide multiple images of the lung structure and function in one 10-20 second breath-hold. HPX MRI overcomes the limitations of traditional pulmonary function testing as HPX MRI: • • • is more accurate and reproducible than spirometry and other traditional pulmonary function tests, enabling the detection and mapping of small and localised changes in lung ventilation and gas exchange over time; provides regional information about lung disease without exposure to ionising radiation or radioactivity; and assesses ventilation and gas exchange in the smallest airways, where disease often begins. The Group’s technology works in conjunction with traditional MRI, transforming it into a powerful diagnostic modality for the lung. The Group’s approach is to take 129Xe, an inert gas, and hyperpolarise the nucleus to create an MRI signal which is approximately 100,000 times stronger than a conventional MRI signal. When the MRI scan is undertaken, the HPX resonates at different frequencies: (i) in the bronchioles and alveoli of the lung; (ii) in the barrier tissue of the lung; and (iii) when dissolved in arterial blood in the pulmonary vasculature, thus providing information on ventilation (the ability of air to reach the alveoli) and gas exchange (the ability of air to diffuse through the alveolar membrane into the pulmonary vasculature). As all pulmonary diseases result from impairments to the free flow of air through bronchioles, or from abnormal gas exchange between the lung alveoli and the pulmonary vasculature, the images that result from HPX MRI scans which have been executed using the Group’s technology can aid diagnosis, by enhancing the physician’s ability to clearly identify issues with ventilation and gas exchange on a regional basis, down to the smallest of airways. Hyperpolarisation of the 129Xe is accomplished by placing a non-radioactive isotope of Xenon (129Xe) into a beam of circularly polarised laser light in the presence of very small concentration of the alkali metal Rubidium, which acts as a physical catalyst in the hyperpolarisation process. The result is 129Xe whose nuclear magnetic spin is highly aligned but not chemically or biologically different than unpolarised 129Xe, an inert gas. This hyperpolarised state persists for around 2 hours allowing ample time to administer the HPX to the patient. The Group’s products include: • • • • the 129Xe gas, blended and made under GMP at high purity, to be polarised within the polariser; the polariser itself, of which the latest model, the Polarean 9820 Xenon Hyperpolariser, has been designed to deliver up to 3 litres of HPX per hour (approximately 5-10 doses) of which each dose is to be used within 30 minutes of its production in order to retain sufficient polarisation to create a strong image; the dose delivery inhalation bag, made of HPX-compatible impermeable plastic materials and a mouthpiece for ease of inhalation; and the Polarean 2881 Polarisation Measurement Station, which provides a calibrated measurement of the polarisation of hyperpolarised gas within the dose delivery inhalation bag. The Group currently designs and builds the polariser equipment and has relationships with GMP gas producers to supply the Group with high purity 129Xe according to the Group’s specifications. In order to take advantage of the Group’s current products, an MRI machine is required to be outfitted with hardware and software capable of operating at 129Xe frequency to detect the HPX signal. In addition, the patient will need to wear a 129Xe RF chest coil to allow for detecting the HPX MR signal in the lungs. Approximately 35,000 MRI machines are currently in use worldwide and technically many of these can be easily adapted to be used with 129Xe frequency. The Group’s products can be placed near the MRI scanner for ease of radiology workflow and, following the m2m Merger, the Group has continued to explore ways to further integrate the Group’s existing technology with the coils which had previously been the focus of m2m. Polarean Imaging plc 8  Strategic Report continued 4.3 Location The Group is based at the Meridian Corporate Center, located in the Research Triangle Park area of North Carolina, which provides a favourable location at which to further develop the core technology and product range. The Group’s facilities consist of more than 5,700 square feet of combined offices, laboratory space, inventory warehouse and assembly and testing areas. The Group benefits from facilities that were originally purpose-built by GE for the design and manufacture of hyperpolarisation equipment and components, pursuant to FDA-mandated guidelines. Within these facilities are a dedicated research and development laboratory equipped with 3-phase power, central compressed air, specialty gas handling and distribution and separate heating, ventilation and air conditioning. The laboratory area also includes optical cell production equipment capable of simultaneous processing of four optical cells for Xenon applications. The laboratory is designed for safe operation of class 4 lasers and is equipped with laser power and spectral testing apparatus. The Group also maintains a dedicated polariser test bed that is used for product development and a dedicated NMR system capable of delivering available electromagnetic field strength, utilised for calibrating absolute polarisation measurements of hyperpolarised gas samples. 4.4 The Regulatory Environment At present, prior to the receipt of any approvals for clinical use, the Group sells its polarisers and disposables for research use only to academic medical centres with their research being subject to oversight by their respective institutional review boards and conducted under IND from the FDA or equivalent regulatory body. The Group has held regular meetings with the FDA to develop a path towards approval for clinical use and the FDA has indicated its willingness to accept a very broad indication for use for the Group’s technology – for the evaluation of pulmonary function – as opposed to its use being limited to any particular pulmonary disease or condition. The clinical development of the Groups technology has progressed to the completion of Phase III trials. The Phase III trials included a total of 80 patients and met their primary endpoints. The FDA has indicated that it will also accept existing literature-based data in fulfilment of certain safety and toxicology requirements. The Directors believe that this broad indication provides the Group with a sizeable, addressable market. 4.5 The Group’s Customers The Group’s existing customer base already comprises some of the world’s luminary medical imaging research institutions. Indeed, there are currently sixteen research institutions worldwide utilising the Group’s system and products, including Cincinnati Children’s Hospital, the University of Virginia, University of Wisconsin – Madison and Duke University in the US, Robarts Research Institute and Hospital for Sick Children (SickKids) in Canada, the University of Oxford and the University of Nottingham in the UK and the Fraunhofer Institute for Toxicology and Experimental Medicine in Germany. At the date of this report, there are currently 23 Xenon Hyperpolariser units installed at these and several other leading research hospitals and the Group anticipates selling further units for research purposes during the course of the NDA review. 4.6 The Group’s Suppliers The Group has entered into Master Service Agreements with two CROs in relation to the Phase III trial. Pharma Start LLC, doing business as Firma Clinical Research, managed the trials and oversaw the recruitment of patients for the trial. In addition, Icon Clinical Research Limited assisted with the medical imaging aspects of the trial. The Group has a long-standing relationship with its strategic investor Nukem Isotopes GmbH, a leading global supplier of 129Xe, the isotope of Xenon which is provided to the various gas blenders that in turn supply gas to the Group. It has a supply agreement with Nukem for 129Xe. In June 2020 the Group signed an agreement with Linde Gas North America LLC (“Linde”), in relation to the supply of the Group’s drug product, a 129Xenon gas blend. This agreement contains provision for the supply of bulk 129Xe to be manufactured into the Active Pharmaceutical Product (API), 129Xe, and for the blending, packaging, and distribution of its drug product under GMP. 4.7 Current Trading and Prospects Trading of the Group since IPO continues to be in line with the Directors’ expectations. The potential of the Group’s technology enables the Directors to view the future with confidence ahead of the NDA filing for its drug-device combination product and the exploitation of the addressable markets for the Group’s technology. Polarean Imaging plc 9  Strategic Report continued 4.8 Growth Strategy The Group estimates that in the short term it will generate additional revenue from the sale of hyperpolarisers to global research institutions and the Directors believe that the market for polarisers will grow as the technology gains wider acceptance as a tool for studying lung disease and for monitoring the effectiveness of therapeutics. At present, a number of major pharmaceutical companies are working with universities that are well known to the Group, regarding the use of HPX MRI technology to help guide clinical trials of developmental pharmaceutical products which is raising awareness of the Group’s technology and product range. Upon the completion of the Group’s NDA and subsequent FDA approval, the Group will adopt a traditional market entry strategy of building market awareness for its technology through key opinion leaders and a direct sales force to reach the key decision makers within its initial target market of large academic medical centres. In implementing this strategy, the Group benefits from approximately 1,000 journal articles on the use of hyperpolarised gas MRI that are currently published in peer- reviewed journals. Over time, as more research centres purchase the Group’s equipment and begin clinical studies, an increasing number of peer reviewed scientific articles are likely to be published, further enhancing the Group’s credibility and raising awareness of the Group’s technology. The Group also intends to continue patenting and in-licensing hyperpolarised gas technology IP to protect its current position. Following receipt of FDA clearance to market the technology, the Group’s initial sales targets will be the radiology and pulmonary medicine departments of top academic hospital organisations in the US, who are opinion leaders in the use of new diagnostic technologies and their application in a clinical setting. Subsequently, the Group will seek to expand its sales and marketing teams. Because of the specialty nature of the Group’s products in the pulmonary specialist market, which is concentrated in approximately 1,000 medical centres, the Directors believe that a small specialty sales force can be deployed effectively at reasonable cost. The Group may also choose to partner with companies that offer complementary products. Furthermore, the Directors believe that the Group’s products will benefit a number of clinical applications. While the Group’s HPX MRI technology provides more specific information than currently available from existing lung diagnostic procedures (especially spirometry), the Group will focus its use on specific clinical conditions where the high accuracy of HPX MRI and greater cost are justified. The Directors do not believe that HPX MRI will replace low-cost spirometry as a general screening tool but believe that it should add value in more demanding clinical applications where HPX MRI addresses unmet diagnostic needs. These applications could include, but are not limited to, the following: • • • • • • • • the monitoring of COPD therapy, especially for the most severe cases; the management of cystic fibrosis exacerbations; a more efficient diagnosis of dyspnoea and the chronic cough; providing guidance for radiation therapy planning of lung cancer treatment; providing guidance for interventional pulmonology procedures including ablation and the placement of valves and stents; surgical procedure planning for lung transplant and volume reduction surgery; diagnosis of IPF and monitoring of IPF therapy; and diagnosis of pulmonary vascular disease (PVD) including pulmonary arterial hypertension (PAH) and monitoring of therapy. The Directors have begun to develop relationships with a range of strategic partners and will evaluate opportunities which will enable the Group to address its target markets globally, either alone or in collaboration with a partner. 5. Intellectual Property (“IP”) The Group’s technology has been developed in four areas: (i) hyperpolarising gas; (ii) assuring the quality of the hyperpolarised gas; (iii) using the polarised gas in MRI applications; and (iv) developing and producing specialised RF coils to improve signal-to-noise ratios (“SNR”). GE had put a comprehensive patent policy in place to protect its technology from potential competitors. The Group is now the sole owner of this IP portfolio, which is based on 10 patent families, and when combined with the 7 patents that were previously owned by m2m, that were transferred to the Group following the m2m Merger, the Group’s portfolio covers four broad types of patents: • imaging methods – these cover the imaging of a subject, or patient, who has inhaled a hyperpolarised noble gas and the functionality of the gas as a contrast agent. Newly licensed technology from Duke University extends the protection over these patents through to the early 2030s; Polarean Imaging plc 10  Strategic Report continued • • hyperpolarisation methods – these are Polarimetry patents covering the methods by which noble gases are polarised and the methods by which the resulting polarised gas is isolated and delivered to patients. The latest of these patents expire in the early 2020s; hyperpolarisation equipment – these patents cover the multiple preferred mechanical design and automation elements of hyperpolarised equipment; and • RF coil patents – these patents cover the use of cryogenics to improve RF coils SNR and image quality and may play an important part in the next generation of applications such as neurological, cardiac and oncology imaging. Polarean is committed to proactively developing further IP, both internally and through licensing arrangements with third parties, as part of the Group’s overall growth strategy. The third parties are likely to include the Group’s key collaborative academic sites, such as Duke University, that are seeking to develop emerging applications and technologies. Because of the Group’s extensive patent portfolio and leading market position, the Directors believe the Group is an attractive licensing partner for academic research institutions that are interested in out-licensing such IP. One such patent application (US15/120013), which is currently pending, relates to improving the overall efficiency of the hyperpolarisation process. This patent has also been exclusively licensed to the Group by Duke University. The Directors believe that this patent, now having been prosecuted successfully to issuance in a number of geographic jurisdictions worldwide, would enable the Group to protect methods for increasing the level of hyperpolarisation significantly, which could improve the competitive economics of the Group’s products. 6. Principal Risks and Uncertainties The principal risks and uncertainties facing the Group are detailed below: Early stage of operations The Group’s operations are at an early stage of development and there can be no guarantee that the Group will be able to, or that it will be commercially advantageous for the Group to, develop its proprietary technology. Further, the Group currently has no positive operating cash flow and its ultimate success will depend on the Directors’ ability to implement the Group’s strategy, generate cash flow and access capital markets. Principal mitigation The Group has successfully advanced the 129Xe technology for several years, including selling polarisers for the research market. The Group has been able to access capital required to continue to advance the technology. Regulatory approvals and compliance The Group will need to obtain various regulatory approvals (including FDA and EMA approvals) and otherwise comply with extensive regulations regarding safety, quality and efficacy standards in order to market its future products. These regulations, including the time required for regulatory review, vary from country to country and can be lengthy, expensive and uncertain. Principal mitigation The Group utilises external specialists in regulatory affairs who consult with other experts to ensure that internal control processes and clinical trial designs meet current regulatory requirements. The Group also engages directly with regulatory authorities when appropriate. Future funding requirements The Group will need to raise additional funding or enter into a strategic partnership with industry partners to undertake work beyond that being funded by the US$10.4m (before expenses) fundraising that was first announced on 13 March 2020 (see below). There is no certainty that this will be possible at all or on acceptable terms. Principal mitigation The Group successfully engaged with investors to generate significant cash resources to date, including the recent financing that raised, US$10.4m, before expenses. The Group’s Management Team expects that continued access to capital markets, or other access to capital, will be required to support the Group through regulatory approval and initial commercialisation efforts in the United States. See Going Concern discussion below. Dependence on key personnel The success of the Group, in common with other businesses of a similar size, will be highly dependent on the expertise and experience of the Directors and key employees. However, the retention of such key personnel cannot be guaranteed. Should Polarean Imaging plc 11  Strategic Report continued key personnel leave the Group’s business, prospects, financial condition or results of operations may be materially adversely affected. Principal mitigation The Group’s recruitment processes are designed to identify and attract the best candidates for specific roles. The Group aims to provide competitive rewards and incentives to staff and directors. Intellectual property and proprietary technology No assurance can be given that any current or future patent applications will result in granted patents, that the scope of any patent protection will exclude competitors or provide competitive advantages to the Group, that any of the Group’s patents will be held valid if challenged or that third parties will not claim rights in or ownership of the patents and other proprietary rights held by the Group. Principal mitigation The Group has a long-standing track record of IP generation and successful applications and has a long-standing relationship with our patent attorney who has a deep understanding of our technology. The Group actively manages its IP, engaging with specialists to apply for and defend IP rights in appropriate territories. Technology and products The Group is a manufacturer and service provider for noble gas 29Xe devices and ancillary instruments with a special focus on pulmonary imaging. The development and commercialisation of its proprietary technology and future products, which are in early stages of development, will require multiple series of clinical trials and there is a risk that safety and efficacy issues may arise when the products are tested. There is also a risk that there will be delays to the development of the products or that unforeseen technical problems arise as the Group’s technology becomes increasingly automated. These risks are common to all new medical products and there is also a risk that the clinical trials may not be successful. Principal mitigation The Group has a depth of knowledge and experience in the area of medical devices development for the high-resolution medical imaging market. The Group also utilises external experts to supplement their knowledge in critical areas such as safety, manufacturing and software development. Research and development risk The Group will be operating in the life sciences and medical device development sector and will look to exploit opportunities within that sector. The Group will therefore be involved in complex scientific research and industry experience indicates that there may be a very high incidence of delay or failure to produce results. The Group may not be able to develop new products or to identify specific market needs that can be addressed by technology solutions developed by the Group. Principal mitigation The Group has a depth of knowledge and experience in the area of medical devices development for the high-resolution medical imaging market. The Group also utilises external experts to supplement their knowledge in critical areas such as conducting clinical trials and regulatory affairs. Competition The Group notes that several start-ups operating in the CT software space have begun efforts to commercialize products which represent to characterize lung ventilation. These technologies use ionizing radiation, whereas the Group’s technology does not. In addition, these technologies are unable to further assess gas exchange, red blood cell transport, nor microvascular hemodynamics. Principal mitigation The Group believes that these emerging technologies validate the unmet need for the use of imaging in assessing pulmonary function. However, their use of ionizing radiation, combined with their inability to assess comprehensive pulmonary function will render their utility limited and we see no effect on the current market expectations of Polarean. Reliance on third parties The business model for the Group anticipates that it will have limited internal resources over the next few years and that it will use third party providers wherever possible to conduct the research, development, registration, manufacture, marketing and sales of its proposed products. The commercial success of the Group’s products will depend upon the performance of these third parties. Polarean Imaging plc 12  Strategic Report continued Principal mitigation The Group seeks experts in the areas where it utilises outsourcing. Wherever possible, the Group seeks to have duplicate suppliers to lessen the reliance on a particular vendor. Manufacturing There can be no assurance that the Group’s proposed products will be capable of being manufactured in commercial quantities, in compliance with regulatory requirements and at an acceptable cost. The Group intends to outsource the manufacture of the raw materials and finished products required in connection with the research, development and commercial manufacture of its proposed products and, as such, will be wholly dependent upon third parties for the provision of adequate facilities and raw material supplies. 129Xe, the specific isotope of Xenon which is the active ingredient in the Group’s drug-device product, is available from a limited number of suppliers and there can be no assurance that adequate supplies of this material at acceptable cost can be obtained. In addition, where the Group is dependent upon third parties for manufacture, its ability to procure the manufacture of the drug-device in a manner which complies with regulatory requirements may be constrained, and its ability to develop and deliver such products on a timely and competitive basis may be adversely affected. Principal mitigation The Group has designed the manufacturing process to be scalable and internal experts that train the outside vendors. The Group has established relationships with two 129Xe suppliers to mitigate the risk that 129Xe supply will be a limitation to the development and commercialisation of its products. In addition, the Group has established relationships with two outside polariser manufacturers. Product development timelines Product development timelines are at risk of delay, particularly since it is not always possible to predict what the FDA will require for approval of the NDA. There is a risk therefore that product development could take longer than presently expected by the Directors. If such delays occur the Group may require further working capital. The Directors shall seek to minimise the risk of delays by careful management of projects. Principal mitigation The Group utilizes consultants who are experts in preparing and filing NDA’s in the United States. The Group contracted with an additional clinical site to increase the enrolment rate for the clinical trial. General legal and regulatory issues The Group’s operations are subject to laws, regulatory restrictions and certain governmental directives, recommendations and guidelines relating to, amongst other things, occupational safety, laboratory practice, the use and handling of hazardous materials, prevention of illness and injury, environmental protection and animal and human testing. There can be no assurance that future legislation will not impose further government regulation, which may adversely affect the business or financial condition of the Group. Furthermore, as the Group already has some exposure to the UK market, there is a risk that possible changes resulting from the Brexit negotiations could lead to additional barriers to trade and regulatory divergence which could adversely affect the Group. Principal mitigation The Group consults experts for advice in areas such as occupational safety, laboratory practice and human testing. The Group’s initial focus is on the US market, so Brexit negotiations should not impact the development pathway for the Group’s products. The Group will continue to monitor the Brexit situation and assess the impact on the Group’s ability to access capital in the UK. Healthcare pricing environment In common with other healthcare products companies, the ability of the Group and any of its licensees or collaborators to market its products successfully depends in part on the extent to which reimbursement for the cost of such products and related treatment will be available from government health administration authorities, private health coverage insurers and other organisations. Principal mitigation The Group is consulting with several experts in the field of reimbursement for healthcare products in the US to determine the best strategy for accessing adequate reimbursement for its products. Polarean Imaging plc 13  Strategic Report continued 7. S172 statement As required by Section 172 of the Companies Act, a director of a company must act in the way he or she considers, in good faith, would likely promote the success of the company for the benefit of the shareholders. In doing so, the director must have regard, amongst other matters, to the following issues: • the likely consequences of any decisions in the long term; • the interests of the company’s employees; • the need to foster the company’s business relationships with suppliers/customers and others; • the impact of the company’s operations on the community and environment; • the company’s reputation for high standards of business conduct; and • the need to act fairly between members of the company. The information required by s172 of the Companies Act 2006 is included in the Strategic Report above, the Directors Report on pages 18 and 19 and the Corporate Governance Statement on pages 20 to 24. Jonathan Allis Non-Executive Chairman 17 June 2020 Polarean Imaging plc 14  Directors’ Report The Directors present their report on the affairs of Polarean Imaging plc (the “Company”) and its subsidiaries, referred to as the Group, together with the audited Financial Statements and Independent Auditors’ Report for the year ended 31 December 2019. Principal activities The main activity of the Group is a drug-device manufacturer and service provider for noble gas polariser devices, its proprietary 129Xe drug and ancillary instruments with a special focus on pulmonary imaging. Results and dividends During the year ended 31 December 2019 the Group recorded a loss after tax of US$6,103,340 (2018: US$5,454,659) and a net cash outflow from operating activities of US$4,565,709 (2018: US$4,676,346). The Directors do not recommend the payment of a dividend (2018: US $nil). Going concern In considering the appropriateness of this basis of preparation, the Directors have reviewed the Group’s working capital forecasts for a minimum of 12 months from the date of the approval of this financial information. Based on their consideration the Directors have reasonable expectation that the Group has adequate resources to continue for the foreseeable future and that carrying values of intangible assets are supported. Thus, they continue to adopt the going concern basis of accounting in preparing this financial information. Future developments The Company’s future developments are outlined in the Strategic Report on page 6. Research design & development Research and development is performed by employees of the company and through collaborative efforts with academic researchers. The Group is committed to increasing its R&D budget to meet anticipated market demands for additional technology. In addition, the company also in-licenses technology from collaborative academic institutions. Details of R&D carried out during the year are contained in the Strategic Report. Financial risk management Financial risk management policies and objectives for capital management are outlined in the principal risks and uncertainties section of the strategic report on pages 11 to 13 and in note 25 to the financial statements. Directors’ indemnities The Group has made qualifying third-party indemnity provisions for the benefit of its Directors, which were made during the year and remain in force at the date of this report. Events after the reporting period Details of significant events since the reporting period are contained in note 28 of the financial statements. Directors Richard Morgan Robert Bertoldi Richard Hullihen Kenneth West Non-Executive Chairman Non-Executive Director Chief Executive Officer Chief Operating Officer Bastiaan Driehuys, PH.D. Chief Technology Officer Appointed Resigned - - - - - 3 February 2020 3 February 2020 - - - - - - Jonathan Allis, PH.D. Non-Executive Chairman 3 February 2020 Jurgen Laucht Cyrille Petit Non-Executive Director Non-Executive Director - 1 June 2020 Jonathan Allis was a Non-Executive Director until 3 February 2020, when he was appointed as Non-Executive Chairman. Cyrille Petit was also appointed to the audit committee on 1 June 2020. Polarean Imaging plc 15 Directors’ emoluments 2019 Executive Directors Bastiaan Driehuys Richard Hullihen Kenneth West Non-Executive Directors Richard Morgan Jonathan Allis Robert Bertoldi Juergen Laucht Total 2018 Executive directors Bastiaan Driehuys (Note A) Richard Hullihen (Note B) Kenneth West (Note C) Non-Executive Directors Richard Morgan (Note A) Jonathan Allis (Note A) Robert Bertoldi (Note A) Juergen Laucht (Note A) Total Directors’ Report continued Salary, Fees & Bonus Benefits Share-Based Payments US$ US$ US$ 50,000 275,000 168,750 115,000 45,000 55,000 55,000 - 11,503 8,302 - - - - 9,043 36,136 34,826 9,043 9,043 9,043 9,043 Total US$ 59,043 322,639 211,878 124,043 54,043 64.043 64.043 763,750 19,805 116,177 899,732 Salary, Fees & Bonus Benefits Share-Based Payments US$ US$ US$ 37,500 269,000 225,000 86,250 33,750 41,250 41,250 - 11,203 8,099 - - - - 9,043 36,136 34,826 9,043 9,043 9,043 9,043 Total US$ 46,543 316,339 267,925 95,293 42,793 50,293 50,293 734,000 19,302 116,177 869,479 Note A: The Board agreed to a 100% salary deferral in 2018. These amounts were paid in 2019. Note B: Richard Hullihen agreed to a salary deferral in 2018. The amount included in salaries is US$117,437. Note C: Kenneth West agreed to a salary deferral in 2018. The amount included in salaries is US$93,750. Polarean Imaging plc 16 Directors’ interests Directors’ Report continued The Directors who held office at 31 December 2019 had the following direct interest in the ordinary shares of the Company at 31 December 2019. Directors’ beneficial interests in shares of the Company: Richard Morgan Richard Hullihen Robert Bertoldi Kenneth West Bastiaan Driehuys Jonathan Allis 2019 Number 698,036 2,928,899 93,333 475,594 12,267,503 1,540,000 2019 % 0.6 2.6 0.1 0.4 10.7 1.3 2018 Number 419,018 2,137,354 93,333 475,594 12,267,503 - 2018 % 0.4 2.1 0.1 0.5 12.22 - The shareholdings noted above include those shares held by connected persons of the individual director. Directors’ beneficial interests in options to subscribe for additional shares of the Company: Richard Morgan Richard Hullihen Robert Bertoldi Kenneth West Bastiaan Driehuys Jonathan Allis Juergen Laucht 2019 Number 534,400 2,135,440 534,400 1,913,218 1,336,000 534,400 534,400 Directors’ beneficial interests in warrants to subscribe for additional shares of the Company: Bastiaan Driehuys 2019 Number 148,456 2018 Number 534,400 2,135,440 534,400 1,913,218 1,336,000 534,400 534,400 2018 Number 148,456 The warrants issued to Bastiaan Driehuys have an exercise price of US$0.00037. The warrant holdings noted above include those shares held by connected persons of the individual director. The options and warrants holdings noted above include those shares held by connected persons of the individual director. Common, Options and Warrant Shares: (On a fully diluted basis) Richard Morgan Richard Hullihen Kenneth West Bastiaan Driehuys Jonathan Allis Robert Bertoldi Number of shares at 31 December 2019 419,018 2,928,899 475,594 12,267,503 1,540,000 93,333 % held at 31 December 2019 0.4 2.6 0.5 12.2 1.3 0.1 Polarean Imaging plc 17 Share option schemes Directors’ Report continued In order to provide incentive for the management and key employees of the Group, the Company awards stock options. The Directors defined a new plan in 2018 and implemented it. The existing options granted prior to the merger were converted to options in Polarean Imaging, Plc. Substantial Shareholders As well as the Directors’ interests reported above, the following interests of 3.0% and above as at 1 April 2020 were as follows: Name Amati Global Investors Bastiaan Driehuys Bracco Imaging S.p.A. NUKEM Isotopes GmbH W.B. Nominees Limited Chelverton Asset Management Ltd John Sudol Tyndall Asset Management Hargreave Hale Limited Corporate Responsibility No of issued Ordinary Shares 23,571,429 12,267,503 12,222,222 11,234,208 8,316,224 7,777,778 7,542,121 5,850,348 5,555,555 % held 14.6 7.6 7.6 7.0 5.2 4.8 4.7 3.6 3.4 The Board recognises its employment, environmental and health and safety responsibilities. It devotes appropriate resources towards monitoring and improving compliance with existing standards. The Executive Directors are responsible for these areas at Board level, ensuring that the Group’s policies are upheld and providing the necessary resources. Employees The Group is committed to achieving equal opportunities and to complying with relevant anti-discrimination legislation. It is established Group policy to offer employees and job applicants the opportunity to benefit from fair employment, without regard to their sex, sexual orientation, marital status, race, religion or belief, age or disability. Employees are encouraged to train and develop their careers. The Group has continued its policy of informing all employees of matters of concern to them as employees, both in their immediate work situation and in the wider context of the Group’s well-being. Communication with employees is affected through the Board, the Group’s management briefings structure, formal and informal meetings and through the Group’s information systems. The Directors are responsible for preparing the Strategic Report, the Directors’ Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs’) as adopted by the EU 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 Company and the Group and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; • • make judgements and accounting estimates that are reasonable and prudent; • state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. • Polarean Imaging plc 18 Directors’ Report continued The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. They are further responsible for ensuring that the Strategic Report and the Directors’ Report and other information included in the Annual Report and Financial Statements is prepared in accordance with applicable law in the United Kingdom. The maintenance and integrity of the Polarean Imaging plc website is the responsibility of the directors. Legislation in the United Kingdom governing the preparation and dissemination of the accounts and the other information included in annual reports may differ from legislation in other jurisdictions. Auditors Each of the persons who are directors at the time when this Directors’ report is approved has confirmed that: • • so far as that director is aware, there is no relevant audit information of which the Group and the Group’s auditor is unaware; and that director has taken all the steps that ought to have been taken as a director in order to be aware of any relevant audit information and to establish that the Company and the Group’s auditor is aware of that information. Crowe U.K. LLP has expressed its willingness to continue in office and a resolution to reappoint the firm as Auditor and authorising the Directors to set their remuneration will be proposed at the forthcoming Annual General Meeting. Jonathan Allis Non-Executive Chairman 17 June 2020 Polarean Imaging plc 19 Corporate Governance Statement Corporate Governance Statement for the year ended 31 December 2019 As Chairman of the Board of Directors of Polarean Imaging Plc (Polarean, or the Company/Group as the context requires), it is my responsibility to ensure that Polarean has both sound corporate governance and an effective Board. As Chairman of the Company my responsibilities include leading the Board effectively, overseeing the Company’s corporate governance model, communicating with shareholders, and ensuring that good information flows freely between the Executive and Non-executives Directors in a timely manner. My leadership of the Board is undertaken in a manner which ensures that the Board retains integrity and effectiveness and includes creating the right Board dynamic and ensuring that all important matters, in particular strategic decisions, receive adequate time and attention at Board meetings. It is the Board’s job to ensure that Polarean is managed for the long-term benefit of all shareholders, with effective and efficient decision-making. Corporate governance is an important part of that role, reducing risk and adding value to our business. The Directors of Polarean recognise the value of good corporate governance in every part of its business. As Polarean is an AIM listed company, it is required to adopt a recognised corporate governance code and disclose how it complies with that code and, to the extent Polarean departs from the corporate governance provisions outlined by that code, it must explain its reasons for doing so. The Directors have adopted the requirements of the Quoted Companies Alliance's Corporate Governance Code for Small and Mid-Size Quoted Companies (the "QCA Code"), to the extent that they consider it appropriate having regard to the Company's size, board structure, stage of development and resources. The Board considers that compliance with the QCA Code will enable us to serve the interests of all our key stakeholders, including our shareholders, and will promote the maintenance and creation of long-term value in the Company. This report describes our approach to governance, including information on relevant policies, practices and the operation of the Board and its Committees. Additional detail on how the company has applied the QCA code is also provided in the corporate governance section of our website http://www.polarean-ir.com/content/investors/governance.asp. Any areas of non-compliance with the QCA Code are also explained. Polarean seeks to constantly improve its corporate governance practices. Prior to the Company listing in March 2018, the Company implemented certain governance related measures including the formation of the Company’s Audit and Remuneration Committees, and the adoption of a Share Dealing Code. Key governance changes that occurred in the year include the appointment of SP Angel Corporate Finance LLP as the Company’s nominated adviser and broker in January 2019, and the appointment of Charles Osborne as CFO (in a non- board member capacity) in April 2019. Since the period end, Jonathan Allis, Non-Executive Director, has assumed the role of Chairman. Jonathan Allis’ appointment followed the resignations of both Richard Morgan the Company’s former Non-Executive Chairman and Robert Bertoldi, former Non-Executive Director, in February 2020. The Company announced the appointment of Cyrille Petit to the Board of Directors and the Audit Committee on 1 June 2020. The Company has also commenced the search for a new independent Non-Executive Director and will make a further announcement in due course. Strategy, Risk Management and Responsibility A description of the Company’s business model and strategy can be found on pages 7 to 10 in the Strategic Report, and the key challenges in their execution can be found on pages 11 to 13 under “Principal Risks and Uncertainties”. The Board is responsible for the monitoring of financial performance against budget and forecast and the formulation of the Group’s risk appetite including the identification, assessment and monitoring of Polarean’s principal risks. The Board recognizes the need for an effective and well-defined risk management process, and it oversees and regularly reviews the current risk management and internal control mechanisms. The Board has overall responsibility for identifying, monitoring and reviewing the Company’s risks, and assessing the systems of external control for effectiveness. The Executive Directors report any new or changed risks, and any changes in risk management/control to the Board. The Board discusses all business matters having regard to the risks for the Group and to the extent that risks inherent in a particular activity are considered significant, appropriate action is taken and steps taken to mitigate the issue. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Company’s competitiveness and flexibility. The Board is satisfied that the procedures in place meet the particular needs of the Group in managing the risks to which it is exposed. The Board is satisfied with the effectiveness of the system of internal controls, but by their very nature, these procedures can provide reasonable, not absolute, assurance against material misstatement or loss. During the review period, the Board delegated responsibility to the Audit Committee for ensuring that the Company’s management reviews, monitors and reports on the integrity of the consolidated financial statements of the Company and related financial information. Subsequent to the review period, Mr Morgan and Mr Bertoldi resigned as Directors and therefore at time of publication there currently is not a fully constituted Audit Committee. However, it is the Board’s intention to recruit an additional Non-Executive Director who will have a robust level of financial competency and chair Polarean Imaging plc 20 Corporate Governance Statement continued the Audit Committee. As a result, there will be no Audit Committee Report outlined in this Annual Report. The Company has strict segregation of duties and authority controls which are reviewed annually by the auditors. The Board currently takes the view that an internal audit function is not considered necessary or practical due to the size of the Group, its business and assets, and the close day to day control exercised by the executive directors. The Board is satisfied that the systems and procedures currently employed provide sufficient assurance that a sound system of internal controls are in place, which safeguards the shareholders’ investment and the Group’s assets. However, the Board will continue to monitor the need for an internal audit function. The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate risk of failure to achieve the business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Company’s current system of internal financial control comprises those controls established to provide reasonable assurance of: • • The safeguarding of assets against unauthorized use or disposal; and The maintenance of proper accounting records and the reliability of financial information used within the business and for publication. The key procedures of internal financial control of the Group are as follows: • • The Board reviews and approves budgets and monitors performance against those budgets on a monthly basis; and The Group has clearly defined reporting and authorization on procedures relating to the key financial areas. The outbreak of the recent global COVID-19 virus has resulted in increased risks within the global economy. The extent of the effect of the virus, including its long-term impact, remains uncertain and the Company continues to monitor the situation. The Board During the review period, the Board comprised of Richard Morgan (Non-Executive Chairman), Richard Hullihen (CEO), Bastiaan Driehuys (CTO), Kenneth West (COO), Robert Bertoldi (NED), Juergen Laucht (NED) and Jonathan Allis (independent NED). Subsequent to the review period, Mr Morgan and Mr Bertoldi resigned as Directors, Mr Allis assumed the responsibilities of Chairman of the Board and Cyrille Petit was appointed as a NED. The Board is supported by the Chief Financial Officer, Charles Osborne, and the Company Secretary, Stephen Austin. The biographical details of the Directors of the Company are set out on the Company’s website: http://www.polarean- ir.com/content/investors/board.asp. The Board meets regularly and is responsible for the Group’s corporate strategy, monitoring financial performance, approval of capital expenditure, treasury and risk management policies. Board papers are sent out to all Directors in advance of each Board meeting including management accounts and accompanying reports from those responsible. The Directors believe that the Board, as a whole, has a broad range of commercial and professional skills, enabling it to discharge its duties and responsibilities effectively and that the Non-Executive Directors, together, have a sufficient range of experience and skills to enable them to provide the necessary guidance, oversight and advice for the Board to operate effectively. All Directors are encouraged to use their independent judgement and to challenge all matters, whether strategic or operational. Jonathan Allis is currently the Company’s only independent Non-Executive Director. The Company acknowledges that the guidance in the QCA Code is for a company to have at least two independent Non-Executive Directors. As such, the Directors shall keep the position under regular review and to the extent additional independence is felt to be required on the Board, it shall be sought. The Board will seek to take into account any Board imbalances for future nominations. The Company is committed to a culture of equal opportunities for all employees regardless of gender. The Board aims to be diverse in terms of its range of culture, nationality and international experience. Given the current phase of Polarean’s life cycle, the Board has determined that it is not practicable to set measurable objectives for achieving gender diversity. It is the Board’s intention as the size and complexity of the Company grows, to set and aim to achieve gender diversity objectives pursuant to a defined diversity policy. All of the Executive Directors work full time for the Company. The Chairman is expected to devote the necessary amount of time to comprehensively fulfil the duties of the role, and in any case not less than 52 days per annum, and the Non- Executive Directors are each expected to dedicate not less than 15 days per annum to the Company’s affairs. The time commitment required by the Group is an overriding principle that each director will devote as much time as is required to carry out the roles and responsibilities that the director has agreed to take on. Polarean Imaging plc 21 Corporate Governance Statement continued The Non-Executive Directors receive a fee for their services as a director which is approved by the Board, being mindful of the time commitment and responsibilities of their roles and of current market rates for comparable organisations and appointments. In addition, Non-Executive Directors are also reimbursed for travelling and other incidental expenses incurred on Group business. Executive and Non-Executive Directors are subject to re-election intervals as prescribed in the Company’s Articles of Association. At each Annual General Meeting one-third of the Directors, who are subject to retirement by rotation shall retire from office. They can then offer themselves for re-election. The letters of appointment of all directors are available for inspection at the Company’s registered office during normal business hours. The Executive Directors are employed under service contracts requiring six months’ notice by either party. Non-Executive Directors and the Chairman receive payments under appointment letters which are terminable by three months’ notice by either party. There were 9 scheduled board meetings held during 2019. The table below sets out attendance statistics for each Director at Board and, where relevant, Committee meetings held during the financial year. Director Richard Morgan Richard Hullihen Kenneth West Bastiaan Driehuys Robert Bertoldi Jonathan Allis Juergen Laucht Board (9 meetings held) 9/9 8/9 8/9 8/9 7/9 7/9 8/9 Audit Committee (2 meetings held) 2/2 - - - 2/2 - 2/2 Remuneration Committee (1 meeting held) 1/1 - - 1/1 - - 1/1 The Board, as a whole, is responsible for the overall management of the Group and for its strategic direction, including approval of the Group’s strategy, its annual business plans and budgets, the interim and full year financial statements and reports, any dividend proposals, the accounting policies, major capital projects, any investments or disposals, its succession plans and the monitoring of financial performance against budget and forecast and the formulation of the Group’s risk appetite including the identification, assessment and monitoring of Polarean’s principal risks. In accordance with best practice, Polarean has adopted a formal schedule of Matters Reserved for the Board. These are reviewed annually, and any items not included within the schedule are delegated to the management team. In order to discharge their duties effectively, the Board uses third parties to advise the Directors of their responsibilities including receiving advice from the Company’s external lawyers. The Board reviews the appropriateness and opportunity for continuing professional development in order to keep each Director’s skillset up to date. In addition to their general Board responsibilities, Non-Executive Directors are encouraged to be involved in specific workshops or meetings, in line with their individual areas of expertise. The Board shall review annually the appropriateness and opportunity for continuing professional development, whether formal or informal. Polarean’s Company Secretary, Stephen Austin, is responsible for ensuring that Board procedures are followed and that the Company complies with all applicable rules, regulations and obligations governing its operation, as well as helping the Chairman maintain excellent standards of corporate governance. There are processes in place enabling Directors to take independent advice at the Company’s expense in the furtherance of their duties, and to have access to the advice and services of the Company Secretary. Board Committees Certain Board responsibilities are delegated to committees who fulfil these functions in line with the terms of references established by the Board. Audit Committee During the review period, Robert Bertoldi, Non-Executive Director, was Chairman of the Audit Committee. The other members of the Committee were Richard Morgan and Juergen Laucht. The Audit Committee’s responsibilities during the review period included ensuring that the financial performance, position and prospects for the Group are properly monitored, controlled and reported. The Committee held 2 meetings during the year. As outlined above, subsequent to the review period, Mr Morgan and Mr Bertoldi resigned as Directors, and Cyrille Petit was appointed to the Audit Committee following his appointment to the Board. Therefore, at time of publication there currently is not a fully constituted Audit Committee. However, it is the Board’s intention to recruit an additional Non-Executive Director who will have a robust level of financial competency and chair the Audit Committee and at such time it is the Board’s intention to re-constitute the Audit Committee. Polarean Imaging plc 22 Corporate Governance Statement continued Remuneration Committee During the review period, Richard Morgan, Non-Executive Director, served as Chairman of the Remuneration Committee. The other members of the Committee were Bastiaan Driehuys and Juergen Laucht. The Remuneration Committee is currently comprised of Jonathan Allis, serving as Chairman of the Remuneration Committee, Bastiaan Driehuys and Juergen Laucht. The Remuneration Committee is responsible for reviewing performance of Executive Directors and determining the remuneration and basis of service agreements. The Remuneration Committee also determines the payment of any bonuses to Executive Directors and the grant of options. Executive remuneration packages are designed to attract and retain executives of the necessary skill and calibre to run the Group. The Remuneration Committee recommends to the Board the remuneration packages by reference to individual performance and uses the knowledge and experience of the Committee members, published surveys relating to AIM companies, the medical imaging and contrast agents’ industries and market changes generally. During the year, the Remuneration Committee met on one occasion. A report by the Chairman of the Remuneration Committee is included on pages 25 and 26. Nomination Committee The Company does not currently have a Nomination Committee, as the Board does not consider it appropriate to establish such a committee at this stage of the Company’s development. Decisions which would usually be taken by the nomination committee, such as appointments to the Board, will be taken by the Board as a whole. The Board will monitor on an ongoing basis the need for a formal Nominations Committee. The Chairman and the Board continue to monitor and evolve the Company’s corporate governance structures and processes, and maintain that these will evolve over time, in line with the Company’s growth and development. Advisors The Board has regular contact with its Advisors to ensure that it is aware of changes to generally accepted corporate governance procedures and requirements and that the Group remains, at all times, compliant with applicable rules and regulations. The Company holds appropriate insurance cover in respect of possible legal action against its Directors. The Company’s nominated advisor supports the Board’s development, specifically providing guidance on corporate governance and other regulatory matters, as required. All Directors may receive independent professional advice at Polarean’s expense, if necessary, for the performance of their duties. Board Performance Evaluation Formal internal evaluation of the Board, its Committees and individual directors is seen as an important next step in the development of the board. Going forward, this will be undertaken on annual basis in the form of peer appraisal, questionnaires and discussions to determine the effectiveness and performance in various areas as well as the directors’ continued independence. The criteria against which effectiveness is considered will be aligned to the strategy of the Group and management forecasts and budgets that are already in place. The purpose of such an evaluation will be to ensure that its members collectively function in an efficient manner, focusing more closely on defined objectives and targets for improving performance, as well as reviewing the effectiveness of each Committee. During frequent Board meetings/calls, the Directors discuss areas where they feel a change would be beneficial for the Company, and the Company Secretary remains on hand to provide advice. During the review period, the Board conducted a self- evaluation process whereby the Chairman assessed the individual contributions of each of the members of the team to ensure that: Their contribution is relevant and effective; That they are committed; and • • • Where relevant, they have maintained their independence. Culture The Board recognises that their decisions regarding strategy and risk will impact the corporate culture of the Group as a whole and that this will impact the performance of the Group. The Board is very aware that the tone and culture set by the Board will greatly impact all aspects of the Group as a whole and the way that employees behave. A large part of the Group’s activities is centered upon addressing customer and market needs. Therefore, the importance of sound ethical values and behaviour is crucial to the ability of the Group to successfully achieve its corporate objectives. The Board places great importance on this aspect of corporate life and seeks to ensure that this flows through all that the Group does. The Board assessment of the culture within the Group at the present time is one where there is respect Polarean Imaging plc 23 Corporate Governance Statement continued for all individuals, there is open dialogue within the Group and there is a commitment to provide the best service possible to all the Group’s key customers. The Company operates in a manner that encourages an open and respectful dialogue with employees, customers and other stakeholders and the Board considers that sound ethical values and behaviour are crucial to the ability of the Company to achieve its corporate objectives. The Group is committed to the highest standards of personal and professional ethical behaviour, and this must be reflected in every aspect of the way in which the Company operates. The Board places great importance on this aspect of corporate life and seeks to ensure that this flows through all that the Company does. The Directors consider that at present the Group has an open culture facilitating comprehensive dialogue and feedback and enabling positive and constructive challenge. The Executive Directors regularly meet with senior management and discuss staff well-being, development and staff feedback. Employees are encouraged to engage directly with Directors, and the Group seeks to promote Group values and behaviour through a top-down approach. The Board understands that the nature of its market, including high end academic research universities and hospitals, brings with it a level of public scrutiny in procurement. As such, the Board ensures there is the utmost transparency and accessibility from the Board and external advisors that oversee the Group’s activities. Anti-Bribery Policy The Group takes a zero-tolerance approach to bribery and corruption and is committed to acting professionally, fairly and with integrity in all business dealings and relationships wherever they occur. The Group implements effective systems to counter bribery and corruption and as part of this it has adopted an anti-bribery and anti-corruption policy. The policy provides guidance to those working for the Group on how to recognise and deal with bribery and corruption issues and the potential consequences and applies to all persons working for the Group or on its behalf in any capacity, including employees at all levels, directors, officers, consultants and agents. Share Dealing The Group has a Share Dealing Code, which will apply to any person discharging management responsibility, including the Directors and members of the senior management team and any closely associated persons and applicable employees. The Share Dealing Code imposes restrictions beyond those that are imposed by law (including by Financial Services and Markets Act 2000 and the Market Abuse Regulation (EU) No.596/2014 and other relevant legislation) and its purpose is to ensure that persons discharging managerial responsibility and persons connected with them do not abuse, and do not place themselves under suspicion of abusing, price-sensitive information that they may have or be thought to have, especially in periods leading up to an announcement of both financial results and the results of the Group’s clinical trials. The Share Dealing Code sets out a notification procedure which is required to be followed prior to any dealing in the Company’s securities. Communication with Shareholders The Board is committed to maintaining good communication and having constructive dialogue with its shareholders in order to maintain good investor relations and seeks, wherever possible to attain a relationship of mutual understanding with both institutional and private client investors. As such, Polarean takes a proactive approach to Investor Relations initiatives with ongoing support from Walbrook PR Limited, the Group’s Financial PR Advisors. These investor relations initiatives include (but are not limited to): • • • shareholder events in London and elsewhere; the use of Social Media, in accordance with the Group’s Social Media Policy, and the Company’s website; and interviews with platforms such as Proactive Investors around key developments. Institutional shareholders and analysts have the opportunity to discuss issues and provide feedback at meetings with the Company. In normal circumstances, attendance is actively encouraged for the Company’s Annual General Meeting and any other General Meetings which are held throughout the year. The corporate governance arrangements that the Board has adopted are designed to ensure that the Company delivers long-term value to its shareholders and that shareholders are able to express their views and expectations for the Company in a manner that encourages open dialogue with the Board. Polarean Imaging plc 24 Remuneration Committee Report Remuneration Committee Report Dear Shareholder, As the Chairman of Polarean’s Remuneration Committee, I present my first Remuneration Committee Report for the year ended 31 December 2019, which has been prepared by the Committee and approved by the Board. The Remuneration Committee is responsible for determining the remuneration policy for the Executive Directors, and for overseeing the Company’s long-term incentive plans. The Board as a whole is responsible for determining Non- Executive Directors’ remuneration. The Committee will continue to monitor market trends and developments in order to assess those relevant for the Group’s future remuneration policy. Remuneration policy for 2019 and future years The Remuneration Committee determines the Company’s policy on the structure of Executive Directors’ and if required, senior management’s remuneration. The objectives of this policy are to: • Reward Executive Directors and senior management in a manner that ensures that they are properly incentivised and motivated to perform in the best interests of shareholders; • Provide a level of remuneration required to attract and motivate high-calibre Executive Directors and senior management of appropriate calibre; • Encourage value creation through consistent and transparent alignment of incentive arrangements with the agreed company strategy over the long term; and • Ensure the total remuneration packages awarded to Executive Directors, comprising both performance-related and non-performance-related remuneration, is designed to motivate the individual, align interests with shareholders and comply with corporate governance best practice. Objectives and Responsibilities The Remuneration Committee’s main responsibilities can be summarised as follows: • • • • • • • • • • To determine the framework or broad policy for the remuneration of the Chairman, the Executive Directors, and such other senior executives as it is requested by the Board to consider. The remuneration of Non-Executive Directors shall be a matter for the Chairman and the Executive Directors of the Board. No Director shall be involved in any decisions as to their own remuneration; To determine such remuneration policy, taking into account all factors which it deems necessary (including relevant legal and regulatory requirements); To review the ongoing appropriateness and relevance of the remuneration policy, including policy comparisons with market competitors; To design and determine targets for any performance related pay schemes operated by the Company and approving the total annual payments made under such schemes; To review the design of, and any changes to, all share incentive plans; To advise on any major changes in employee benefits structures throughout the Company; To review the structure, size and composition of the Board, including the skills, knowledge and experience; To give full consideration to succession planning; To recommend new Board appointments; and To consider any matter specifically referred to the Committee by the Board. Remuneration Policy for Non-Executive Directors During the reporting period, Richard Morgan, Juergen Laucht, Robert Bertoldi and I each receive a fee for our services as Directors, which is approved by the Board, and takes into account the time commitment and responsibilities of our roles and the current market rates for comparable organisations and appointments. Remuneration decisions for 2019 Bonuses payable for the year ended 31 December 2019 was US$nil (2018: US$nil). Polarean Imaging plc 25 Remuneration Committee Report continued Remuneration Committee Effectiveness The Committee is due to perform a self-assessment of its effectiveness during the second half of 2020. Further information on Directors’ remuneration, including Directors’ emoluments, share options and warrants holdings can be found in the Directors’ Report on pages 15 to 18. Jonathan Allis Chairman of the Remuneration Committee 17 June 2020 Polarean Imaging plc 26  Independent Auditors’ report to the members of Polarean Imaging plc Opinion We have audited the financial statements of Polarean Imaging plc (the “Parent Company”) and its subsidiaries (the “Group”) for the year ended 31 December 2019, which comprise: • • • • • the Group statement of comprehensive income for the year ended 31 December 2019; the Group and parent company statements of financial position as at 31 December 2019; the Group and parent company statements of cash flows for the year then ended; the Group and parent company statements of changes in equity for the year then ended; and the notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. In our opinion: • • • • the financial statements give a true and fair view of the state of the Group’s and of the Parent Company's affairs as at 31 December 2019 and of the Group’s loss for the period then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when: • • The directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or The directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Overview of our audit approach Materiality In planning and performing our audit we applied the concept of materiality. An item is considered material if it could reasonably be expected to change the economic decisions of a user of the financial statements. We used the concept of materiality to both focus our testing and to evaluate the impact of misstatements identified. Based on our professional judgement, we determined overall materiality for the Group financial statements as a whole to be US$300,000 (2018: $250,000), which represents approximately 5% of the Group’s operating loss. We use a different level of materiality (‘performance materiality’) to determine the extent of our testing for the audit of the financial statements. Performance materiality is set based on the audit materiality as adjusted for the judgements made as to the entity risk and our evaluation of the specific risk of each audit area having regard to the internal control environment. Where considered appropriate performance materiality may be reduced to a lower level, such as, for related party transactions and directors’ remuneration. Polarean Imaging plc 27  Independent Auditors’ report to the members of Polarean Imaging plc continued We agreed with the Audit Committee to report to it all identified errors in excess of US$7,500 (2018: $6,000). Errors below that threshold would also be reported to it if, in our opinion as auditor, disclosure was required on qualitative grounds. Overview of the scope of our audit Polarean Imaging plc and its subsidiaries are accounted for from one operating location in North Carolina, USA. Our audit was conducted from this location and from London, U.K and all Subsidiary companies were within the scope of our audit testing. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. How the scope of our audit addressed the key audit matter We designed procedures to test each revenue stream and considered whether the revenue recognition policy applied to the revenue stream was appropriate. Our testing in this area included agreeing that revenue was appropriately recognised. This included cut off procedures. Key audit matter Revenue recognition Revenue is a significant figure in these financial statements and is generated from various streams. Our audit risk focuses on the risk that revenues may be to meet market expectations. We overstated specifically revenue risks identified transactions recorded in the year may not exist (the risk of fictitious revenue transactions) or that revenues transactions recorded in the year may not have been despatched to the customer before year end and therefore may have been recorded in the incorrect period. that either The accounting policy is documented in note 3 Our audit procedures in relation to the above matter was designed in the context of our audit opinion as a whole. They were not designed to enable us to express an opinion on these matters individually and we express no such opinion. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinion on other matter prescribed by the Companies Act 2006 In our opinion based on the work undertaken in the course of our audit • • the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the directors’ report and strategic report have been prepared in accordance with applicable legal requirements. Polarean Imaging plc 28  Independent Auditors’ report to the members of Polarean Imaging plc continued Matters on which we are required to report by exception In light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • • • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors' remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Responsibilities of the directors for the financial statements As explained more fully in the directors’ responsibilities statement set out on page 18, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the Group's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Group's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group and the Group's members as a body, for our audit work, for this report, or for the opinions we have formed.] Stephen Bullock (Senior Statutory Auditor) for and on behalf of Crowe U.K. LLP Statutory Auditor London 17 June 2020 Polarean Imaging plc 29  Consolidated Statement of Comprehensive Income for the year ended 31 December 2019 Revenue Cost of sales Gross profit Administrative expenses Depreciation Amortisation Selling and distribution expenses Share-based payment expense Total administrative expenses Operating loss Finance income Finance expense Loss before tax Taxation Loss for the year and total other comprehensive expense Notes 4 11 6 19 6 7 7 10 2019 US$ 2,301,093 (925,612) 1,375,481 (6,010,119) (63,121) (683,873) (324,791) (305,747) (7,387,651) (6,012,170) 508 (91,678) (6,103,340) - (6,103,340) 2018 US$ 2,439,139 (633,463) 1,805,676 (6,161,916) (10,140) (616,852) (31,766) (251,790) (7,072,464) (5,266,788) 184 (188,055) (5,454,659) - (5,454,659) Loss per share Basic and diluted (US$) 9 (0.057) (0.078) The results reflected above relate to continuing activities. There is no recognised income or expense for the year other than the loss above and therefore no separate statement of other comprehensive income has been presented. The accompanying notes on pages 37 to 59 are an integral part of these financial statements. Polarean Imaging plc 30  Consolidated Statement of Financial Position at 31 December 2019 Notes ASSETS Non-current assets Property, plant and equipment Intangible assets Right-of-use asset Trade and other receivables Current assets Inventories Trade and other receivables Cash and cash equivalents TOTAL ASSETS EQUITY AND LIABILITIES Equity attributable to holders of the parent Share capital Share premium Group re-organisation reserve Share-based payment reserve Accumulated losses Non-current liabilities Deferred income Lease liability Contingent consideration Current liabilities Trade and other payables Lease liability Borrowings Deferred income TOTAL EQUITY AND LIABILITIES 11 12 24 14 15 14 16 17 18 18 19 18 21 24 20 22 24 23 21 2019 US$ 2018 US$ 355,958 3,427,547 98,263 5,539 3,887,307 554,211 636,783 1,961,869 3,152,863 7,040,170 17,752 4,044,398 - 12,539 4,074,689 651,781 4,226,585 875,601 5,753,967 9,828,656 55,776 13,659,912 7,813,337 1,370,734 (18,309,681) 49,427 11,063,075 7,813,337 1,078,335 (12,212,767) 4,590,078 7,791,407 192,817 50,455 316,000 559,272 1,773,582 70,914 - 46,324 1,890,820 7,040,170 70,726 - 316,000 386,726 1,590,482 - 5,213 54,828 1,650,523 9,828,656 These Financial Statements were approved and authorised for issue by the Board of Directors on 17 June 2020 and were signed on its behalf by: Jonathan Allis Non-Executive Chairman The accompanying notes on pages 37 to 59 are an integral part of these financial statements. Polarean Imaging plc 31  Company Statement of Financial Position as at 31 December 2019 Notes ASSETS Non-current assets Investment in subsidiary Current assets Trade and other receivables Cash and cash equivalents TOTAL ASSETS EQUITY AND LIABILITIES Equity attributable to holders of the parent Share capital Share premium Merger reserve Share-based payment reserve Accumulated losses Current liabilities Trade and other payables TOTAL EQUITY AND LIABILITIES 13 14 16 17 18 18 19 18 22 2019 US$ 2018 US$ 4,342,848 4,342,848 4,342,848 4,342,848 11,543,854 56,765 11,600,619 9,370,611 235,766 9,606,377 15,943,467 13,949,225 55,776 13,659,912 4,322,527 1,065,703 (3,213,450) 49,427 11,063,075 4,322,527 773,304 (2,287,282) 15,890,468 13,921,051 52,999 52,999 28,174 28,174 15,943,467 13,949,225 As permitted by section 408 of the Companies Act 2006, no separate statement of Comprehensive Income is presented in respect of the parent Company. The loss for the financial year dealt with in the financial statements of the parent Company was US$939,516 (2018: US$1,330,568). These Financial Statements were approved and authorised for issue by the Board of Directors on 17 June 2020 and were signed on its behalf by: Jonathan Allis Non-Executive Chairman The accompanying notes on pages 37 to 59 are an integral part of these financial statements. Polarean Imaging plc 32 g r o - e r p u o r G d e s a b - e r a h S y t i u q e l a t o T s e s s o l l d e t a u m u c c A e v r e s e r e v r e s e r t n e m y a p y t i u q e r e h t O i m u m e r p e r a h S 9 1 0 2 r e b m e c e D 1 3 d e d n e r a e y e h t r o f y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C 0 9 7 1 5 2 , ) 6 3 4 6 4 5 ( , , 5 0 3 0 0 1 0 1 , - - - , ) 9 5 6 4 5 4 5 ( , , ) 9 5 6 4 5 4 5 ( , - - - - $ S U $ S U $ S U , 7 0 4 0 4 4 3 , , ) 8 0 1 8 5 7 6 ( , , 7 3 3 3 1 8 7 , $ S U 5 4 5 6 2 8 , - - - 0 9 7 1 5 2 , , 7 0 4 1 9 7 7 , , ) 7 6 7 2 1 2 2 1 ( , , 7 3 3 3 1 8 7 , , 5 3 3 8 7 0 1 , ) 2 2 9 6 ( , ) 2 2 9 6 ( , - - , 5 8 4 4 8 7 7 , , ) 9 8 6 9 1 2 2 1 ( , , 7 3 3 3 1 8 7 , , 5 3 3 8 7 0 1 , - 8 4 3 3 1 , , ) 0 4 3 3 0 1 6 ( , , ) 0 4 3 3 0 1 6 ( , , 8 3 6 2 6 7 2 , 7 4 7 5 0 3 , ) 2 5 4 9 5 1 ( , - - - , 8 7 0 0 9 5 4 , , ) 1 8 6 9 0 3 8 1 ( , - - - - - ) 8 4 3 3 1 ( , - - - 7 4 7 5 0 3 , , 7 3 3 3 1 8 7 , , 4 3 7 0 7 3 1 , - - - - - - - - - - - - $ S U 5 0 3 , 7 8 ) 5 0 3 , 7 8 ( - $ S U 7 3 0 , 8 4 4 , 1 - ) 6 3 4 , 6 4 5 ( 4 7 4 , 1 6 1 , 0 1 5 7 0 , 3 6 0 , 1 1 - 5 7 0 , 3 6 0 , 1 1 - - - 9 8 2 , 6 5 7 , 2 ) 2 5 4 , 9 5 1 ( $ S U e r a h S l a t i p a c 1 9 2 , 3 2 - 6 3 1 , 6 2 - - 7 2 4 , 9 4 - 7 2 4 , 9 4 - - - - 9 4 3 , 6 2 1 9 , 9 5 6 , 3 1 6 7 7 , 5 5 s n o i t p o e r a h s d e s p a l – t n e m y a p d e s a b e r a h S 9 1 0 2 y r a u n a J 1 t a y t i u q e l a t o t d e t a t s e R e m o c n i i e v s n e h e r p m o C e s n e p x e t n e m y a p d e s a b - e r a h S 9 1 0 2 r e b m e c e D 1 3 t a s A s r e n w o h t i w s n o i t c a s n a r T r a e y e h t r o f s s o L s t s o c e u s s i e r a h S s e r a h s f o e u s s I e m o c n i i e v s n e h e r p m o C 8 1 0 2 y r a u n a J 1 t a s A r a e y e h t r o f s s o L s r e n w o h t i w s n o i t c a s n a r T s t s o c e u s s i e r a h S s e r a h s f o e u s s I e s n e p x e t n e m y a p d e s a b - e r a h S 8 1 0 2 r e b m e c e D 1 3 t a s A y c i l o p g n i t n u o c c a n i e g n a h C . s t n e m e t a t s l i a c n a n i f e s e h t f o t r a p l a r g e t n i n a e r a 9 5 o t 7 3 s e g a p n o s e t o n i g n y n a p m o c c a e h T c l p g n g a m i I n a e r a l o P 3 3 , ) 8 6 5 0 3 3 1 ( , 0 9 7 1 5 2 , ) 6 3 4 6 4 5 ( , , 5 0 3 0 0 1 0 1 , - - - , ) 8 6 5 0 3 3 1 ( , - - - - $ S U , 0 6 9 5 4 4 5 , $ S U ) 4 1 7 6 5 9 ( , $ S U , 7 2 5 2 2 3 4 , y t i u q e l a t o T s e s s o l l d e t a u m u c c A e v r e s e r r e g r e M , 1 5 0 1 2 9 3 1 , , ) 2 8 2 7 8 2 2 ( , , 7 2 5 2 2 3 4 , , 8 3 6 2 6 7 2 , 7 4 7 5 0 3 , ) 2 5 4 9 5 1 ( , - - - - 8 4 3 3 1 , ) 6 1 5 9 3 9 ( , ) 6 1 5 9 3 9 ( , - - - - - , 8 6 4 0 9 8 5 1 , , ) 0 5 4 3 1 2 3 ( , , 7 2 5 2 2 3 4 , . s t n e m e a t s t $ S U e v r e s e r 4 1 5 1 2 5 , - - - 0 9 7 1 5 2 , 4 0 3 3 7 7 , ) 8 4 3 3 1 ( , - - - 7 4 7 5 0 3 , , 3 0 7 5 6 0 1 , l i a c n a n i f e s e h t f o t r a p l a r g e t n i - - - - - - - - - - $ S U 5 0 3 , 7 8 ) 5 0 3 , 7 8 ( - $ S U 7 3 0 , 8 4 4 , 1 - ) 6 3 4 , 6 4 5 ( 4 7 4 , 1 6 1 , 0 1 $ S U 1 9 2 , 3 2 - - - 6 3 1 , 6 2 5 7 0 , 3 6 0 , 1 1 7 2 4 , 9 4 - - - 9 8 2 , 6 5 7 , 2 ) 2 5 4 , 9 5 1 ( - - - - 9 4 3 , 6 2 1 9 , 9 5 6 , 3 1 6 7 7 , 5 5 y t i u q e r e h t O i m u m e r p e r a h S l a t i p a c e r a h S n a e r a 9 5 o t 7 3 s e g a p n o s e t o n g n y n a p m o c c a e h T i c l p g n g a m i I n a e r a l o P 4 3 t n e m y a p d e s a b - e r a h S y t i u q E n i s e g n a h C f o t n e m e t a t S y n a p m o C 9 1 0 2 r e b m e c e D 1 3 d e d n e r a e y e h t r o f e s n e p x e t n e m y a p d e s a b - e r a h S d e s p a l – t n e m y a p d e s a b e r a h S 8 1 0 2 r e b m e c e D 1 3 t a s A e m o c n i i e v s n e h e r p m o C e m o c n i i e v s n e h e r p m o C 8 1 0 2 y r a u n a J 1 t a s A r a e y e h t r o f s s o L s r e n w o h t i w s n o i t c a s n a r T s t s o c e u s s i e r a h S s e r a h s f o e u s s I s n o i t p o e r a h s e s n e p x e t n e m y a p d e s a b - e r a h S 9 1 0 2 r e b m e c e D 1 3 t a s A s r e n w o h t i w s n o i t c a s n a r T r a e y e h t r o f s s o L s t s o c e u s s i e r a h S s e r a h s f o e u s s I Consolidated Statement of Cash Flows for the year ended 31 December 2019 Cash flows from operating activities Loss before tax Adjustments for non-cash/non-operating items: Depreciation of plant and equipment Amortisation of intangible assets and right-of use-asset Share-based payment expense Interest paid Interest received Year ended 31 December 2019 US$ Year ended 31 December 2018 US$ (6,103,340) (5,454,659) 63,121 683,873 305,747 91,678 (508) 10,140 616,852 251,790 188,055 (184) Operating cash flows before movements in working capital (4,959,429) (4,388,006) Increase/(decrease) in inventories Increase in trade and other receivables Decrease in trade and other payables Increase in deferred income Net cash used in operations Cash flows from investing activities Purchase of plant and equipment Interest received Net cash used in investing activities Cash flows from financing activities Issue of shares Cost of issue Interest paid Interest paid on lease liabilities Interest received Principal elements of lease payments Net cash generated by financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of year Cash and cash equivalents at end of year 97,570 (14,737) (285,074) 595,961 (1,921) (69,517) (315,894) 98,992 (4,565,709) (4,676,346) (401,327) - (401,327) (6,551) 184 (6,367) 6,373,919 5,640,211 (159,452) (546,436) - (188,055) (91,678) 508 (69,993) 6,053,304 1,086,268 875,601 1,961,869 - 5,213 (312,836) 4,598,097 (84,616) 960,217 875,601 The accompanying notes on pages 37 to 59 are an integral part of these financial statements Polarean Imaging plc 35 Company Statement of Cash Flows for the year ended 31 December 2019 Cash flows from operating activities Loss before tax Adjustments for non-cash/non-operating items: Share-based payment expense Interest received Year ended 31 December 2019 US$ Year ended 31 December 2018 US$ (939,516) (1,330,568) 305,747 (508) 251,790 - Operating cash flows before movements in working capital (634,277) (1,078,778) Decrease in trade and other receivables Increase in trade and other payables Net cash used by operations Cash flows from financing activities Issue of shares Cost of issue Interest received Loans to intercompany Net cash generated by financing activities Decrease in cash and cash equivalents Cash and cash equivalents at the beginning of period Cash and cash equivalents at end of period (6,275) 24,824 - 2,433 (615,728) (1,076,345) 6,373,918 (159,452) 508 5,646,350 (546,436) - (5,778,247) (3,810,909) 436,727 (179,001) 235,766 56,765 1,289,005 212,660 23,106 235,766 The accompanying notes on pages 37 to 59 are an integral part of these financial statements. Polarean Imaging plc 36  Notes to the Financial Statements 1 General information The Company is incorporated in England and Wales under the Companies Act 2006. The registered number is 10442853 and its registered office is at 27-28 Eastcastle Street, London, W1W 8DH. The Company is listed on AIM of the London Stock Exchange. The Company is the parent company of Polarean, Inc (the “Subsidiary”, together the “Group”). The principal activity of the Group is developing next generation medical imaging technology. The Subsidiary is incorporated in the United States of America and has a registered office of 2500 Meridian Parkway #175, Durham, NC 27713, USA. 2 Adoption of new and revised International Financial Reporting Standards Standards and interpretations adopted during the year Information on new standards, amendments and interpretations that are relevant to the Group’s annual report and accounts is provided below. IFRS 16 ‘Leases’, effective 1 January 2019 The Group has initially adopted IFRS 16 Leases from 1 January 2019. IFRS 16 introduced a single, on-balance sheet accounting model for leases. As a result, the Group, as a lessee, has recognised right-of-use assets to all existing operating leases, representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease payments. The Group has applied IFRS 16 using the modified retrospective approach, and as such, the Group is not required to present a third statement of financial position as at the date of transition. The cumulative effect of initial application is recognised in retained earnings at 1 January 2019. Accordingly, the comparative information presented for 2018 has not been restated – i.e. it is presented, as previously reported, under IAS 17 and related interpretations, with the prior period adjustments going through retained earnings, as shown within note 24. The Group used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17: • Applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term; • Excluded the initial direct costs from measuring the right-of-use asset at the date of initial application; and • Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease. Standards, amendments and interpretations that are not yet effective There are several standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the group has decided not to adopt early. The most significant of these are as follows, which are all effective for the period beginning 1 January 2020: • IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment – Definition of Material) IFRS 3 Business Combinations (Amendment – Definition of Business) • • Revised Conceptual Framework for Financial Reporting • Interest Rate Benchmark Reform (IBOR) reform Phase 1 (Amendments to IFRS 9, IAS 39 and IFRS 7) The Group is currently assessing the impact of these new accounting standards and amendments. Polarean Imaging plc 37  Notes to the Financial Statements continued 3 Significant accounting policies Basis of preparation These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”) and under the historical cost convention, as modified by the use of fair value for financial instruments measured at fair value. The financial statements are presented in United States Dollars (“US$”) except where otherwise indicated. The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. Going concern The Directors consider the going concern basis of preparation to be appropriate in preparing the financial statements. The Group is in its development stage and has not yet moved to full commercial exploitation of its IP. During the year ended 31 December 2019 the Group recorded a loss after tax of US$6,103,340 (2018: loss of US$5,454,659) and a net cash outflow from operating activities of US$4,565,709 (2018: US$4,676,346). On 13 March 2020 the Group announced that it had conditionally raised proceeds of US$10.4 million (excluding expenses) from investors by the issue of shares. The net proceeds of this fundraising were received shortly after the Group’s General Meeting on 1 April 2020. In considering the appropriateness of this basis of preparation, the Directors have reviewed the Group’s working capital forecasts for a minimum of 12 months from the date of the approval of this financial information. Based on their consideration the Directors have reasonable expectation that the Group has adequate resources to continue for the foreseeable future and that carrying values of intangible assets are supported. Thus, they continue to adopt the going concern basis of accounting in preparing this financial information. In the current business climate, management acknowledge the COVID-19 pandemic and have implemented logistical and organisational changes to underpin the Group’s resilience to COVID-19, with the key focus being protecting all personnel, minimising the impact on critical work streams and ensuring business continuity. COVID-19 may impact the Group in varying ways, which could lead to a direct bearing on the Group’s ability to generate future cash flows for working capital purposes. Management are closely monitoring commercial and technical aspects of the Group’s operations to mitigate the impact from the COVID-19 pandemic. The inability to gauge the length of such disruption further adds to this uncertainty. For these reasons the generation of sufficient operating cash flows remain a risk. Management believes the Group will generate sufficient working capital and cash flows to continue in operational existence and will have the ongoing support of its shareholders, if required, for the foreseeable future. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in share premium as a deduction from the proceeds. Government and other grants Grants are not recognised until there is a reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received. Grants are treated as deferred income and released to the income statement on the achievement of the relevant performance criteria. Inventory Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the weighted average cost principle and includes expenditure incurred in inventories, adjusted for rebates, and other costs incurred in bringing them to their existing location. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less. Functional and presentation currency Items included in the financial statements of the Group are measured using the currency of the primary economic environment in which the Group operates (“the functional currency”). The financial statements are presented in United States Dollars (US$) which is also the Group’s functional currency. Polarean Imaging plc 38  Notes to the Financial Statements continued 3 Significant accounting policies continued Foreign currencies Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognised in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in OCI or profit or loss are also recognised in OCI or profit or loss, respectively). Basis of consolidation The consolidated financial statements are for the year ended 31 December 2019. They have been prepared in accordance with the requirements of International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The measurement bases and principal accounting policies of the Group are set out below. On 30 May 2017 Polarean Merger-Sub, Inc., a Subsidiary of the Subsidiary, completed a merger process under which it acquired substantially all of the assets of m2m Imaging Corp (“m2m”), a portfolio company of Amphion Innovations plc engaged in the development of high-performance MRI RF coils for the global research market, primarily in micro-imaging. By 2016 m2m had been inactive for several years due to an inability to raise funds. At the date of the merger the assets of m2m were its technology and patents. The merger was effected by way of court sanction in the process of which the Subsidiary acquired, through a special purpose entity, Polarean Merger Sub, Inc. the assets of another special purpose entity, m2m Merger Sub, Inc., with m2m Merger Sub, Inc. being the surviving entity. After the reporting date, on 1 September 2017, m2m Merger Sub, Inc. was merged into the Subsidiary with the Subsidiary being the surviving entity, the effect being that m2m Merger Sub, Inc. was collapsed, and the Subsidiary had acquired the m2m assets. As part of the arrangements for the merger 576,430 shares in the Subsidiary were issued to the former shareholders in m2m with the intention that all parties would exchange their stock in Polarean, Inc. for shares in the Group on a pro rata basis as soon as practicable. The Directors consider the merger between the Subsidiary and m2m Acquisition, Inc. as a consequence of which the group acquired the exclusive worldwide rights to m2m’s technology and patents does not meet the definition of an acquisition of a business as set out in IFRS3 and has therefore been accounted for as the acquisition of an asset or a group of assets that does not constitute a business. IFRS 3 requires that in such cases the acquirer shall identify and recognise the individual identifiable assets acquired (including those assets that meet the definition of, and recognition criteria for, intangible assets in IAS 38 Intangible assets) and to allocate the cost of the individual identifiable assets and liabilities on the basis of their relative fair values at the date of purchase. Such a transaction or event does not give rise to goodwill. The provisional estimate of the fair value of the assets acquired under the merger arrangement of US$4,999,996 represents the aggregate estimated value of the financial obligations of the former m2m shareholders which were converted into equity in m2m prior to the merger agreement. The Directors consider the acquisition of the entire issued common stock of the Subsidiary by the Company in exchange for equivalent equity participation in the Company to be a group re-organisation and not a business combination and to fall outside the scope of IFRS 3. Having considered the requirements of IAS 8 and the relevant UK and US guidance, the transaction has been accounted for on a merger or pooling of interest basis as if both entities had always been combined, using book values, with no fair value adjustments made nor goodwill recognised. Polarean Imaging plc 39  Notes to the Financial Statements continued 3 Significant accounting policies continued Revenue recognition Revenue comprises the fair value of the sale of goods and rendering of services to external customers, net of applicable sales tax, rebates, promotions and returns. Contracts and obligation The majority of customer contracts have three main elements that the Group provides to the customer: - - - Sale of polarisers; Sale of parts and upgrades; and Provision of service. The sale of polarisers is seen as a distinct performance obligation and revenue is recognised at a point in time. The customer can benefit from the use of the polarisers when supplied and is not reliant on the Group to provide the parts and upgrades or service, and therefore revenue from the sale of polarisers is recognised in full when supplied to the customer. The second performance obligation is the sale of parts and upgrades. The customer can benefit from the use of the parts and upgrade when supplied and is not reliant on the Group to provide the service, and therefore revenue from the sale of parts and upgrades is recognised in full when supplied to the customer. The third performance obligation is the provision of preventive maintenance service. Revenue from the provision of preventive maintenance service is recognised in the period in which the services are provided over the life of the contract. Determining the transaction price The transaction price is determined as the fair value of the Group expects to receive over the course of the contract. There are no incentives given to customers that would have a material effect on the financial statements. Allocate the transaction price to the performance obligations in the contract The allocation of the transaction price to the performance obligations in the contract is non-complex for the Group. There is a fixed unit price for each product or service sold. Therefore, there is limited judgement involved in allocating the contract price to each unit ordered. Recognise revenue when or as the entity satisfies its performance obligations The overarching terms are consistent in each contract. The sale of polarisers is seen as a distinct performance obligation and revenue is recognised at a point in time, when supplied to the customer, as the customer can benefit from the use of the polarisers when supplied. The sale of parts and upgrades is seen as a distinct performance obligation and revenue is recognised at a point in time, when supplied to the customer, as the customer can benefit from the use of the parts and upgrade when supplied. The provision of service is seen as a distinct performance obligation and revenue is recognised as the Group provides these services for the duration of the contract, i.e. over time. Any unexpired portion of a service contract or payment received in advance in respect of service contracts either partially completed or not started, are included in deferred income and released over their remaining term. Polarean Imaging plc 40  Notes to the Financial Statements continued 3 Significant accounting policies continued Property, plant and equipment Owned assets Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation and impairment losses. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. When parts of an item of property, plant and equipment have different useful lives, those components are accounted for as separate items of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Depreciation Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows: ● Computer and IT equipment – 33% straight line ● Leasehold improvements – 20% straight line ● Laboratory equipment – 20% straight line The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, or if there is an indication of a significant change since the last reporting date. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within “other operating income” in the statement of comprehensive income. Intangible Assets Patents and related rights which are acquired through a business combination, are assessed by reviewing their net present value of future cash flows. Patents are currently amortised over their useful life, not exceeding 10 years. Internally generated intangible assets – research costs are costs incurred in research activities and are recognised as an expense in the period in which they are incurred. An internally generated intangible asset arising from the development of commercial technologies is recognised only if all of the following conditions are met: • • • • • • it is probable that the asset will create future economic benefits; the development costs can be measured reliably; technical feasibility of completing the intangible asset can be demonstrated; there is the intention to complete the asset and use or sell it; there is the ability to use or sell the asset; and adequate technical, financial and other resources to complete the development and to use or sell the asset are available. At this time the Directors consider that the Group does not meet all of those conditions and development costs are therefore recorded as expense in the period in which the cost is incurred. Impairment of non-financial assets Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are reviewed at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Provisions A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, when appropriate, the risks specific to the liability. The increase in the provision due to the passage of time is recognised in finance costs. Polarean Imaging plc 41  Notes to the Financial Statements continued 3 Significant accounting policies continued Financial assets The Group classifies all of its financial assets at amortised cost. Financial assets do not comprise prepayments. Management determines the classification of its financial assets at initial recognition. These assets arise principally from the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold their assets in order to collect contractual cash flows and the contractual cash flows are solely payments of the principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Amortised Cost The Group's financial assets held at amortised cost comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position. Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net; such provisions are recorded in a separate provision account with the loss being recognised within administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. Impairment provisions for other receivables are recognised based on the general impairment model within IFRS 9. In doing so, the Company follows the 3-stage approach to expected credit losses. Step 1 is to estimate the probability that the debtor will default over the next 12 months. Step 2 considers if the credit risk has increased significantly since initial recognition of the debtor. Finally, Step 3 considers if the debtor is credit impaired, following the criteria under IAS 39. Financial liabilities The Group classifies its financial liabilities in the category of financial liabilities at amortised cost. All financial liabilities are recognised in the statement of financial position when the Group becomes a party to the contractual provision of the instrument. Financial liabilities measured at amortised cost include: • Trade payables and other short-dated monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method. • Bank and other borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding. Unless otherwise indicated, the carrying values of the Group’s financial liabilities measured at amortised cost represents a reasonable approximation of their fair values. Employee benefits: pension obligations The Group operates a defined contribution plan. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. Polarean Imaging plc 42  Notes to the Financial Statements continued 3 Significant accounting policies continued Net finance costs Finance costs Finance costs comprise interest payable on borrowings, direct issue costs, dividends on preference shares and foreign exchange losses; and are expensed in the period in which they are incurred. Finance income Finance income comprises interest receivable on funds invested, and foreign exchange gains. Interest income is recognised in the income statement as it accrues using the effective interest method. Leases Definition of a lease Previously, the Group determined at contract inception whether the arrangement was or contained a lease under IFRIC 4: Determining Whether an Arrangement contains a Lease. The Group now assesses whether a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, and subsequently at cost less any accumulated amortisation and impairment losses, and adjusted for certain measurements of the lease liability. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised. The Group has applied judgement to determine the lease term for some lease contracts in which it is a lease that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities ad right-of-use assets recognised. Income tax Income tax for the years presented comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised on temporary differences arsing between the tax bases of assets and liabilities and their carrying amounts. The following temporary differences are not recognised if they arise from a) the initial recognition of goodwill, and b) for the initial recognition of other assets or liabilities in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates and laws that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred income tax liability is settled. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Polarean Imaging plc 43 3 Significant accounting policies continued Notes to the Financial Statements continued Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Critical accounting estimates and judgements The preparation of the Group’s financial statements under IFRS as endorsed by the EU requires the directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The directors consider that the following estimates and judgements are likely to have the most significant effect on the amounts recognised in the financial statements. Carrying value of intangible assets In determining whether there are indicators of impairment of the Group’s intangible assets, the directors take into consideration various factors including the economic viability and expected future financial performance of the asset and when it relates to the intangible assets arising on a business combination, the expected future performance of the business acquired. Polarean Imaging plc 44 4 Segmental Information Notes to the Financial Statements continued IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker (which takes the form of the Board of Directors) as defined in IFRS 8, in order to allocate resources to the segment and to assess its performance. The chief operating decision maker has determined that the Group has one operating segment, the development and commercialisation of gas polariser devices and ancillary instruments. Revenues are reviewed based on the products and services provided: Polarisers, Parts and Upgrades, Service and Other revenue. The Group operates in Canada, Germany, the United Kingdom and the United States of America. Revenue by origin of geographical segment for all entities in the Group is as follows: Revenue Canada Germany United Kingdom United States of America Total Non-current assets United States of America Total Product and services revenue analysis Revenue Polarisers Parts and Upgrades Service Grants Total 2019 US$ 897,716 - 33,883 1,369,494 2,301,093 2018 US$ 163,677 15,117 38,661 2,221,684 2,439,139 2019 US$ 2018 US$ 3,887,307 3,887,307 4,074,689 4,074,689 2019 US$ 2018 US$ 1,367,543 1,056,728 125,921 55,117 752,512 2,301,093 56,610 117,220 1,208,581 2,439,139 Management measures revenues by reference to the Group’s core services and products and related services, which underpin such income. Polarean Imaging plc 45  Notes to the Financial Statements continued 5 Employees and Directors Staff costs for the Group and the Company during the year: Wages and salaries Healthcare benefits Social Security costs Average monthly number of people (including directors) employed by activity: Senior management including directors R&D and clinical trial Administration Total 2019 US$ 2,030, 730 107,149 122,392 2,260,271 2019 No. 11 6 2 19 Key management compensation: The following table details the aggregate compensation paid to key management personnel. Salaries and fees Healthcare benefits Social security costs 2019 US$ 1,292,135 44,597 69,915 1,406,647 2018 US$ 1,667,233 102,430 94,104 1,863,767 2018 No. 9 7 1 17 2018 US$ 873,229 41,909 49,548 964,686 Key management personnel include all directors who together have authority and responsibility for planning, directing, and controlling the activities of the Group and senior divisional managers. 6 Operating loss Depreciation - Owned property, plant and equipment - Leased property, plant and equipment Amortisation of right-of-use assets Amortisation of intangible assets Subtotal Amortisation Research expenses Operating lease costs Auditors remuneration (note 8) Clinical trial costs Regulatory consulting costs Legal and professional fees 2019 US$ 63,121 - 67,021 616,852 683,873 155,346 - 39,688 2018 US$ 9,601 539 - 616,852 616,852 672,633 77,971 42,938 1,892,592 1,781,217 356.362 348,972 212.363 111,181 Polarean Imaging plc 46  Notes to the Financial Statements continued 7 Net finance expense Interest income Total finance income Finance expense Total finance expense 8 Auditor remuneration Auditors remuneration Fees payable to the Group’s auditor for audit of Parent Company and Consolidated Financial Statements 9 Loss per share 2019 US$ 508 508 2018 US$ 184 184 91,678 91,678 188,055 188,055 2019 US$ 2018 US$ 39,688 42,938 The loss per share has been calculated using the loss for the year and the weighted average number of ordinary shares outstanding during the year, as follows: Loss for the year attributable to shareholders of the Group Weighted average number of ordinary shares Basic and diluted loss per share 2019 US$ 2018 US$ (6,103,340) 107,043,107 (5,454,659) 69,940,338 (0.057) (0.078) For diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potential dilutive warrants, options and convertible loans over ordinary shares. Potential ordinary shares resulting from the exercise of warrants, options and the conversion of convertible loans have an anti- dilutive effect due to the Group being in a loss position. As a result, diluted loss per share is disclosed as the same value as basic loss per share. Polarean Imaging plc 47 10 Taxation Notes to the Financial Statements continued There were no charges to current corporate taxation due to the losses incurred by the Group in the period. No deferred tax assets have been recognised due to the uncertainty of reversal being dependant on future taxable profits. Income taxes computed at the statutory federal income tax of 21% (2018: 21%) and the state income tax of 2.50% (2018: 3.30%) UK corporation tax is calculated at 19% of the estimated assessable profits for the year. Loss on ordinary activities before tax Loss on ordinary activities multiplied by the rate of corporation tax in the US as above Effects of: Adjustments for rate of tax in other jurisdictions Unrelieved tax losses carried forward Total taxation charge 2019 US$ (6,103,340) 2018 US$ (5,454,659) (1,281,701) (1,145,478) 26,611 1,255,090 - 26,611 1,118,867 - The tax reform act of 1986 contains provisions which limit the ability to utilise the net operating loss carryforwards in the case of certain events including significant changes in ownership interests. If the Group’s net operating loss carryforward, the Group would incur a federal income tax liability even though net operating loss carryforwards would be available in future years. 11 Property, plant and equipment Cost At 1 January 2018 Additions At 31 December 2018 Additions At 31 December 2019 Accumulated depreciation At 1 January 2018 Depreciation expense At 31 December 2018 Depreciation expense At 31 December 2019 Carrying amount At 31 December 2018 At 31 December 2019 Leasehold improvements US$ Furniture and equipment US$ Computers and IT equipment US$ 2,695 - 2,695 - 2,695 899 539 1,438 539 1,977 1,257 718 27,671 4,952 32,623 401,327 433,950 22,291 3,380 25,671 56,438 82,109 6,952 351,841 25,066 1,599 26,665 - 26,665 10,901 6,221 17,122 6,144 23,266 9,543 3,399 Total US$ 55,432 6,551 61,983 401,327 463,310 34,091 10,140 44,231 63,121 107,352 17,752 355,958 Polarean Imaging plc 48 12 Intangible assets Notes to the Financial Statements continued Cost At 1 January 2018 Additions At 31 December 2018 Additions At 31 December 2019 Accumulated amortisation At 1 January 2018 Amortisation expense At 31 December 2018 Amortisation expense At 31 December 2019 Carrying amount At 31 December 2018 At 31 December 2019 Patents US$ 5,045,996 - 5,045,996 - 5,045,996 384,746 616,852 1,001,598 616,851 1,618,449 4,044,398 3,427,547 Total US$ 5,045,996 - 5,045,996 - 5,045,996 384,746 616,852 1,001,598 616,851 1,618,449 4,044,398 3,427,547 13 Investment in subsidiary undertakings Company Cost At 31 December 2018 Additions At 31 December 2019 Carrying amount At 31 December 2018 At 31 December 2019 Subsidiary Undertakings US$ 4,342,848 - 4,342,848 4,342,848 4,342,848 The Directors annually assess the carrying value of the investment in the Subsidiary and in their opinion no impairment provision is currently necessary. The net carrying amounts noted above relates to the Subsidiary. The subsidiary undertakings during the year were as follows: Polarean Inc. Registered office address 2500 Meridian Parkway #175, Durham, NC 27713, USA Country of incorporation USA Interest held % 100 Polarean Imaging plc 49  Notes to the Financial Statements continued 14 Trade and other receivables Amounts falling due after one year Rental deposit Amounts falling due within one year Trade receivables Other receivables Prepayments Due from Subsidiary undertakings Called up share capital not fully paid Group Company 2019 US$ 5,539 2018 US$ 12,539 2019 US$ - 2018 US$ - 2018 US$ - 3,708,681 - Group 2019 US$ 453,827 97,401 84,935 - 620 2018 US$ 166,277 3,972,321 87,367 Company 2019 US$ - 97,402 6,275 - 11,440,177 5,661,930 620 - - 636,783 4,226,585 11,543,854 9,370,611 The Company’s 2018 other receivable of US$3.7 million relates to the funds outstanding from the share issue on 28 December 2018. Analysis of trade receivables based on age of invoices 2019 2018 < 30 $’000 453,827 163,677 31 – 60 $’000 - 2,600 61 -90 $’000 - (950) > 90 $’000 Total Gross $’000 - 950 453,827 166,277 ECL $’000 Total Net $’000 - - 453,827 166,277 The Group applies the IFRS 9 simplified approach to measuring expected credit losses (ECL) which uses a lifetime expected loss allowance for all trade receivables. The ECL balance has been determined based on historical data available to management in addition to forward looking information utilising management knowledge. Based on the analyses performed there is no material impact on the transition to ECL. The Company applies a similar approach to measuring ECL for the amounts due from group undertakings. Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 days and therefore are all classified as current. The majority of trade and other receivables are non-interest bearing. Where the effect is material, trade and other receivables are discounted using discount rates which reflect the relevant costs of financing. The carrying amount of trade and other receivables approximates fair value. The group trade receivables include governments grants amounted to US$ 23,672 in which there are no unfulfilled conditions or contingencies attached to these grants as of 31 December 2019. 15 Inventory Component parts 16 Cash and cash equivalents Group 2019 US$ 2018 US$ 554,211 651,781 Cash at bank and in hand 1,961,869 875,601 56,765 235,766 Group 2019 US$ 2018 US$ Company 2019 US$ 2018 US$ Polarean Imaging plc 50  Notes to the Financial Statements continued 17 Share capital The issued share capital of the Company was as follows: Allotted and called up - Ordinary shares of 0.037p each 2019 No. 2019 US$ 2018 No. At beginning of period 100,730,893 49,427 48,470,142 Issue of shares upon warrant exercise 2,041,040 958 - Issue of shares to investors 11,666,667 5,391 47,321,448 Issue of shares upon converting loans 4,939,303 At end of year 114,438,600 55,776 100,730,893 2018 US$ 23,291 - 23,540 2,596 49,427 On 28 March 2018 the Company issued 20,000,000 new ordinary shares at a price of £0.15 each. On 16 July 2018 the Company issued 5,000,000 new ordinary shares at a price of £0.16 each. On 28 December 2018, the Company issued 22,321,448 new ordinary shares at a price of £0.14 each. On 2 April 2019, the Company issued 705,040 new ordinary shares upon the exercise of share warrants with an exercise price of £0.15 each. On 22 July 2019, the Company issued 11,666,667 new ordinary shares at a price of £0.18 each. On 24 July 2019, the Company issued 1,336,000 new ordinary shares upon the exercise of share warrants with an exercise price of £0.0003 each. 18 Reserves Share premium Share premium represents the excess of subscription amounts for the issue of shares over nominal value of shares issued, less any attributable share issue costs. Group re-organisation reserve The group re-organisation reserve arose on the transaction under which the Group acquired the Subsidiary by way of a group re-organisation. Other equity Includes the value of conversion rights on convertible loans. Share based payment reserve Cumulative fair value of options charged to the consolidated income statement net of transfers to the profit or loss reserve on exercised and cancelled/lapsed options. Accumulated losses Includes all current and prior year retained profits and losses. Merger reserve The balance on the merger reserve represents the fair value of the consideration given in excess of the nominal value of the ordinary shares issued in an acquisition made by the issue of shares where the transaction qualifies for merger relief under the Companies Act 2006. Polarean Imaging plc 51 19 Share-based payments Notes to the Financial Statements continued Share options The Company grants share options at its discretion to Directors, management and employees. These are accounted for as equity settled transactions. Should the options remain unexercised after a period of ten years from the date of grant the options will expire unless an extension is agreed to by the board. Options are exercisable at a price equal to the Company’s quoted market price on the date of grant or an exercise price to be determined by the board. Details of share options granted, exercised, lapsed and outstanding at the year-end are as follows: Outstanding at beginning of year Granted during the year Forfeited/lapsed during the year Outstanding at end of the year Exercisable at end of the year Number of share options 2019 15,560,560 2,610,750 (734,588) 17,436,722 7,366,946 Weighted average exercise price (US$) 2019 0.13 0.25 0.20 0.15 0.07 Number of share options 2018 5,156,960 10,403,600 - 15,560,560 6,590,282 Weighted average exercise price (US$) 2018 0.02 0.20 - 0.13 0.07 During the year ended 31 December 2019, 2,610,750 options were granted (2018: 10,403,600). The 2019 options will vest 25% on the first anniversary of the vesting commencement date and 1/36 at the end of every subsequent month for 36 months. The 2018 options will vest in equal portions on an annual basis on the anniversary of Admission, over the four-year period from the date of Admission. The options outstanding as at 31 December 2018 have an exercise price in the range of US$0.0041 to US$0.30 (2018: US$0.0041 to US$0.20). The fair value of options granted has been calculated using the Black Scholes model which has given rise to fair values per share of US$0.09. This is based on risk-free rates of 1.41% and volatility of 40.84% The Black Scholes calculations for the options resulted in a charge of US$305,747 (2018: US$211,015) which has been expensed in the year. The weighted average remaining contractual life of the share options is 7.26 years (2018: 7.91 years). All share options are equity settled on exercise. On 23 May 2019, the Company granted 1.2 million share options with an exercise price of 15 pence per share. 25% of the options shall vest on 29 April 2020 with the remaining 75% vesting in equal portions on the last day of each calendar month over the period of 36 months, starting on 31 May 2021. On 6 November 2019, the Company granted 1,410,750 million share options with an exercise price of 23 pence per share. For 210,750 of these share options, 25% shall vest on 3 June 2020 with the remaining 75% vesting in equal portions on the last day of each calendar month over the period of 36 months, starting on 31 July 2021. For 1.2 million of these share options, 25% of the options shall vest on 23 October 2020 with the remaining 75% vesting in equal portions on the last day of each calendar month over the period of 36 months, starting on 30 November 2021. Share warrants The Company grants share warrants at its discretion to Directors, management, employees, advisors and lenders. These are accounted for as equity settled transactions. Terms of warrants very from agreement to agreement. Polarean Imaging plc 52 19 Share based payments continued Notes to the Financial Statements continued Details for the warrants granted, exercised, lapsed and outstanding at the year-end are as follows: Outstanding at beginning of year Number of share warrants 2019 7,023,539 Weighted average exercise price (US$) 2019 0.09 Number of share warrants 2018 9,065,428 (Exercised) / Granted during the year (2,041,040) Forfeited/lapsed during the year Outstanding at end of the year Exercisable at end of the year (157,796) 4,824,703 4,824,703 0.07 0.20 0.09 0.09 866,236 (2,908,125) 7,023,539 7,023,539 Weighted average exercise price (US$) 2018 0.15 0.20 0.30 0.09 0.09 On 11 January 2018 the Company granted 866,236 warrants to subscribers with an exercise price of 15 pence per share which vested immediately and expiry on 31 March 2019. On 16 February 2018 the Company sub-divided its share capital on the basis of 26.71999:1. The warrants above reflect this event. The fair value of options granted during 2018 have been calculated using the Black Scholes model which has given rise to fair values per share of US$0.04. This is based on risk-free rates of 1.41% and volatility of 40.84%. The Black Scholes calculations for warrants resulted in a charge of US$40,775 for 2018 which has been expensed in that year. On 2 April 2019 the Company issued 705,040 new ordinary shares of £0.00037 each in the capital of the Company at the exercise price of 15 pence per share, following the exercise of warrants from certain investors that subscribed in January 2018. The total consideration received by the Company pursuant to the warrant exercise will be £105,756. The remaining 157,796 warrants issued in January 2018 lapsed on 1 April 2019. On 24 July 2019 the Company issued 1,336,000 new ordinary shares of £0.00037 each in the capital of the Company at the exercise price of £0.0003 per share, following the exercise of warrants. The total consideration received by the Company pursuant to the warrant exercise was £400. The weighted average remaining contractual life of the share warrants is 3.5 years (2018: 4.1 years). Polarean Imaging plc 53 20 Provision for contingent consideration Notes to the Financial Statements continued Provision for contingent consideration Group Company 2019 US$ 316,000 2018 US$ 316,000 2019 US$ - 2018 US$ - On 19 December 2011, the Subsidiary entered into an agreement with a third party to purchase various assets, including patents, trademarks, a license agreement and physical inventory. As consideration for this transaction, the Subsidiary agreed to pay 5 per cent. of gross revenue on clinical sales of products that are sold related to the patents purchased, for seven years from the date of the commercial sale. As of 31 December 2019, the fair value of this contingent consideration was US$316,000 (2018: US$316,000). This liability is valued based on a probability weighted expected return method using projected future cash flows. There were no significant events in the year ended 31 December 2019 necessitating revision of the probability weighted expected value of the contingent consideration. There was therefore no profit or loss arising on revaluation of contingent consideration during the year ended 31 December 2019 (2018: nil). 21 Deferred income Arising from service contracts Current Non-current 22 Trade and other payables Trade payables Accruals and other payables Royalties Group 2019 US$ 46,324 192,817 239,141 2018 US$ 54,828 70,726 125,554 Company 2019 US$ - - - Group Company 2019 US$ 660,249 863,333 250,000 2018 US$ 417,356 923,126 250,000 2019 US$ 14,681 38,318 - 1,773,582 1,590,482 52,999 2018 US$ - - - 2018 US$ - 28,174 - 28,174 Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs and are payable within 1 year. Royalties comprise a fixed payment of US$250,000 in relation to an agreement entered into by the Subsidiary for the use of patents, see note 24 – Royalty commitments. The Directors consider the carrying value of all financial liabilities to be equivalent to their fair value. Polarean Imaging plc 54 23 Borrowings and loans Notes to the Financial Statements continued Overdraft Group 2019 US$ - - 2018 US$ 5,213 5,213 Company 2019 US$ - - 2018 US$ - - In June 2013, an unsecured subordinated promissory note was issued to a related party for a principal amount of US$8,000 per month for 18 months for a total of US$144,000. The note bears interest at 3 per cent. per annum. All principal and outstanding interest on the note is was repaid in December 2018. In April 2017, an unsecured loan note was issued for a principal amount of US250,000. The note bears interest at 6.75 per cent. per annum. All principal and outstanding interest on the note was repaid in April 2018. An unsecured promissory note that was issued in June 2017 for a principal amount of US$150,000, with an interest rate of 6 per cent per annum, was settled in full including all outstanding interest in April 2018. In December 2017, an unsecured convertible loan note was issued for a principal amount of US$903,000 (£647,147) was converted with accrued interest, into 4,939,303 ordinary shares in the Company at a conversion price equal to 90 per cent of the issue price of the ordinary shares upon admission. Net debt reconciliation Cash and cash equivalents Current borrowings Net debt Net debt at 1 January 2018 Cash flows Other non-cash movements Net debt at 31 December 2018 Cash flows Other non-cash movements Net debt at 31 December 2019 2019 US$ 1,961,869 2018 US$ 875,601 - (5,213) 1,961,869 870,388 Cash and cash equivalents US$ 960,217 (84,616) - Current borrowings US$ (1,104,723) 307,623 791,887 Total US$ (144,506) 23,007 791,887 875,601 (5,213) 870,388 1,086,268 5,213 1,091,481 - 1,961,869 - - - 1,961,869 Polarean Imaging plc 55 Notes to the Financial Statements continued 24 Commitments Royalty commitments The Subsidiary has entered into three agreements requiring royalty payments. One agreement is conditional and requires a payment of 5 per cent. of gross revenue on clinical sales during the payment period beginning on the date a product is first commercially sold, contingent on receiving FDA approval, and ending seven years from that date. A separate agreement requires payments of 0.25 per cent of net sales of machines, and 20 per cent of any sublicensing income for a specific method of use of patent beginning in 2016. Additionally, beginning five years after the effective date of 1 February 2021, there are minimum yearly royalties of US$5,000. The third agreement requires a fixed payment of US$250,000 for use of patents. Operating lease commitments Transition Previously, the Group classified property leases as operating lease under IAS 17. At transition, for leases classified as operating leases under IAS 17, lease liabilities were re-measured at the present value of the remaining lease payments, discounted at the Group’s incremental borrowing rate as at 1 January 2019. Right-of-use assets are measured at their carrying value as if IFRS 16 has been applied since the commencement date, discounted using the lessee’s incremental borrowing rate at the date of initial application. Impact on transition The impact on the statement of financial position as at 1 January 2019 as a result of adopting IFRS 16 is as follows: Right-of-use assets Accumulated losses Lease liability Trade and other payables US$ 165,284 (6,922) 191,361 (19,155) When measuring lease liabilities for leases that were classified as operating leases, the Group discounted the lease payment using its incremental borrowing rate at 1 January 2019. The weighted-average rate applied is 10%. Operating lease commitment at 31 December 2018 as disclosed in the Group’s consolidated financial statements Plus additional lease payments Operating lease commitment The discounted lease liability recognised at 1 January 2019 after using the incremental borrowing rate US$ 183,421 34,814 218,235 191,361 Impact for the period As a of result of initially applying IFRS 16, in relation to the leases that were previously classified as operating leases, the Group recognised amortisation and interest costs, instead of operating lease expense. During the twelve months ended 31 December 2019, the Group recognised US$67,021 of amortisation charges and US$16,001 of interest costs from these leases. Polarean Imaging plc 56 25 Financial instruments Notes to the Financial Statements continued The Group has exposure to the following key risks related to financial instruments: i. ii. iii. Market risk Credit risk Liquidity risk This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated Financial Statements. The Group uses financial instruments including cash, loans, as well as trade receivables and payables that arise directly from operations. Due to the simple nature of these financial instruments, there is no material difference between book and fair values, discounting would not give a material difference to the results of the Group and the Directors believe that there are no material sensitivities that require additional disclosure. (a) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Subsidiary. In order to minimise the risk, the Subsidiary endeavours only to deal with companies which are demonstrably creditworthy and this, together with the aggregate financial exposure, is continuously monitored. The maximum exposure to credit risk is the value of the outstanding amount. The Directors do not consider that there is any concentration of risk within either trade or other receivables. There are no impairments to trade or other receivables in each of the years presented. The Company has made unsecured interest-free loan to its Subsidiary and is repayable on demand and is expected to be repaid in the future as the Subsidiary is revenue generative. Categories of financial instruments Financial Assets measured at amortised cost Cash and cash equivalents Loans and receivables Group 2019 US$ 2018 US$ Company 2019 US$ 2018 US$ 1,961,869 875,601 56,765 235,766 Trade and other receivables – current 551,849 4,226,585 11,537,579 9,370,611 Trade and other receivables – non-current 5,539 12,539 - - Financial Liabilities measured at amortised cost Trade and other payables Borrowings – current Borrowings Financial Instruments Overdraft Total 1,773,581 1,590,482 52,998 - 5,213 - 28,17 - Group Company 2019 US$ - - 2018 US$ 5,213 5,213 2019 US$ - - 2018 US$ - - Polarean Imaging plc 57 Notes to the Financial Statements continued 25 Financial instruments continued Capital risk management The Group manages its capital to ensure that it will be able to continue as a going concern while maximising returns to shareholders through the optimisation of debt and equity balances. The Group is both equity and debt funded, and these two elements combine to make up the capital structure of the business. Equity comprises share capital, share premium and retained losses and is equal to the amount shown as ‘Equity’ in the statement of financial position. Debt comprises various items which are set out in further detail above and in note 23. The Group manages the capital structure and adjusts in light of changes to economic conditions and risks. (b) Market risk The interest rate profile of the Subsidiary’s borrowings is shown below: Interest rate sensitivity analysis As the interest rates on shareholders loans are fixed, interest rate risk is considered to be very low. (c) Liquidity risk A maturity analysis of the Group’s borrowings is shown below: Less than one year One to two years Two to five years Total including interest cash flows Less: interest cash flows Total principal cash flows Derivatives 2019 US$ 1,890,820 50,455 192,817 2018 US$ 1,650,523 70,726 - 2,134,092 1,721,249 - - 2,134,092 1,721,249 The Group and Company have no derivative financial instruments. 26 Contingent liabilities The Directors are not aware of any material contingent liabilities, except for the contingent consideration detailed in note 20. 27 Related party transactions In June 2013, an unsecured subordinated promissory note was issued to Technology Commercialization Group, for whom Ken West was a retained consultant, for a principal amount of US$8,000 per month for 18 months for a total of US$144,000. The note bears interest at 3 per cent per annum. All principal and outstanding interest on the note was due 3 June 2016. This was repaid in full in December 2018. Polarean Imaging plc 58 28 Events after the reporting period Notes to the Financial Statements continued On 3 February 2020, Richard Morgan, Non-Executive Chairman and Robert Bertoldi, Non-Executive Director resigned from the Polarean Board. The unvested portion of their March 2018 stock option grants were fully vested. The exercise date for these options, 534,400 option each for Mr. Morgan and Mr. Bertoldi was extended until 31 December 2020. Jonathan Allis, Non-Executive Director, was appointed Non-Executive Chairman. On 2 March 2020, Amphion Innovations, plc exercised 232,010 warrants at a price of £0.15 per share. On 10 March 2020, the Subsidiary entered into a revised lease for its North Carolina offices. Under the revised terms of the lease, the Company acquired an additional 2,717 square feet of space for approximately $52,000 per year. In addition to the expansion, the expiration date of the original lease was extended until 30 June 2022. On 1 April 2020, the Company issued 46,624,997 new ordinary shares at a price of £0.18 each, resulting in £8.4 million gross proceeds (before expenses). On 25 April 2020, the Subsidiary received loan proceeds in the amount of approximately US$286,535 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. The Subsidiary intends to use the proceeds for purposes consistent with the PPP. While the Subsidiary currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure you that we will not take actions that could cause the Subsidiary to be ineligible for forgiveness of the loan, in whole or in part On 1 June 2020, the Company issued 534,400 new ordinary shares of £0.00037 each in the capital of the Company at the exercise price of 0.003 pence per share, following the exercise of warrants. COVID-19 The outbreak of COVID-19 creates a new and highly unpredictable challenge. We have tested our business continuity plans which have been successfully activated. The investment in technology over recent years has resulted in the business being well placed to continue delivering services to our clients without disruption and with no increase in operational risk. Management do not consider it possible to quantify the true impact of COVID-19 on the business at this time but remain confident that the business can adjust to the challenges it presents. Polarean Imaging plc 59 POLAREAN IMAGING PLC (Incorporated in England and Wales under the Companies Act 2006 with company number 10442853) NOTICE OF ANNUAL GENERAL MEETING THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to what action you should take, you are recommended to seek your own financial advice from your stockbroker or other independent adviser authorised under the Financial Services and Markets Act 2000. If you have recently sold or transferred all of your shares in Polarean Imaging plc, please forward this document, together with the accompanying documents, as soon as possible either to the purchaser or transferee or to the person who arranged the sale or transfer so they can pass these documents to the person who now holds the shares. THE BOARD STRONGLY ENCOURAGES ALL SHAREHOLDERS TO VOTE ON THE RESOLUTIONS BY PROXY BEFORE THE DEADLINE OF 9 JULY 2020. THE MOST RECENT “STAY AT HOME” MEASURES ADOPTED BY THE GOVERNMENT PROHIBIT, UNLESS ESSENTIAL FOR WORK PURPOSES, PUBLIC GATHERINGS OF MORE THAN TWO PEOPLE. THE COMPANY’S VIEW, WHICH IS SUPPORTED BY THE CHARTERED GOVERNANCE INSTITUTE (ICSA) IS THAT ATTENDANCE AT A GENERAL MEETING BY A SHAREHOLDER, OTHER THAN ONE SPECIFICALLY REQUIRED TO FORM THE QUORUM FOR THAT MEETING, IS NOT ESSENTIAL FOR WORK PURPOSES. THE COMPANY HAS ARRANGED FOR A QUORUM TO BE PRESENT IN PERSON AT THE MEETING. ACCORDINGLY, WE HEREBY NOTIFY SHAREHOLDERS THAT ANYONE SEEKING TO ATTEND THE MEETING IN PERSON WILL BE REFUSED ENTRY. SHAREHOLDERS ARE ASKED INSTEAD TO VOTE BY PROXY BY COMPLETING THEIR FORM OF PROXY IN ACCORDANCE WITH THE INSTRUCTIONS SET OUT BELOW. NOTICE IS HEREBY GIVEN that the third annual general meeting of Polarean Imaging plc (the “Company”) will be held at the Company’s office at 2500 Meridian Parkway, Suite 175, Durham, NC 27713 USA at 2:00pm BST on Monday 13 July 2020 for the purpose of considering and, if thought fit, transacting the following business: ORDINARY BUSINESS To consider and, if thought fit, pass the following resolutions which will be proposed as ordinary resolutions: 1. To receive and consider the Company's audited accounts for the year ended 31 December 2019 and the Directors' of the Company (“Director(s)”) and auditors' reports thereon. Polarean Imaging plc 60 2. To consider and approve the remuneration report as detailed in the Company’s annual report and accounts. 3. To re-appoint Crowe UK LLP as auditor of the Company (the “Auditors”) to hold office until the conclusion of the next general meeting at which accounts are laid and to authorise the Directors to fix the auditor’s remuneration. 4. To re-elect Jonathan Allis as a Director, who retires in accordance with article 78 of the Articles, and who, being eligible, offers himself for re-election. 5. To re-elect Jurgen Laucht as a Director, who retires in accordance with article 78 of the Articles, and who, being eligible, offers himself for re-election. 6. To elect Cyrille Petit as a Director, who retires in accordance with article 83 of the Articles, and who, being eligible, offers himself for election. 7. To generally and unconditionally authorise the Directors for the purpose of section 551 of the Companies Act 2006 (the ‘Act’), in substitution for all existing authorities to the extent unused, to exercise all the powers of the Company to allot or grant rights to subscribe for or to convert any security into shares in the Company up to an aggregate number of 24,274,501 ordinary shares of £0.00037 each (“Ordinary Shares”) (being 15 per cent. of the total number of Ordinary Shares in issue as at the date of this notice) provided that this authority shall expire on the earlier of 15 months after the date of passing of this resolution and the conclusion of the annual general meeting of the Company next following the passing of this resolution, save that the Company may, before such expiry, make an offer or agreement which would or might require shares or equity securities, as the case may be, to be allotted or such rights granted after such expiry and the Directors may allot shares or equity securities or grant such rights, as the case may be, in pursuance of such offer or agreement notwithstanding that the authority conferred by this resolution has expired. SPECIAL BUSINESS To consider and, if thought fit, pass the following resolution as a special resolution: 8. Subject to the passing of resolution 7 above, to empower the Directors, pursuant to the general authority conferred on them and section 570 of the Act, to allot equity securities (within the meaning of section 560 of the Act) for cash as if section 561 of the Act did not apply to any such allotment, provided that this power shall be limited to the allotment of equity securities: 8.1. made in connection with an offer of securities, open for acceptance for a fixed period, to holders of Ordinary Shares of the Company on the register on a fixed record date in proportion (as nearly as may be) to their then holdings of such Ordinary Shares (but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with any legal or practical problems under the laws or requirements of any recognised regulatory body or any stock exchange in any overseas territory or in connection with fractional entitlements); and/or 8.2. wholly for cash (otherwise than pursuant to paragraph 7.1 above) up to an aggregate number of 24,274,501 Ordinary Shares. This authority shall expire on the earlier of 15 months after the date of passing of this resolution and the conclusion of the annual general meeting of the Company next following the passing of this resolution but the Company may, before such expiry, make an offer or agreement which would or might require shares or equity securities, as the case may be, to be allotted or such rights granted after such expiry and the Directors may allot shares or equity securities or grant such rights, as the case may be, in pursuance of such an offer or agreement notwithstanding that the power conferred by this resolution has expired. Polarean Imaging plc 61 By Order of the Board Stephen Austin Company Secretary 17 June 2020 Registered Office: 27-28 Eastcastle Street London W1Q 8DH Polarean Imaging plc 62 NOTES A shareholder entitled to attend and vote at the meeting convened by this notice is entitled to appoint one or more proxies to exercise all or any of their rights to attend, speak and vote on their behalf at the annual general meeting. A proxy need not be a shareholder. (1) Arrangements for the meeting – COVID-19 outbreak The continuing coronavirus (COVID-19) pandemic has led to the imposition of severe restrictions on public gatherings which may or may not have been lifted by 13 July 2020. The AGM venue may therefore be closed on the date of the AGM. The Company therefore wishes to notify its Shareholders that physical attendance in person at the AGM will not be possible, in which case the meeting will take place with the minimum necessary quorum of two shareholders, which will be facilitated by the Company in line with the Government’s social distancing advice as at that time. In view of this uncertainty and the possibility of certain of our Shareholders being in isolation either on a voluntary or mandatory basis, the Company will offer Shareholders the option to participate in the meeting remotely via [a Zoom conference call]. If you wish to use this facility, please contact Anna Dunphy on 0207 933 8780 or polarean@walbrookpr.com at Walbrook PR who will provide further information. Please note that Shareholders will not be able to use this facility to actively participate in the meeting by voting on the resolutions or asking questions. Pending further developments, the Board: • • • • Encourages Shareholders to submit their votes via proxy as early as possible, and Shareholders should appoint the Chairman of the meeting as their proxy. If a Shareholder appoints someone else as their proxy, that proxy may not be able to attend the AGM in person or cast the Shareholder's vote. All proxy appointments should be received by no later than 2:00pm BST on 9 July 2020. Strongly recommends CREST members to vote electronically through the CREST electronic proxy appointment service as your vote will automatically be counted. In addition, the Company has also decided that Forms of Proxy can also be submitted by Shareholders electronically (even outside CREST) by emailing a scanned copy of the signed personalised Form of Proxy to voting@shareregistrars.uk.com. Please contact Share Registrars Limited contact number on +44 (0) 1252 821390 for any further guidance. Dealing with paper proxies requires physical interaction such as post sorting and delivery, evaluation and manual input. Given the current situation, any task that requires a physical presence may be subject to disruption and sending a paper proxy is no guarantee of having your vote counted. Proposes that voting at the meeting will be conducted by means of a poll on all resolutions, with each Shareholder having one vote for each share held, thereby allowing all those proxy votes submitted and received prior to the meeting to be counted. Encourages you to submit any question that you would like to be answered at the meeting by sending it, together with your name as shown on the Company's register of members and the number of shares held, to the following email address: polarean@walbrookpr.com so that it is received by no later than 12 noon on 9 July 2020. Please insert “AGM – Shareholder Questions” in the subject header box of your email. The Company will endeavour to respond to all questions received from Shareholders at the AGM or within seven days following the AGM. • Will continue to closely monitor the COVID-19 situation in the lead up to the meeting and make further updates the Company's website at https://www.polarean-ir.com/content/news/corporate- the meeting on about news. Please ensure that you regularly check this page for updates. (2) (3) (4) In order to reduce the risk of infection, there will be no presentations from the Directors, the meeting will end immediately following the business of the meeting and there will be no refreshments. The Company is taking these precautionary measures to comply with the enhanced restrictions on travel and public gatherings imposed by the UK Government on 23 March 2020 and to safeguard its Shareholders' and employees' health and make the meeting as safe and as efficient as possible. The Company will take such further steps as are required with the health and wellbeing of its shareholders and employees in mind. To appoint a proxy, shareholders should use the form of proxy enclosed with this notice of annual general meeting. Please carefully read the instructions on how to complete the form of proxy. For a proxy to be effective, the instrument appointing a proxy together with the power of attorney or such other authority (if any) under which it is signed or a notarised certified copy of the same must be deposited by 2:00pm BST on 9 July 2020 with the Company’s registrars, Share Registrars Limited of The Courtyard, 17 West Street, Farnham, Surrey, GU9 7DR, United Kingdom (the “Registrars”). The completion and return of a form of proxy does not preclude a shareholder from subsequently attending and voting at the annual general meeting in person if he or she so wishes. If a shareholder has appointed a proxy and attends the annual general meeting in person, such proxy appointment will automatically be terminated. Pursuant to Regulation 41 of Uncertificated Securities Regulations 2001, the Company specifies that only those shareholders on the register of members at 2:00pm BST on 9 July 2020 or, if the meeting is adjourned, 48 hours before the time of the adjourned meeting (excluding any part of a day that is not a business day), shall be entitled to attend or vote at the annual general meeting in respect of the number of ordinary shares of £0.00037 each (the “Ordinary Shares”) registered in their name at that time. Changes to the register of members after that time shall be disregarded in determining the rights of any person to attend or vote at the annual general meeting. Any Shareholder may insert the full name of a proxy or the full names of two alternative proxies of the Shareholder’s choice in the space provided with or without deleting ‘the Chairman of the meeting.’ A proxy need not be a Shareholder but must attend the meeting to represent the relevant Shareholder. The person whose name appears first on the Form of Proxy and has not been deleted will be entitled to act as proxy to the exclusion of those whose names follow. If this proxy form is signed and returned with no name inserted in the space provided for that purpose, the Chairman of the meeting will be deemed to be the appointed proxy. Where a Shareholder appoints as his/her proxy someone other than the Chairman, the relevant Shareholder is responsible for ensuring that the proxy attends the meeting and is aware of the Shareholder’s voting intentions. Any alteration, deletion or correction made in the Form of Proxy must be initialled by the signatory/ies. Polarean Imaging plc 63 (5) (6) (7) (8) (9) (10) (11) A shareholder may appoint more than one proxy provided that each proxy is appointed to exercise the rights attached to a different Ordinary Share or Ordinary Shares held by that shareholder. A shareholder may not appoint more than one proxy to exercise rights attached to any one Ordinary Share. If a shareholder wishes to appoint more than one proxy, they should contact the Registrars on 01252 821390, +44 1252 821390 from overseas. Lines are open from 9.00 a.m. to 5.30 p.m. Monday to Friday, excluding public holidays. Alternatively, you may write to the Registrars at Share Registrars Limited, The Courtyard, 17 West Street, Farnham, Surrey, GU9 7DR, United Kingdom for additional proxy forms and for assistance. Any corporation which is a shareholder can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a shareholder provided that they do not do so in relation to the same Ordinary Share. As at the close of business on the date immediately preceding this notice, the Company's issued share capital comprised 161,830,007 Ordinary Shares. Each Ordinary Share carries the right to vote at the Annual General Meeting and, therefore, the total number of voting rights in the Company as at close of business on the date immediately preceding this notice is 161,830,007. A shareholder’s instructions to the proxy must be indicated in the appropriate space provided. To abstain from voting on a resolution, select the relevant ‘Vote withheld’ box. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If no voting indication is given, 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. This form of proxy must be signed by the appointor or his attorney duly authorised in writing. The power of attorney or other authority (if any) under which the form of proxy is signed, or a notarised certified copy of the power or authority, must be received by the Registrars with the form of proxy. If the appointor is a corporation, the form of proxy should be signed on its behalf by an attorney or duly authorised officer or executed as a deed or executed under common seal. In the case of joint holders, the signature of any one of them will suffice, but the names of all joint holders should be stated. CREST members who wish to appoint a proxy or proxies through the CREST Electronic Proxy Appointment Service may do so for the Annual General Meeting to be held at 2:00pm BST on 13 July 2020 and any adjournment(s) thereof by following the procedures described in the CREST manual. All messages relating to the appointment of a proxy or an instruction to a previously-appointed proxy, which are to be transmitted through CREST, must be received by the Registrars (ID 7RA36) no later than 2:00pm BST on 9 July 2020, or, if the annual general meeting is adjourned, 48 hours before the time fixed for the adjourned meeting (excluding any part of a day that is not a business day). In order to revoke a proxy instruction, you will need to inform the Company by sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment to the Registrars. In the case of a shareholder which is a company, the revocation notice must be executed in accordance with note 12 below. 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 and must be received by the Registrars not less than 48 hours (excluding any part of a day that is not a business day) before the time fixed for the holding of the annual general meeting or any adjourned meeting (or in the case of a poll before the time appointed for taking the poll) at which the proxy is to attend, speak and to vote. 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. (12) A corporation’s form of proxy must be executed under either its common seal, if any, or under the hand of a duly authorised officer or attorney, in each case as required under the laws of its relevant jurisdiction. Polarean Imaging plc 64 Perivan 259059 

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