TEKCAPITAL
Annual Report 2019

Plain-text annual report

ANNUAL REPORT & ACCOUNTS 2019 Tekcapital’s portfolio company Belluscura plc demonstrates their new portable oxygen concentrator Tekcapital plc Registration # 08873361 Stock Code: TEK Risk Factors and Forward Looking Statements The information contained in this document has been prepared and distributed by the Company and is subject to material updating, completion, revision, verification and further amendment. This Report is directed only at Relevant Persons and must not be acted on or relied upon by persons who are not Relevant Persons. Any other person who receives this Report should not rely or act upon it. By accepting this Report the recipient is deemed to represent and warrant that: (i) they are a person who falls within the above descrip- tion of persons entitled to receive the Report; (ii) they have read, agree and will comply with the contents of this notice. The securities mentioned herein have not been and will not be, registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), or under any U.S. State securities laws, and may not be offered or sold in the United States of America or its territories or possessions (the “United States”) unless they are registered under the Securities Act or pursuant to an exemption from or in a transaction not subject to the registration requirements of the Securities Act. Neither this Report nor any copy of it may be taken or transmitted into the United States, or distributed, directly or indirectly, in the United States, or to any “US person” as defined in Regulation S under the Securities Act of 1933, including US resident corporations or other entities organised under the laws of the United States or any state thereof or non-U.S. branches or agencies of such corporations or entities. This Report is not being made available to persons in Australia, Canada, Japan, the Republic of Ireland, the Republic of South Africa or any other jurisdiction in which it may be unlawful to do so and it should not be delivered or distributed, directly or indirectly, into or within any such jurisdictions. Investors must rely on their own examination of the legal, taxation, financial and other consequences of an investment in the Com- pany, including the merits of investing and the risks involved. Prospective investors should not treat the contents of this Report as advice relating to legal, taxation or investment matters and are advised to consult their own professional advisers concerning any acquisition of shares in the Company. Certain of the information contained in this Report has been obtained from published sources prepared by other parties. Certain other information has been extracted from unpublished sources prepared by other parties which have been made available to the Company. The Company has not carried out an independent investigation to verify the accuracy and completeness of such third party information. No responsibility is accepted by the Company or any of its directors, officers, em- ployees or agents for the accuracy or completeness of such information. All statements of opinion and/or belief contained in this Report and all views expressed represent the directors’ own current as- sessment and interpretation of information available to them as at the date of this Report. In addition, this Report contains certain “forward-looking statements”, including but not limited to, the statements regarding the Company’s overall objectives and strategic plans, timetables and capital expenditures. Forward-looking statements express, as at the date of this Report, the Company’s plans, estimates, valuations, forecasts, projections, opinions, expectations or beliefs as to future events, results or performance. Forward- looking statements involve a number of risks and uncertainties, many of which are beyond the Company’s control, and there can be no assurance that such statements will prove to be accurate. No assurance is given that such forward looking statements or views are correct or that the objectives of the Company will be achieved. Further, valuations of Company’s portfolio investments and net asset value can and will fluctuate over time due to a wide variety of factors both company specific and macro-economic. Additionally, the current Coronavirus epidemic may produce negative economic activities which could reduce the company’s economic performance and the performance of its portfolio companies in ways that are difficult to quantify at this juncture. It may cause a recession in the markets in which the Company operates, reduce the Company’s net asset values, revenue, cash flow, access to investment capital and other factors which could negatively impact the Company. The reader is cautioned not to place reliance on these statements or views and no responsibility is accepted by the Company or any of its directors, officers, employees or agents in respect thereoff. The Company does not undertake to update any forward-looking statement or other information that is contained in this Report. Neither the Company nor any of its shareholders, directors, officers, agents, employees or advisers take any responsibility for, or will accept any liability whether direct or indirect, express or implied, contractual, tortious, statutory or otherwise, in respect of, the accuracy or completeness of the information contained in this Report or for any of the opinions contained herein or for any errors, omissions or misstatements or for any loss, howsoever arising, from the use of this Report. Neither the issue of this Report nor any part of its contents is to be taken as any form of contract, commitment or recommendation on the part of the Company or the directors of the Company to proceed with any transaction or accept any offer and the right is reserved to terminate any discussions or negotiations with any prospective investors. In no circumstances will the Company be responsible for any costs, losses or expenses incurred in connection with any appraisal or investigation of the Company. This Report should not be considered a recommendation by the Company or any of its affiliates in relation to any prospective acquisition of shares in the Company. No undertaking, Report, warranty or other assurance, express or implied, is made or given by or on behalf of the Company or any of its affiliates, any of its directors, of- ficers or employees or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this Report and no responsibility or liability is accepted for any such information or opinions or for any errors or omissions. © Copyright Tekcapital Plc 2020 PAGE 4 5 6 9 10 11 16 17 18 19 25 28 30 31 32 34 40 41 42 43 44 45 46 CONTENT BUSINESS OVERVIEW Overview Investment Case Key Highlights Q&A with our Executive Chairman Tekcapital at a Glance Portfolio Review Our Services What Clients and the Press Say IP Market Corporate Governance STRATEGIC REPORT Chairman’s Summary Financial Review & Key Performance Indicators Board of Directors DIRECTORS REPORT Directors’ Report Directors’ Remuneration Report OUR FINANCIALS Independent auditor’s report Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Company Statement of Financial Position Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements 3 TEKCAPITAL COMMERCIALISES UNIVERSITY IP AND PROVIDES IP SERVICES TO UNIVERSITIES AND CORPORATES Tekcapital Group’s goal is to improve the quality of life and create value from its ability to identify, acquire and commer- cialise promising new university IP Using our proprietary global university network, we provide services to universities and companies to help them commercialize their innovations. Using these services, we have built a compelling group of portfolio companies to commercial- ize high value properties we have uncovered. We believe that when you couple commercialization ready, compelling university IP with strong senior management, vibrant companies will emerge, returns on invested capital will outperform the sector and exits will occur faster. When we realise exits the Group’s goal is to distribute a portion of the proceeds as a special dividend to our shareholders. 4 www.tekcapital.comINVESTMENT CASE WORLD’S LARGEST NETWORK OF UNIVERSITY IP 4,500 UNIVERSITIES Total revenue including fair value gains $7.7m Profit after tax $5.5m SOLID, MULTI-SECTOR DUE DILIGENCE CAPABILITY 60 SCIENTISTS Net assets $22.5m NUMBER OF INDUSTRY LEADERS RECRUITED BY PORTFOLIO COMPANIES 8 INDUSTRY LEADERS NUMBER OF PORTFOLIO COMPANIES ADDRESSING $1B+ MARKETS 4 PORTFOLIO COMPANIES Compound Annual Growth Rate of Net Assets 90% Return on Assets (ROA) 28% Return on invested capital (ROIC)* 24% *Since floatation in 2014 % of costs covered by service revenues 55% 5 KEY HIGHLIGHTS FINANCIAL Our investment objective is to achieve long-term growth of net assets and returns on invested capital through the commercialisation of university discoveries. 2019 was the best year for value creation in the Group’s short history: • Net Assets increased 40% to US$22.25m, a record level (2018: US$16.13m) • Net Assets per share $0.35 (2018: $0.30) • Total revenue US$7.72m (2018: US$6.83m) - Revenue from services increased 15% to US$1.20m (2018: US$1.04m) - Net increase of US$6.52m in fair value of portfolio companies (2018: US$5.79m) • Reduction of operating expenses by 7% to $1.59m (2018: US$1.72m) Service revenues cover approximately 55% of current cost base • Profit before tax: $5.52m (2018: $4.55m) • Placing to raise US$0.9m completed in July 2019. INVESTMENT PORTFOLIO Net Assets (US$m) 91.7% ownership • Completed successful production and launched sales of MicroSalt® with the first three commercial accounts. Approximately 25 companies are testing MicroSalt® for possible inclusion in their snack food products. • Appointed Mike Marrotte, V.P. Sales. Top performing sales leader and revenue growth strategist • Appointed Javier Contreras as COO to further its commercialization efforts. Javier has significant experience in developing supply chains with Clorox’s food business and other companies. • Completed development and consumer packaging of its SaltMe!(R) line of full flavour, reduced sodium potato chips in 4 flavors. • Engaged a leading natural food wholesaler&food broker for retail placement of SaltMe!(R) • Engaged two leading food ingredient brokers, Accurate Ingredients, Inc. and Hanks Brokerage Inc., to sell MicroSalt® to snack food companies throughout the U.S. • Filed additional patent on coverage of MicroSalt® directed to improve low-sodium salt. www.salarius.co www.saltme.com 100% ownership • Launched sales of Lucyd Loud 3.0 audio glasses, proper prescription glasses that can be used to listen to music, answer your mobile phone or talk to Siri®. • On track to launch Lucyd Loud Lyte in H2 2020. Lucyd Lyte is the first prescription Bluetooth glasses that looks like traditional glasses in terms of style and form factor. • Filed additional patent protection on Lucyd modular eyewear and trademark protection on Glasses as a Service (GaaS). • Lucyd’s brand ambassador participated in the 2020 Superbowl as part of the San Francisco 49’rs division champions. www.lucyd.co 6 www.tekcapital.com KEY HIGHLIGHTS Net Assets (US$m) www.guident.co 100% ownership • On 29 April 2019 Guident filed a new patent application for controlling autonomous vehicles after an accident (patent was allowed by the USPTO post period end). • On 25 June 2019 Guident exclusively licensed a patent application from Michigan State University for an AV communication and safety network. The patent enables AV’s to “see” not only through its sensors but also information from the sensors of nearby AV’s and objects. • On 27 June 2019, Guident exclusively licensed patent # 9,964,948 from FIU which enables remote control of an AV by a human operator when necessary. • Begun its B2B marketing program to develop partnerships with vehicle OEM’s to provide remote tele monitoring and control centre IP & technology for autonomous vehicles and land based delivery drones, amongst other services. www.salarius.co www.saltme.com • Continued progress with its unique and patented portable 18.9% ownership oxygen concentrator programme • Belluscura raised US $2.7m in 2019 at 15p to continue with its FDA clearance and go to market strategy. Post money valuation ~US $9m for the entire business. • Belluscura anticipates receiving 510(K) clearance from the US FDA in H1 2020 • Post end of period, Belluscura filed an additional patent application covering devices and systems for treating people suffering from acute respiratory distress caused by the Coronavirus. Belluscura and Separation Design are designing and developing next generation, cost-effective, portable ECMO technology to treat ARDS patients. CORPORATE www.belluscura.com Strengthened the board of directors with the appointments of Lord David Willets and Mr. Louis Castro: The Rt Hon Lord Willetts FRS is President of the Resolution Foundation and former U.K. Minister for Universities and Science. He served as the Member of Parliament for Havant (1992-2015), and previously worked at HM Treasury and the No. 10 Policy Unit. Lord Willetts is a visiting Professor at King’s College London, former Chair of the British Science Association and a member of the Council of the Institute for Fiscal Studies. He is also an Honorary Fellow of Nuffield College, Oxford. Lord Willetts has written widely on economic and social policy. His book ‘The Pinch’, which focused on intergenerational equity, was published in 2010, and he re- cently published ‘A University Education’. Lord Willetts is a graduate of Oxford University and has been awarded numerous honorary doctorates. Louis Castro is a highly experienced and well qualified Director and Chartered Accountant with some thirty years spent in industry and in financial services , including positions as Chief Executive, Finance Director and Non-Executive Director of several AIM listed companies. He was previously the CFO at Eland Oil & Gas plc where he had full executive responsibility for finance, legal, corporate finance and a budget of over $150m. He has held numerous board positions with both quoted public and private businesses as either a Partner or Director. Previously he worked in financial services, in corporate finance and capital markets, with particular specialism in the funding and advising of small and mid-cap companies across many sectors. Louis currently serves as a director of Green Park Oil and Gas and a non-executive director of Stanley Gibbons Group plc, Jangada Mines plc and Orosur Mining Inc.. Continued growth of technology transfer services. Invention Evaluator continues to develop and has released a new version of the Invention Evaluator’s tri-lingual website to facilitate expansion of its service offerings throughout Latin America. Vortechs Group also has continued to perform well with its technology-transfer executive placement assignments. 7 KEY HIGHLIGHTS POST PERIOD END PORTFOLIO COMPANY HIGHLIGHTS On December 12, 2019, Salarius Ltd secured national food ingredient broker for Microsalt®. Accurate Ingredients provides network of experienced sales representatives on east and west coast of the United States. On 24 January 2020, Salarius Ltd secured additional food ingredient broker partner for sales of Microsalt®. The agreement with Hanks Brokerage Inc. covers primarily snack food companies in the southwestern United States. On 10 February 2020, Belluscura has filed an additional patent application (17 patents filed or licensed to-date) entitled “Improved Extracorporeal Membrane Oxygenation Device, System and Related Methods,” covering devices and systems for treating people suffering from acute respiratory distress caused by the Coronavirus. In February 2020, Salarius Ltd’s executives exercised stock options resulting in Tekcapital’s ownership being reduced from 97.5% to 91.7%. On 2 March 2020, Salarius Ltd announced North American distribution agreement for launch of SaltMe!® snacks. This agreement represents an important milestone for Salarius’ new potato chip snack line, enabling unprecedent- ed reach of SaltMe!® products into consumer outlets of every size in North America. On 4 March 2020, Salarius Ltd announced sales partnership agreement with iLevel Brands Inc as part of its launch of North America sales of SaltMe!®. This agreement, combined with their previously announced distribution agree- ment on 2 March 2020, will expand Salarius’ market penetration and brand awareness for its new potato chip snack line with retail brand placements across the entire East Coast, Midwest and Southwest geographic areas of the United States. On 16 March 2020, Belluscura plc announced the filing of a patent application on a modular, portable oxygen enrichment ventilation system for treating patients suffering from COPD and ARDS brought on by such diseases as COVID-19. On 24 March 2020, Salarius Ltd announced it has received an order from one of its distribution partners to launch sales of its new SaltMe!(R) full flavor-low sodium snacks in 71 stores beginning in May 2020. On 26 March 2020, Lucyd Ltd announced it has filed patent and trademark on its forthcoming Vyrb(TM) app. Vyrb users will be able to active a world of smartphone actions with their voice in just moments, including social media posting. The app is designed to improve utility of Lucyd Bluetooth(R) glasses and wireless hearables. On 8 April 2020, Guident Ltd announced significant management additions including appointment of Harald Braun as Company’s CEO and appointment of Daniel Grossman as the company’s Chief Revenue Officer. The company also appointed Michael Trank as VP Software Development and Dr. Gabriel Castenada as Lead Architect, Artificial Intel- ligence Software. Guident has also announced that it has received a Notice of Allowance from the United States Patent and Trademark Office for its patent application # 16/386,530 entitled “Methods and Systems for Emergency Handoff of an Autonomous Vehicle” and has filed an additional patent entitled, ”Intelligent Remote Monitoring and Control of Autonomous Vehicles”. On 24 April 2020, Lucyd Ltd announced launch of its Bluetooth(R)-enabled glasses on the website of US superstore chain Walmart Inc. 8 www.tekcapital.com “WE BELIEVE IN 2020 THERE WILL BE SIGNIFICANT PROGRESS IN THE DEVELOPMENT OF OUR PORTFOLIO.” DR CLIFFORD M. GROSS EXECUTIVE CHAIRMAN Q&A WITH OUR EXECUTIVE CHAIRMAN Q: What do you consider the most important milestone reached by Tekcapital this year? A: 2019 was a great year for the company and our portfolio investments; Lucyd developed Loud 3, its latest and advanced generation of Bluetooth glasses, Salarius initiated production of MicroSalt® and secured the first three commercial customers and signed up a B2B food ingredient distributor, Belluscura made good pro- gress with its new portable O2 concentrator and filed additional intellectual property protection, and Guident has acquired two new intellectual prpoperties and developed a third one rounding out its IP position. As a result our net assets increased significantly over 2018. Q: What are the main goals for each portfolio company in 2020? A: For Lucyd to expand their product distribution with additional major online retailers, for Salarius to grow their B2B sales of MicroSalt® and launch their SaltMe(R) line of full flavour, low sodium chips, for Belluscura to receive 510 K clearance for its portable O2 concentrator from the US FDA and for Guident to develop a busi- ness collaboration with an OEM or tech company in the autonomous vehicle space for the remote monitoring and control of AV’s or one of the other technologies. Q: How does Tekcapital’s offering compare to its competitors? A: We believe our portfolio companies are quite unique and diversified and the calibre of their management will enable them to punch above their weight. Q: How are the changes in the IP industry and the economy impacting Tekcapital’s business? A: The focus and current trend for university IP commercialization is to build spin-out companies to de-risk the technology and demonstrate initial market traction. This coincides with Tekcapital’s focus as a business. Q: Should we expect any new investments or portfolio companies started in 2020? A: We are not planning to announce any new portfolio companies in 2020 but rather we are focusing on strengthening our existing investments with additional IP and follow-on investments. We think this approach will result in enhanced returns on investment capital for our shareholders. 9 TEKCAPITAL AT GLANCE T ekcapital has built the largest university IP network in the world, coupled with a high-caliber team respon- sible for market-ready technology selection. The Group provides universities and corporate clients with a wide range of technology transfer services while simultaneously selecting compelling technologies for its own portfolio, for subsequent commercialization. We believe this unique combination provides a competi- tive advantage in the sector, as we both use and sell our IP investment services. This keeps us close to our technology suppliers and allows the company to reduce its operating expenses. TEKCAPITAL’S FORMULA OF MARKET READY IP COMBINED WITH LEADING TALENT POSITIONS THE GROUP FOR LONG-TERM GROWTH AND INCREASES THE PROBABILITY OF MEANINGFUL EXITS Value of investment portfolio (US$m) WORLD’S LARGEST NETWORK OF UNIVERSITY IP. WE CAPTURE APPROXIMATELY 80% OF WORLD’S UNIVERSITY-DEVELOPED IP FROM 4,500 RESEARCH INSTITUTIONS ACROSS 160 COUNTRIES 10 www.tekcapital.comPORTFOLIO REVIEW PATENTED LOW-SODIUM SALT • Salarius is taking the lead in the industry bringing the best low-sodium salt solution based on a mechanical transformation of the salt grain itself. This solution is the only one that delivers the exact salt flavor, because it is salt. The technology breaks the salt grains into a size that is one hundred times smaller than a typical grain, delivering a powerful saltiness as the micro-grains dissolve in mouth with appx. 50% less salt consumption. • Independent taste testing indicates MicroSalt® delivers all of the flavour of salt with roughly half the sodium • Salarius announced it launched production and secured its first commercial client for MicroSalt® (May 2019) • Salarius announced it has received a follow-on order (13 June 2019) and signed-up a Mexican seafood company (24 June 2019) • Salarius signs third customer, a diversified snack food company (16 October 2019) The company has continued to significantly ramp up its sales and distribution channels during the post period end period: • signed Hanks Brokerage Inc., to assist in the sale of Microsalt® to snack food companies in the southwestern United States (Jan. 2020). • signed Accurate Ingredients Inc. a food broker, to sell MicroSalt® to snack food companies (Dec. 2019) • signed an agreement with iLevel Brands Inc as part of its North American launch of its new innovative SaltMe!® snack line (March 2020) • signed a North American Distribution Agreement for Launch of SaltMe!® snacks in the United States in May 2020. The low sodium ingredient market is estimated to reach US$1.76bn by 2025 according to Future Market Insights1. Tekcapital owns - 91.7%* of Salarius Ltd 91.7% * In February 2020, Salarius executives exercised stock options resulting in Tekcapital’s ownership being reduced from 97.5% to 91.7%. SOURCE ¹ https://www.futuremarketinsights.com/reports/sodium-reduction-ingredient-market 11 PORTFOLIO REVIEW LUCYD: THE CLEAR CHOICE FOR TECH EYEWEAR •Provides online prescription eyewear with Bluetooth technology so customers can remain connected. Goal: Develop a successful global eShop providing prescription eyewear with advanced Bluetooth® technology • Jan. 2020 launched Loud 3.0 upgraded tech eyewear in two styles, with Blue tooth® 5.0 • Dec. 2019 Lucyd announces forthcoming introduction of modular Bluetooth eyewear in late H1 • Dec. 2018 appointed Richard Sherman an American football star, as its Chief Brand Officer and brand ambassador. • Strong IP: Lucyd has filed 20 patents covering its products • The current online market for eyewear is US$3.8b according to Statista¹. ON 3 DECEMBER 2018 LUCYD LTD APPOINTED RICHARD SHERMAN, AMERICAN FOOTBALL STAR AS CHIEF BRAND OFFICER AND BRAND AMBASSADOR Tekcapital owns - 100% of Lucyd ltd 100% SOURCES ¹ Statista.com - US Eyewear Market, Online Revenue Share Photo courtesy of Creative Agency: Zaki Rose, Photographer: Carlos Cruz. 12 www.tekcapital.com PORTFOLIO REVIEW PORTFOLIO REVIEW PREMIUM MEDICAL DEVICES AT VALUE PRICES • Unique medical device company that has developed an improved portable oxygen concentrator to provide on-the-go supplemental X-PLO2R™ • Capable & highly experienced management: Bob Rauker, CEO (previously Boston Scientific) & Dr Raymond Bray, VP (previously St. Jude Medical). • Post period end, filed a patent application covering devices and systems for treating people suffering from acute respiratory distress caused by the Coronavirus. Belluscura and Separation Design are designing and developing next generation, cost-effective, portable ECMO technology to treat ARDS patients. • According to Grandview Market Research, the portable O2 market is expected to grow to 580,000 units shipped per year by 2026¹. Goal: Receive FDA clearance for the X-PLO2R™ portable oxygen concentrator in H1 2020 The medical portable O2 market is expected to grow from $1.4bn this year to $2.4bn by 2024¹ $2.21bn $2.01bn $1.83bn $2.41bn $1.66bn $1.51bn $1.40bn 2018 2019 2020 2021 2022 2023 2024 ¹ https://www.gminsights.com/industry-analysis/medical-oxygen- concentrators-market-report Tekcapital owns ~ 18.9% of Belluscura 18.9% EXPLO2RE PORTABLE OXYGEN CONCENTRATOR Lightest: Most Efficient: Quiet: Reliable: Modular: Low Cost: Only 1.25kg (2.8lbs) 32% more O2 per pound Only 39 dB Long battery duration Only expandable POC with consumer replaceable filter cartridges Projected 70% cost savings over duration of the disease Strong IP: 17 patents and applications SOURCES ¹ https://drive.google.com/file/d/1s5Ou0UQWwjUfWAZ4TNc Photo courtesy of Creative Agency: Zaki Rose, Photographer: Carlos Cruz. 13 PORTFOLIO REVIEW PORTFOLIO REVIEW PORTFOLIO REVIEW AUTONOMOUS VEHICLE VALET • Acquisition of exclusive license to U.S. Patent #9,429,943 from FMAU that enables the development of software apps for controlling autonomous vehicles (“AV”) using artificial intelligence. • On 29 April 2019 Guident filed a new patent application for controlling autonomous vehicles after an accident • On 25 June 2019 Guident exclusively licensed a patent application from Michigan State University for an AV communication and safety network. The patent enables AV’s to “see” not only through its sensors but also information from the sensors of nearby AV’s • On 27 June 2019, Guident exclusively licensed patent # 9,964,948 from FIU which enables remote control of an AV by a human operator when necessary. • Post period end, Guident announced appointment of Harald Braun as CEO and Dan Grossman as Chief Revenue Officer, as well as hiring of two senior software developers. Guident has begun its B2B marketing program and seeks to develop partnerships with vehicle OEM’s to provide remote tele monitoring and control centres for autonomous vehicles amongst other services. Such monitoring has recently be required by law in the State of Florida and other jurisdictions. Goal: Develop and provide IP and apps with licensed technology to autonomous vehicle and land-based drone manufacturers. Tekcapital owns - 100% of Guident Ltd 100% ON 27 JUNE 2019, GUIDENT EXCLUSIVELY LICENSE PATENT # 9,964,948 FROM FIU WHICH ENABLES REMOTE CONTROL OF AN AV BY A HUMAN OPERATOR WHEN NECESSARY. GUIDENT HAS BEGUN ITS B2B MARKETING PROGRAM AND SEEKS TO DEVELOP RELATIONSHIPS WITH VEHICLE OEM’S TO PROVIDE TELE MONITORING CENTRES FOR AV’S. 14 www.tekcapital.com PORTFOLIO REVIEW ON 6TH DECEMBER 2018 GUIDENT LTD APPOINTED JOHAN DE NYSSCHEN AS A DIRECTOR. JOHAN PREVIOUSLY SERVED AS EXECUTIVE VICE PRESIDENT OF GENERAL MOTORS AND PRESIDENT OF THE CADILLAC MOTOR DIVISION, PRESIDENT OF INFINITI MOTOR COMPANY LTD, PRESIDENT OF AUDI OF AMERICA INC., AND PRESIDENT OF AUDI JAPAN. JOHAN CURRENTLY SERVES AS COO OF VOLKSWAGEN USA. ON 14TH JANUARY, 2019 GUIDENT LTD APPOINTED DANIEL GROSSMAN AS A DIRECTOR. HE MOST RECENTLY SERVED AS CEO OF CHARIOT. PREVIOUSLY, DAN HELPED CREATE GENERAL MOTORS’ MOBILITY DIVISION, “MAVEN”, AND LED ALL OPERATIONS AS COO, AND WAS A VICE PRESIDENT AT ZIPCAR, WHERE HE HELPED PIONEER THE BRAND GLOBALLY. ZIPCAR WAS SUBSEQUENTLY SOLD TO AVIS-BUDGET FOR ~ $500M. 15 INVENTION EVALUATOR Rapid, objective reports that assess the market potential of any new technology. Combines human analysts with unique research algorithms. IP SEARCH APP Instantly IP search Global University search and app. index worldwide university PCT applications and patents on your smartphone. VORTECHS GROUP Executive Recruiting Firm Specializing In Technology Transfer executives. OUR SERVICES Commercializing university innovations is challenging and requires well-honed skills and specialized tools to be successful and scalable. According to the Association of University Technology Managers (AUTM) less than 1% of university patents generated revenues of > $1m¹ in 2017. This indicates that to be successful in the space it is necessary to mitigate selection bias, conduct detailed and thorough due diligence, assess the market recruit commercialization potential properly and executives with significant experience. Tekcapital’s services have been built to address each of these points. Our global discovery network covers 4,500 institutions in 160 countries, and our search app makes it easy to identify IP, our 60 their respective disciplines for hands-on due diligence, our invention evaluator reports are the industry standard for assessing market potential of university IP and more than 5,000 have been delivered to institutions worldwide, and our in house recruiter Vortechs Group is a recognized leader in recruiting tech-transfer executives. We use these services to both help our clients and to enhance our returns on invested capital for our portfolio companies. scientists experts are in IP ACQUISITION OPPORTUNITIES Acquire disruptive, curated university IP that’s ready for market, directly from our portfolio. SOURCES ¹ AUTM US Licensing Activity Survey: 2017 16 TEK TRAINING Custom solutions for building new tech transfer offices, spin out companies, and accelera- tors. For tech transfer specialists, research centers and government www.tekcapital.comWHAT OUR CLIENTS AND THE PRESS SAY WHAT OUR CLIENTS AND THE PRESS SAY “What you do is disruptively high quality at a value no one else has been able to touch.” Jeff Amerine “We would recommend Invention Evaluator reports to any organization looking to commercialize technologies, especially for technologies outside of the core expertise of the office. The benefit to value ratio is very high, the reports are thorough, timely and in a format that is easy to understand and share with investors.” Lisa Lorenzen “As a portfolio management tool for busy technology transfer office, Invention Evaluator makes great sense.” Rohan McDougall, Curtin University of Technology “In a few short weeks, the Vortechs Group presented us with more and better qualified candidates than we were able to find on our own in the previous six months of searching. Thanks to their expertise, we were able to find and hire the one-of-a-kind candidate we were looking for to lead our Technology Transfer efforts” Tekcapital helps companies of all sizes find and acquire university discoveries to create market value. We have found their offering to be well received by our listed companies that have tried their service. Paul Dorfman, Managing Director effective way Evaluator provides extremely “Invention cost through technologies to see which ones fit our criteria.” Dr. Craig Patch an screen to “We have had a great experience with the results of the studies we requested.” “Hemos tenido una muy Buena experiencia con los resultados de los estudios que hemos solicitado” Patricia Anguita “Invention Evaluator is very responsive to our needs, delivering our reports in a timely manner” Dr. Fiona Cameron, University of Western Sidney “With their technology transfer recruiting expertise, The Vortechs Group contributed to our process of finding candidates whom we otherwise might never have seen, ultimately leading to a successful hire. It was a pleasure partnering with The Vortechs Group and I recommend their services to organizations seeking technology transfer and related positions.” IP (UIP) Julian Mitchell- “In addition to a growing portfolio investments, Tekcapital helps of university research institutions and businesses develop disruptive technologies and expand their portfolios of intellectual capital through leveraging their suite of powerful and convenient technology transfer services.” “Drew Hendricks- “Tekcapital released an app earlier this year that allows users to search for IP from their smartphones. This is a good way to get a feel for what is out there, identify technology you may want, and get your creative wheels spinning.” Nick Hastreiter, “An entrepreneur who wants to benefit from UIP would traditionally have to network with individual universities, making relationships with their Technology Transfer Offices. But today entrepreneurs and international organizations facilitate a near frictionless system of access to that wealth of innovation.” 17 THE IP MARKET THE IP MARKET CREATING MARKET VALUE FROM UNIVERSITY DISCOVERIES “Universities are crucial drivers of intellectual advance and innovation. But the links between university research and practical application have not always been as strong as they should. We can strengthen those links and turn great ideas into commercial products.” Lord David Willets Tekcapital Non-executive Director and Former U.K. Minister of Universities and Science Current market challenges and opportunities The world continues to become smaller, everything is connected and the pace of innovation is quickening. As such, we have expanded our footprint to include IP not only from universities in the UK but from all member states of the World Intellectual Property Organization. Tekcapital’s current approach is to carefully select high-value innovations that are ready for market, and nurture them with experienced management, often from Fortune 500 companies, as this mitigates go-to-market risk. To-date, we believe our early results have shown great promise. Our approach is to focus on assisting our portfolio companies to reach their next milestones on their paths to commercial success and financial exits. Tekcapital is keenly focused on finding and commercializing university discoveries that can positively impact the quality of life, both for its own portfolio as well as for its clients. We continue to believe the future is very bright for our business, because many of the greatest discoveries come from the world’s research institutions, to which we have unfettered access. Efficiently harvesting these discoveries is our passion and our portfolio company progress is testi- mony to the effectiveness of this approach. However, early stage companies and their new technology trajectories of necessity entail significant risks. We choose to embrace these risks with the hope of producing real progress. Whilst this is not a path for everyone, this is the one we are honored to navigate. Tech transfer progress report for U.S universities Source: AUTM 2019 18 www.tekcapital.com THE IP MARKET CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT The Directors are responsible for, and committed to the principles underpinning, the corporate governance of the Company and monitor the business affairs of the Company on behalf of its shareholders. The Company has adopted and complies with the provisions of the QCA Code. Since our listing we have supported the QCA Code’s principle to review regularly the effectiveness of the board’s performance as a unit, as well as that of its committees and individual directors. For a full list of the 10 principles of the QCA code and our compliance approach for each, please refer to the corporate governance tab on our website: https://www.tekcapital.com/ corporate-governance/ . The Board The Board sets the Group’s strategic aims and ensures that necessary resources are in place for the Group to meet its objectives. All members of the Board take collective responsibility for the performance of the Group, the Group’s Corporate Governance and all decisions are taken in the interests of the Group. Whilst the Board has delegated the normal operational management of the Group to the Executive Directors and other senior management, there are detailed specific matters subject to decision by the Board of Directors. These include acquisitions and disposals, joint ventures and investments, projects of a capital nature and all significant contracts. The Non-Executive Directors have a responsibility to challenge constructively the strategy proposed by the Executive Directors which includes to scrutinise and challenge performance to ensure appropriate remuneration and succession planning arrangements are in place in relation to Executive Directors and other senior members of the management team as appropriate. The senior executives enjoy open access to the Non-Executive Directors. The Chairman is responsible for leadership of the Board and ensuring its effectiveness on all aspects of its role including Corporate Governance. The Chairman sets the Board’s agenda and ensures that adequate time is available for discussion of all agenda items, especially strategic issues. The Chairman promotes a culture of openness and debate by facilitating the effective contribution of Non-Executive Directors and ensuring constructive relations between Executive and Non-Executive Directors. The Chairman is also responsible for ensuring that the Directors receive accurate, timely and clear information. The Chairman also ensures effective communication with shareholders. All Directors allocate sufficient time to the Group to discharge their duties. There is a formal, rigorous and transparent procedure for the appointment of new Directors to the Board. The search for Board candidates is conducted, and appointments made, on merit, against objective criteria and with due regard for the benefits of diversity on the Board. The Board is responsible for ensuring that a sound system of internal con- trol exists to safeguard shareholders’ interests and the Group’s assets. It is responsible for the regular review of the effectiveness of the systems of internal control. Internal controls are designed to manage rather than eliminate risk and therefore even the most effective system cannot provide assurance that every risk, present and future, has been addressed. The key features of the system that operated during the year are described below. Orgnisational structure and control environment The Board of Directors meets at least six times per year to review the performance of the Group and to address important matters. It seeks to foster a strong ethical culture across the Group. There are clearly defined lines of re- sponsibility and delegation of authority from the Board to the operating subsidiaries and our portfolio companies. The Directors of each subsidiary meet on a regular basis with members of the Group Board in attendance. 19 CORPORATE GOVERNANCE Board structure Group’s Board contains a balance of Executive and Non-Executive Directors, including an Executive Chairman who is responsible for dealing with the strategic direction and long-term success of the Group. The Board will meet every three months or at any other time deemed necessary for the good management of the business and at a location agreed between the Board members. The Non-Executive Directors, are all considered independent directors. The Board considers that it departs from the principles of the QCA Code in respect to the fact that the Chairman and CEO role is combined which is a due to the current size of Tekcapital which dictates that this is the most efficient and cost-effective mode of operation at this time. The board will continue to monitor the appropriateness of a combined chair and CEO and will continue to consider a separation of these roles in the future when the opportunity arises and when Tekcapital is of a size when it can justify adding an additional non-executive director to the board. The Board has established an audit committee, remuneration committee and nominations committee, with formally delegated duties and responsibilities and written terms of reference. From time to time, separate committees may be set up by the Board to consider specific issues when the need arises. Board composition, experience and dynamics The Company operates in complex and challenging technological and geographical areas and the Board is mindful that in order to deal effectively with the challenges of the business and to maximise its growth opportunities it has to incorporate a broad range of skills and diversity. The Board maintains a skills, diversity and experience matrix which will be periodically reviewed at Board meetings to evaluate current and future requirements. The Board and its committees will also seek external expertise and advice where required. Board members undertake continuing professional development as an when appropriate. Board evaluation The Board considers evaluation of its performance and that of its committees and individual directors to be an integral part of corporate governance to ensure it has the necessary skills, experience and abilities to fulfil its re- sponsibilities. The goal of the Board evaluation process is to identify and address opportunities for improving the performance of the board and to solicit honest, genuine and constructive feedback. The Board considers the evalua- tion process is best carried out internally at the Group’s current size, However the Board will keep this under review and may consider independent external evaluation reviews in due course as the Company grows. The Board will, as a whole or in part as appropriate, undertake the evaluation process aided by the Executive Chairman, and independent Non-Executive Directors or external advisors as necessary. The Chairman is responsible in ensuring the evaluation process is ‘fit for purpose’, as well as dealing with matters raised during the process. The Chairman will keep under review the frequency, scope and mechanisms for the evaluation process and amend the process as required. Where deficiencies are identified these will be addressed in a constructive manner. Where necessary individual Directors will be offered mentoring and training. If deficiencies are identified within the Board as a whole, then changes or additions to the Board will be considered in conjunction with the Remuneration Committee. The evalu- ation process will be focused on the improvement of Board performance, through open and constructive dialogue and the development and implementation of action plans. The Board will report on its evaluation and actions in its Annual Report. Succession planning is a vital task for boards and the management of succession planning represents a key measure of the effectiveness of the Board and a key responsibility of both the Nominations Committee and wider Board. 20 www.tekcapital.comInternal Control The key procedures which the Directors have established with a view to providing effective internal control are as follows: • Regular Board meetings to consider the schedule of matters reserved for Directors’ consideration; • A risk management process; • An established organisational structure with clearly defined lines of responsibility and delegation of authority; • Appointment of staff of the necessary calibre to fulfil their allotted responsibilities; Comprehensive budgets, fore casts and business plans approved by the Board, reviewed on a regular basis, with performance monitored against them and explanations obtained for material variances; and • An Audit Committee of the Board, comprising Non-Executive Directors, which considers significant financial control matters as appropriate. Business model and strategy Tekcapital Group’s goal is to improve the quality of life of it customers and create value from its ability to identify, acquire and commercialise promising new university IP. We also deliver a wide range of technology transfer services through a number of operating divisions. These services are designed to assist universities and corporates with the commercialisation of new IP. Over the years we have built up an extensive international network of universities and research institutions that develop licensable IP for potential acquisition, by ourselves or to meet client needs. Corporate Culture The Board recognises that a corporate culture based on sound ethical values and behaviours is an asset and provides competitive advantages. The Company operates in international markets and is mindful that respect of individual cultures is critical to corporate success, as an example our Invention Evaluator website is available in English, Span- ish and Portuguese. In accordance with the Company’s stated mission it endeavours to conduct its business in an ethical, professional and socially responsible manner, treating our employees, customers, suppliers and partners with equal courtesy and respect at all times. The Board is committed to maintaining good communication and having constructive dialogue with all of its stake- holders, including shareholders, providing them with access to information to enable them to come to informed decisions about the Company. The Investor Relations section of the Company’s website provides all required regulatory information as well as addi- tional information shareholders may find helpful including: information on Board Members, Advisors and Significant Shareholdings, a historical list of the Company’s Announcements since inception, its Financial Calendar, Corporate Governance information and Media Interviews and information designated as “News.” Results of shareholder meetings and details of votes cast will be publicly announced through the regulatory system and displayed on the Company’s website under “Announcements,” with suitable explanations of any actions under- taken as a result of any significant votes against resolutions. Information on the work of the various Board Commit- tees and other relevant information are included in the Company’s Annual Report. 21 CORPORATE GOVERNANCE Risk management As an entrepreneurial business focused on emerging technologies, operating in both established and emerging markets, there is clearly an elevated risk which we believe is balanced by potentially greater rewards. The Board is mindful of and monitors both its corporate risks and individual project risks. Risks are categorised by both prob- ability and impact and appropriate measures identified to monitor and mitigate any potential impact when possible. Technology and portfolio company risks are dealt with on a case by case basis and monitored through the life cycle of the investment as risks change and new risks appear. Portfolio company risks and mitigation will be part of regu- lar management meetings. In some cases if we cannot manage or mitigate a specific portfolio company risk we may seek to close the portfolio company to better deploy our resources to higher value opportunities. We have done this on a few occasions. The Company’s corporate risks, risk monitoring, and risk management procedures are regularly reviewed by the Board and when appropriate incorporated in RNS releases. The Company discloses portfolio com- pany risks in its Annual Report each year. Audit Committee The Audit Committee assists the Board in discharging its responsibilities with regard to corporate governance, financial reporting and external and internal audits and controls, including, amongst other things, reviewing the Company’s annual financial statements, reviewing and monitoring the extent of the non audit services undertaken by external auditors, advising on the appointment of external auditors and reviewing the effectiveness of the Com- pany’s internal controls and risk management systems. The ultimate responsibility for reviewing and approving the annual report and accounts and the half yearly reports remains with the Board. Membership of the Audit Commit- tee comprises Dr Robert Miller and Louis Castro (as chairman), who is considered by the Directors to have recent and relevant financial experience. The Audit Committee will meet formally not less than three times every year and otherwise as required. Nomination Committee The Nominations Committee is responsible for leading the process for board appointments and making recom- mendations to the Board to implement a formal and transparent procedure for the appointment of new directors to the Board. The Nominations Committee comprises Dr Clifford Gross (as chairman), Louis Castro, Malcolm Groat, Lord David Willetts and Dr Robert Miller. The Nominations Committee will meet not less than twice a year and at such other times as the chairman of the committee shall require. Remuneration Committee The Remuneration Committee is responsible for establishing a formal and transparent procedure for develop- ing policy on executive remuneration and to set the remuneration packages of individual Directors. This includes agreeing with the Board the framework for remuneration of the Chief Executive Officer, all other executive direc- tors, the company secretary and such other members of the executive management of the Group as it is designated to consider. It is furthermore responsible for determining the total individual remuneration packages of each Director including, where appropriate, bonuses, incentive payments and share options. No Director may be involved in any decision as to their own remuneration. The membership of the Remuneration Committee comprises Dr Rob- ert Miller (as chairman) and Louis Castro. The Remuneration Committee will meet not less than three times a year and at such other times as the chairman of the committee shall require. 22 www.tekcapital.comCorporate Responsibility The Board is very aware of the importance of its corporate responsibilities, particularly in terms of ensuring that high standards of behaviour are maintained wherever the Group is operating. The following principles and processes have been established for that purpose: • Only commercialise technologies that improve the saftyey, health and well being of the customers we serve; • Protecting the health and safety of all employees is paramount; • Comply with relevant International Export Controls for technology transfer; • The Group maintains a an anti-bribery policy and complies with both UK and local statutes. Financial planning, budgeting and monitoring The Group operates a planning and budgeting system with an annual budget approved by the Board. There is a fi- nancial reporting system which compares results with the budget and the previous year each month to identify any variances from approved. Plans in addition to Y-O-Y comparisons of relevant KPI’s. Monthly rolling cash flow forecasts form part of the re- porting system. The Group remains alert to react to new business opportunities as they arise. With a keen focus on strengthening our portfolio companies. Capital Management policies and procedures The Group’s capital management objectives are: • To ensure the Group’s ability to continue as a going concern; and • To provide an adequate return on invested capital (ROIC) and increase in net assets. • The Group monitors capital on the basis of the carrying amount of equity plus its cash and cash equivalents as presented on the face of the statement of financial position. • The Group manages the capital structure and seeks to adjust it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may review any dividends paid to shareholders and potentially issue new shares. •There is no requirement for the Group to maintain a strong capital base for each of its portfolio companies although it seeks to support them when appropriate and feasible. These policies have not changed in the year. The Directors believe that they have been able to meet their objectives in managing the capital of the Group even in the face of a challenging global pandemic. 23 CORPORATE GOVERNANCE Non-Executive Directors The Non-Executive Directors are considered by the Board to be independent in character and judgement and there are not considered to be any circumstances that are likely to affect their judgement as Directors of the Group. Their interests in the share capital of the Company are not considered to be likely to affect their judgement as Directors of the Group. Annual report The Directors consider the annual report and financial statements, taken as a whole, is fair, balanced and under- standable and provides the information necessary for shareholders to assess the Company’s performance, business model, strategy and risks. 24 www.tekcapital.comSTRATEGIC REPORT STRATEGIC REPORT STRATEGIC REPORT Chairman’s Summary Tekcapital brings innovations from lab to market that en- hance safety and health and improve the quality of life. In 2019, all of our active portfolio companies have made sig- nificant progress and our Net Asset Value increased by 46%. We have also grown our service revenues by 15%, including portfolio company management fees and R&D related tax credits. As a result, our profits and net assets ended the year at record levels. Key Portfolio companies Using our proprietary global university network, we provide services to universities and companies to help them com- mercialize their innovations. Over the past four years, using these services, we have built a compelling group of portfo- lio companies to commercialize high value properties we have uncovered. We believe that when you couple commer- cialization ready, compelling university IP with strong senior management, vibrant companies will emerge, net assets will grow, returns on invested capital will outperform the sector and exits will occur faster. When we realise exits through trade sales or IPO’s, the Group’s goal is to distribute a portion of the proceeds as a special dividend to our shareholders. Salarius is a food tech business that owns a patented process to produce nanoparticle sized salt called MicroSalt® These small crystals dissolve faster on the tongue, so you need to use less salt, while still having the same salty taste. Less salt means about 50% less sodium. Less sodium means a reduced likelihood of developing heart disease, the world’s number one killer. Salarius has added additional senior management with Fortune 500 company manufacturing experience, and has be- gun selling MicroSalt®, and launched its line of SaltMe!(R) Snacks in H1 2020. According to Future Market Insights¹, the low sodium ingredient market is estimated to reach US$1.76bn by 2025. Tekcapital owns 91.7% of Salarius. Key Investment rationale: Whilst consumers continue to crave salted snacks, there is a significant trend for better for you, health conscious foods that taste good. As heart disease con- tuinues to rise and represents the leading cause of premature death in the world, reducing sodium in the foods we eat is of paramount and continuing importance. Lucyd has built a new, online eyeglass business that combines technology with traditional eyewear. Recently they introduced Lucyd Loud 3.0 upgraded Bluetooth® eyewear. This product combines proper prescription glasses with Bluetooth tech- nology that you can use to answer your phone, listen to music and talk with Siri®. The product has been well received and the company is focused on expanding its sales with retail dis- tribution through sporting goods and other specialty stores in 2020. Lucyd has also developed and filed approximately 20 patents on modular Bluetooth eyewear that enables the con- sumer to quickly and inexpensively change the look of their glasses. The company anticipates launching this new product in 2020 along with Lucy Lyte, the first Bluetooth prescription eyewear, that look like regular glasses in terms of their stream- lined form factor. According to Statista2, the current online market for eyewear is $3.8b per year. Tekcapital owns 100% of Lucyd. 2019 1- https://www.futuremarketinsights.com/reports/sodium-reduction-ingredient-market 2- https://www.statista.com/outlook/12000000/109/eyewear/united-states#market-onlineRevenueShare 3- https://www.statista.com/statistics/428692/projected-size-of-global-autonomous-vehicle-market-by- vehicle-type/ FINANCIAL PERFORMANCE 2019 was the best year for value creation in the Group’s history. A 40% in- crease in net assets were accompanied by a 15% increase in service revenue. The Group was able to accomplish this whilst simultaneously reducing its administrative costs by 7%. The Group has now demonstrated three consecu- tive years of growth in Net Assets and service revenue. Due to the quickening pace of innovation, patented, exogenously developed university technologies are a valuable currency, and as a result, we continue to believe that the market opportunity for the Group is both large and should continue to grow apace in lock-step with our portfolio companies. In short we believe 2020 is a year for demonstration of significant progress amongst many of our portfolio companies. 25 STRATEGIC REPORT STRATEGIC REPORT Key Investment rationale: Digital assistants have gained significant prominence amongst consumers of all ages. Indi- viduals want to stay connected to their digital lives throughout the day. Lucyd’s Bluetooth® enabled glasses facilitate seamless connectivity whilst providing glasses that correct vision and protect the eyes with fashion forward frames at an affordable price. Additionally, the pedestrian accidents and deaths are on the rise partially from distractions caused by mobile devices. Lucyd can help deal with this problem. Guident owns or holds the exclusive licence to a group of patents that together we believe improve the safety of autonomous vehicles and land-based autonomous delivery drones. Guident has significantly increased its intellectual capital in 2019 with several additional patent acquisitions and one in-house developed property. Guident has begun its B2B marketing program and seeks to develop partnerships with vehicle OEM’s to provide remote tele monitoring and control centres for autonomous vehicles amongst other services. Such monitoring has recently been required by law in the State of Florida and other jurisdictions. According to Statista, the US market for Autonomous vehicles is projected to reach $6 billion by 2025. Tekcapital owns 100% of Guident. Key Investment rationale: Autonomous vehicles and ground based delivery drones are about to make their entrance on the world’s roads. They hold the potential to significantly reduce accidents and transportation costs. We believe that ensuring the safety of these vehicles with software apps for primary use cases including accident remediation coupled with remote monitoring and control centres, will be required for rapid consumer adoption. Belluscura has developed an improved portable oxygen concentrator to provide on-the-go supplemental O2, with user replaceable filter cartridges. When a patient’s disease progresses they now can upgrade the filter cartridge to provide more litres of O2 per minute, rather than having to replace an expensive medical device. This cost savings will be beneficial to patients and insurance companies and should help make healthcare more affordable as per Belluscura’s mission. Belluscura raised US $2.7m in 2019 at 15p/share to continue with its FDA clearance and go to market strategy. Post money valuation ~US $9m for the entire business. Belluscura anticipates receiving 510(K) clearance from the US FDA in H1 2020. Upon receipt of clearance from the FDA, the Directors believe that Belluscura’s value should significantly increase. According to Global Market Insights, the medical portable O2 market is currently $1.4bn a year and growing by more than $100m/year1 . Tekcapital owns 18.9% of Belluscura. Post end of period, Belluscura has filed an additional patent application (17 patents filed or licensed to-date) entitled “Improved Extracorporeal Membrane Oxygenation Device, System and Related Methods,” covering devices and systems for treating people suffering from acute respiratory distress caused by the Coronavirus. The latest patent application covers devices and systems for treating people suffering from Acute respiratory distress syndrome (“ARDS”) including patients suffering from the coronavirus. Belluscura and Separation Design are designing and developing next genera- tion, cost-effective, portable ECMO technology to treat ARDS patients. Key Investment rationale: Chronic obstructive pulmonary disease (“COPD”) afflicts more than 250 million individuals worldwide and is growing due to the aging population, smoking and air pollution. Further, as a result of the COVID-19 pandemic, individuals who recover may have residual lung damage. Many of these individuals could benefit from the supplemental oxygen provided by portable oxygen concentrators. Belluscura’s patented approach to enable users to upgrade their portable oxygen concentrators as their disease progresses rather than purchase a new unit will make healthcare more affordable for these patients and their insurance providers. 26 1 https://www.gminsights.com/industry-analysis/medical-oxygen-concentrators-market-report 2https://www.amazon.com/Helen-Teacher-Story-Keller-Sullivan/dp/0891282343 www.tekcapital.comSTRATEGIC REPORT Corporate Tekcapital has strengthened the board of directors with the appointments of Lord David Willetts and Mr. Louis Castro. Rt Hon Lord Willetts FRS is President of the Resolution Foundation and former U.K. Minister for Universities and Science. He served as the Member of Parliament for Havant (1992-2015), and previously worked at HM Treasury and the No. 10 Policy Unit. Lord Willetts is a visiting Professor at King’s College London, former Chair of the British Science Association and a member of the Council of the Institute for Fiscal Studies. Louis Castro is a highly experienced and well qualified Director and Chartered Accountant with some thirty years spent in industry and in financial services, including positions as Chief Executive, Finance Director and Non-Executive Director of several AIM listed companies. He was previously the CFO at Eland Oil & Gas plc where he had full executive responsibility for finance, legal, corporate finance and a budget of over $150m. Louis is a Fellow of the Institute of Chartered Accountants of England & Wales. We are seeing continued growth of technology transfer services and have released a new version of the Invention Evaluator tri-lingual website for expansion of its service offerings throughout Latin America. Consulting sales are up approximately 15% Y-O-Y and currently cover approximately 55% of our administrative costs. One of our goals is to have all of our adminis- trative costs covered by our service revenue in future periods. Principal Risks and Uncertainties The specific financial risks are discussed in the notes to the financial statements. Other risks are as follows: - the principal financial risks of the business relate to the value of the Group’s portfolio companies. We believe that the fair value of each portfolio company is a time dependent valuation that may be impaired if the business does not achieve it milestones, growth trajectory, product development, capital raises or other key performance metrics. Individually and as a group our portfolio companies have a material impact on our financial performance. This risk of individual portfolio com- pany negative performance may be ameliorated as our portfolio becomes more diverse and increases in value. - the principal operational risk of the business is management’s ability to assist our portfolio companies in achieving their goals and ultimate exits whilst increasing our service revenues. - the Group is dependent on its executive team and directors for its operations and ultimate success and there can be no assurance that it will be able to retain the services of these key personnel in the future. - the COVID-19 epidemic may produce negative economic activities which could reduce the Group’s economic performance Further, until the Group covers all of its operating costs from service revenue and or exits it will seek to raise additional capital to fund operations and follow-on investments in portfolio companies. Post period end fundraising Post end of period, the Company announced that it had completed a fundraising of US$0.96 million (before expenses) through the placing of 14,800,000 new ordinary shares with new and existing investors at a price of 5 pence per share. The issue of the new shares and receipt of the proceeds from the fundraising were received during February 2020. Post end of period, the Company announced that it had raised US$1.15 million (before expenses) by means of a conditional fundraise through the issue of, in aggregate 9,250,000 placing shares at 10 pence per share. The placing will be subject to Tekcapital’s shareholders approval at a general meeting on 19 May 2020. 27 STRATEGIC REPORT: FINANCIAL REVIEW & KEY STRATEGIC REPORT PERFORMANCE Key Performance Indicators and Financial Review The Key Performance Indicators (KPIs) listed below represent those that are typically applied to companies that seek to commer- cialise university technologies and serve as a starting point for evaluating the Group’s performance: KPI DESCRIPTION 2019 PERFORMANCE 2018 PERFORMANCE FAIR VALUE OF THE PORTFOLIO TOTAL REVENUE Updated value of portfolio com- panies using costs, independent valuations or observed third party investments Service revenue plus change in fair value of portfolio PROFIT After tax profit NET ASSETS PER SHARE Total assets minus total liabilities per share ROIC Returns on invested capital since flotation in 2014 $20.3m $13.7m $7.7m $5.5m $0.35 24% $6.8m $4.6m $0.30 30% Four of our five Key Performance Indicators showed improve- ment in 2019. The Group has now demonstrated four consecu- tive years of growth in Net Assets and Net Assets per share. The Group’s cash position at the end of the period is US$0.5m with modest liabilities as costs have been settled without de- lay using available funds. The Group had no debt as of 30 No- vember 2019 and completed a post period placement raising gross proceeds of US$0.9m as well as a conditional placing for US$1.15m. The Group’ has also demonstrated consistent growth in revenue from services. The Group was able to achieve this growth while simultaneously reducing its administrative expenses for the third straight year. Directors do not believe there are any material environmental issues that need to be reflected in our KPIs for 2019. The Group has received a R&D Tax Relief Credit for the total of US$58,000 in connection to following R&D activities: - The development of a unique and first of a kind Innovation Discovery Network solution, developed to facilitate an improved technology search engine. The Group incurred US$173,947 in R&D expenditures related to above activities during the year. 28 www.tekcapital.comCurrent Trading and Outlook Having continued to develop and expand Tekcapital’s existing business, the Board is confident that continued investment in our portfolio companies remains the right approach for long-term value creation. Additionally, we are currently exploring early stage venture funding for a number of our portfolio companies. Further, we believe that we are executing on our strategy and this should result in further increases in returns on invested capital as our portfolio companies continue to mature to exits. Whilst it is clear that the Company is progressing very well, net asset values will fluctuate from period to period due to individual portfolio company performance, valuations and changes in market conditions and macro-economic financial condi- tions including the recent Coronavirus epidemic. We are grateful for the patience and support of our shareholders. We are also sincerely appreciative of our dedicated, creative and incredibly hardworking team without which, none of the results reported herein would be possible. Dr Clifford M Gross Executive Chairman 5 May 2020 29 BOARD OF DIRECTORS BOARD OF DIRECTORS Cliff is a successful executive with 25 years of leadership experience in academia and commercial enterprises. He is passionate about the development and commercialization of intellectual property to improve the quality of life and create lasting value. Previously, he founded Biomechanics Corp and UTEK where he served as CEO and Chairman and was President and CEO of Innovacorp, the provincial venture capital fund of Nova Scotia. Cliff has served as Acting Director of the graduate program in Biomechanics and Ergonomics at New York University, Chairman of the Nelson Rockefeller Department of Biomechanics at the New York Institute of Technology and Research Professor at the University of South Florida. He received his Ph.D. from New York University and an MBA from Oxford University. Malcolm has worked for many years as a consultant to companies in technology, natural resources, and general commerce. Following an early career with PwC in London, he held CFO, COO, and CEO roles in established corporations including the construction firm now called Arcadis. Recently he has held several non-executive director or chairman positions and today these include Corps Security, Baronsmead Second Venture Trust, and Golden Saint Technologies. Malcolm is a Fellow of the Institute of Directors, Fellow of the Royal Society for the encouragement of Arts, Manufactures and Commerce, and Fellow of the Institute of Chartered Accountants in England and Wales. He holds university degrees from St Andrews (MA) and Warwick (MBA). Robert served as Vice Chair of Mayo Clinic’s national Cancer Center Practice Committee, overseeing cancer care delivery at all of Mayo’s national sites, and was Medical Director for Particle Therapy at Mayo Clinic Florida. He previously served as Vice Chairman of the Board of Trustees of the Mayo Clinic Health System – Albert Lea and Austin. Professor Robert Miller was a physician-executive at the Mayo Clinic, where he was employed for the last 25 years and remains on emeritus staff. He is the author of over 170 peer- reviewed papers, including as senior author in JAMA and the Journal of Clinical Oncology. Robert began his scientific career as a medical physicist at the University of Kentucky, before going on to graduate from medical school at the University of Kentucky. Robert also received an MBA from Oxford University. Robert is the Medical Director of the Maryland Proton Treatment Center and Professor at the University of Maryland. The Rt Hon Lord Willetts FRS is President of the Resolution Foundation and former Minister for Universities and Science. He served as the Member of Parliament for Havant (1992-2015), and previously worked at HM Treasury and the No. 10 Policy Unit. Lord Willetts is a visiting Professor at King’s College London, Governor of the Ditchley Foundation, former Chair of the British Science Association and a member of the Council of the Institute for Fiscal Studies. He is also an Honorary Fellow of Nuffield College, Oxford. Lord Willetts has written widely on economic and social policy. His book ‘The Pinch’, which focused on intergenerational equity, was published in 2010, and he recently published ‘A University Education’. Lord Willetts is a graduate of Oxford university and has been awarded numerous honorary doctorates. Clifford M Gross, PhD Chairman and CEO M J Malcolm Groat Finance Director Robert Miller, MD Non Executive Director RT Hon Lord David Willets Non Executive Director Louis Castro has over 30 years’ experience in investment banking and broking both in the UK and overseas. Most recently he was the Chief Financial Officer at Eland Oil & Gas, a mid –cap quoted company. Previously he was Chief Executive of Northland Capital Partners in London and before this was Head of Corporate Finance at Matrix Corporate Capital and at Insinger de Beaufort. He started his career by qualifying as a Chartered Accountant with Coopers & Lybrand (now PWC). Louis chairs the Audit Committee and is a member of the Remuneration Committee. He is a Fellow of the Institute of Chartered Accountants In England and Wales and has a Double Degree in Engineering Production & Economics from Birmingham University. Louis Castro Non Executive Director 30 Company name: Tekcapital plc Company number 08873361 OFFICERS AND PROFESSIONAL ADVISERS Registered Office 12 New Fetter Lane London EC4A 1JP Auditor H W Fisher 11 – 15 William Road London NW1 3ER Banks HSBC plc Canada Place Canary Wharf London E14 5AH The Toronto-Dominion Bank 12620 Biscayne Blvd North Miami FL 33181 USA Solicitors Bird & Bird LLP 12 New Fetter Lane London EC4A 1JP Nominated Adviser and Joint- Broker SP Angel Corporate Finance LLP Price Frederick House 35-39 Maddox Street London W1S 2PP Joint-Broker Novum Securities Limited 8-10 Grosvenor Gardens Belgravia London SW1W 0DH Investor Relations Flagstaff Strategic and Investor Communications 1 King Street London EC2V 8AU www.tekcapital.com DIRECTORS’ REPORT FOR THE YEAR-ENDED 30 NOVEMBER 2019 Directors The following Directors held office during the period, and to the date of this report. Clifford M Gross, PhD M J Malcolm Groat R W “Bill” Payne (resigned 31 December 2019) Robert Miller, MD Louis Castro (appointed on 2 December 2019) The RT Hon Lord David Willets FRS (appointed on 6 January 2020) The Group has chosen to set out in the groups strategic report information required to be contained in the directors’ report. It has done so in respect of future developments. The principal activity of the parent company is that of an investment entity. Statement of Directors’ responsibilities The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and parent company financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company 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 IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business. 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 Company and the Group to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Each of the current Directors, whose names are listed in the Directors’ report on page 30 of the financial statements confirm that, to the best of each person’s knowledge and belief: • the financial statements, prepared IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit (or Loss) of the Group and Company; and in accordance with • the chairman’s statement contained in the annual financial statements includes a fair review of the a development and performance of the business and the position of the Group and Company, together with description of the principal risks and uncertainties that they face. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website www.tekcapital.com. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Going concern The Group meets its day to day working capital requirements through its service offerings and monies raised through the issues of equity. The Group’s forecasts and projections indicate that the Group has sufficient cash reserves to operate within the level of its current facilities. Whilst it is the Group’s intention to rely on the available cash reserves, future income generated from its growing service offerings and reductions in its cost base, a negative variance in the forecasts and projections would make the Group’s ability to continue as going concern dependent on an additional fund raise. If the Group’s forecasts are not achieved, the Directors would seek to raise the additional funds through equity issues. Whilst the COVID-19 epidemic is contributing to uncertainty in the markets and the full impact is difficult to measure, at the time of approving the accounts after making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. 31 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 NOVEMBER 2019 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 NOVEMBER 2019 Information has been included in the stategic report under S414C(11) of the Companies Act 2006. Dividends No dividend was paid or was proposed during the year ended 30 November 2019. Audit Committee The Board operates an Audit Committee, chaired by Bill Payne. This Committee carries out duties as set out in the AIM Admission Document, supervising the financial and reporting arrangements of the Group. During the period, no issues arose that the Directors consider appropriate to disclose in their Report. Research and Development The Group incurred expenses related to research and development activities. The activities were limited to improvement of the Innovation Discovery Network solution, developed to facilitate an improved technology search engine. Remuneration Committee The Board has delegated to its Remuneration Committee, chaired by Dr Robert Miller, certain responsibilities in respect of the remuneration of senior executives. During the period, no issues arose that the Directors consider appropriate to disclose in their Report. Directors Emoluments Director’s proportion of the stock option expense is below US$10,000. The Group did not make any contributions to a pension scheme in the year ended 30 November 2019 (2018: Nil). Directors’ beneficial interests in shares: Please note the above figure for Clifford M Gross does not include 100,000 shares held by both of Dr. Gross’s children. The details of the options held by each director at 30 November 2019 are as follows: 32 www.tekcapital.com DIRECTORS’ REPORT FOR THE YEAR ENDED 30 NOVEMBER 2019 * The options vest in three equal annual instalments from the date of grant and there is a special condition which means the options will vest when the closing price for a share has been traded at more than one pound sterling for ten consecutive trading days. ** The options shall vest when the net asset value, as stated in the annual consolidated accounts, meets or exceeds USD$20.53m during the 36 months after the grant date. The threshold shall be re-tested when each set of accounts published during the 36 months are finalised. 525,000 options were held by Harrison Gross, family member of Dr. Clifford Gross. Principal Risks and Uncertainties Please refer to Strategic Report. Post Balance Sheet Events For further details, please refer to note 27 in the notes to the financial statements. Independent auditors HW Fisher were appointed as auditor to the company and in accordance with section 485 of the Companies Act 2006, a resolution pro- posing that they be re-appointed will be put at a General Meeting. Statement of disclosure of information to auditors Each of the persons who was a Director at the date of approval of this report confirms that: • so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and • the Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit infor- mation and to establish that the Company’s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. By order of the Board of Directors and signed on behalf of the Board M J Malcolm Groat Director 5 May 2020 33 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TEKCAPITAL PLC TEKCAPITAL PLC Opinion We have audited the financial statements of Tekcapital Plc (the ‘parent company’) and its subsidiaries (the ‘Group’) for the year ended 30 November 2019 which comprise: • • • • • the consolidated Statement of Comprehensive Income; the consolidated and parent company Statements of Financial Position, the consolidated and parent company Statement of Changes in Equity; the consolidated Statement of cash flows; the related notes to the consolidated and parent company financial statements including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including FRS101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice). 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 30 November 2019 and of the Group’s profit for the year then ended; the Group’s financial statements have been properly prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union; the parent company financial statements have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice; 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 and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 34 www.tekcapital.com INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TEKCAPITAL PLC Conclusions related to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • • 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. Summary of our audit approach Context The parent company continued to recognise Tekcapital Europe Limited and Tekcapital LLC as subsidiaries and has continued to consolidate both entities in preparing the consolidated financial statements. The other subsidiaries continue to be treated as portfolio investments under IFRS 10, investment entities. Key audit matters Key audit matters are those matters that, in our professional judgment, 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) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters 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. The key audit matters that we identified in the current year were: • • • • • Going Concern, based on the Group’s ability to raise funds. Valuation of unquoted equity investments. Revenue recognition and accuracy of cut off in the period; Management override of controls; Reliance on Expert Our application of materiality The materiality that we used for the consolidated financial statements was $227,000. We determined materiality using 1% of gross assets. The materiality that we used for the parent company’s financial statements was $67,000. We determined materiality using 1% of gross assets. An overview of the scope of the audit 35 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TEKCAPITAL PLC TEKCAPITAL PLC Area of focus How our audit addressed the area of focus Valuation of unquoted equity investments 88% of the Group’s total assets (by value) is held in investments where no quoted market price is available. Unquoted Investments are measured at fair value. The valuation techniques used fall un- der level 2 and level 3 of the fair value hierarchy. This is a key area of es-timation and we therefore considered this to be an area of significant audit risk and focus. The Group engages an independent expert valuer for the purpose of de- termining the fair value of the assets held within the investments to help mitigate this risk. Going concern The parent company and subsidiaries are not currently profit generating and are reliant upon their ability to raise funds. The operating profit is a result of the fair value gains on the investments which is unrealised. Our audit work included, but was not restricted to the following: • We reviewed the appropriateness of the Group’s disclosures within the financial statements in relation to valuation methodology, key valuation inputs and valuation uncertainty. • We addressed the competency, qualifications, independence and objectivity of the valuer as documented in the key area of focus below. • We re-performed the calculations to ensure numerical accuracy and assessed the reasonableness of inputs used in the valuation and performed benchmarking. • We performed a review of the valuations sensitivity to the discount rates and other key areas of estimation and reviewed the sensitivity disclosure calculations. •We agreed the inputs in the discounted cash flows used for the royalty relief valuations and the e-shop valuation to the independent reports. •We considered the impact of deferred tax on the fair value gains recognised on the IP held in the invest- ments and considered these amounts within the valuations. • For items which were material but were not fair valued on the investment company’s balance sheet we vouched to appropriate audit evidence • Reconciliation of the fair value movements to the financial statements. • We reviewed the underlying licence agreements on the patents to ensure the ownership / exclusivity. • We assessed the critical accounting judgement disclosure at note 4 to the financial statements in respect of the directors’ determination of the Group as an investment entity • The investments have been fair valued as at 30 November 2019 and do not take into consideration the impact of Covid-19 as it is a non-adjusting event. Based on our audit work detailed above, we confirm that we have nothing material to report, and or draw attention to in respect of these matters. Our audit work included, but was not restricted to the following: • We have reviewed the directors’ statement regarding the appropriateness of the going concern basis of accounting contained within note 2.1.1 to the financial statements. • We have reviewed the available consolidated financial forecasts of the Group in line with the assertions provided throughout the audit to assess their reasonableness. • We have applied sensitivities to the consolidated financial forecasts to review the impact in line with the wording included within the going concern policy and agreed that should there be a negative variance in the forecasts projected the Group will be reliant upon a future fundraise. • We have reviewed the post year end management accounts • We have reviewed the announcements and considered if any items will have a financial impact affecting the going concern. • We have reviewed the disclosures at note 3 that describe the financial risks and explain how they are being managed or mitigated. • We have reviewed the £925,000 fundraise completed 30 April 2020 which is conditional on approval at the AGM and have considered this when reviewing the sensitised forecasts. Based on our audit work detailed above, we confirm that we have nothing material to report, and or draw attention to in respect of these matters. We agreed the directors’ disclosure of the going concern as disclosed within note 2.1.1 of the financial statements. We did not identify any such material uncertain- ties. However, because not all future events or conditions can be predicted, especially given the economic uncertainty as regard to Covid-19, this statement is not a guarantee as to the Group and parent company’s ability to continue as a going concern. 36 www.tekcapital.comINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TEKCAPITAL PLC TEKCAPITAL PLC Area of focus How our audit addressed the area of focus Assessment of revenue recognition There is a presumed risk of misstate- ment arising from lack of complete- ness or inaccurate cut-off relating to revenues. Revenue also includes a significant amount of unrealised income from investments held at fair value through profit and loss which is material to the financial statements Our audit work included, but was not restricted to the following: • We evaluated the sales controls system in place to determine the controls surrounding the income. • We checked a sample of the sales agreements and contracts through to the income recognised in the accounts and invoices. • We also completed checks on deferred and accrued income, no material misstatements were identified in respect of the deferred income not recognised. • We reviewed the revenue recognition accounting policy at note 2.20 of the financial statements to ensure the application was consistent. • We assessed the accounting policy for the fair value gains / losses on the investments measured at fair value to check that movements had been accounted for in accordance with the stated accounting policy. Based on our audit work detailed above, we confirm that we have nothing material to report, and or draw attention to in respect of these matters. Management override of controls Our audit work included but was not restricted to the following: Management is in a unique position to override controls that otherwise appear to be operating effectively. Reliance on experts The Group engaged with an independ- ent expert valuer to value the IP held within the portfolio companies. The IP within the portfolio companies is the main driver for the fair values and these are material to the financial statements and reliance on expert is therefore considered a risk area. The independent expert valuer pro- duced reports on the IP held within Lucyd Limited, Salarius Limited and Guident Limited. • We undertook testing on the Group and parent company’s controls, we extended our audit testing to perform enhanced management override procedures. • We undertook a review to gain an understanding of the overall governance and oversight process surrounding management’s review of the financial statements. • We examined the significant accounting estimates and judgements relevant to the financial statements for evidence of bias by the directors. • We reviewed the financial statements and considered whether the accounting policies are appropriate and have been applied consistently. • We undertook a review of the journals posted through the nominal ledger for significant and unusual transactions and investigated them, reviewing and confirming the company valuation of journal entry postings. • We undertook a review of the consolidation journals to ensure they were reasonable. Based on our audit work detailed above, we confirm that we have nothing material to report, and or draw attention to in respect of these matters. Our audit work included but was not restricted to the following: • We reviewed the reports prepared by the expert valuer and considered the appropriateness of assump- tions used in determining the fair value of the investments. • The senior members of our team held conference calls with the expert valuer to discuss and challenge the valuation methodologies, key assumptions and to consider if there were any indicators of undue man- agement influence on the valuations. • We ensured the expert valuer was independent from the Company through review of engagement letters and instructions. • We reviewed the expert valuers methodologies in line with guidance issued for valuing intangibles and reviewed the approaches with our internal valuations team. • We re-performed the calculations and present value workings to ensure the effect of the discounting was correctly applied. • We undertook a review of the expert in line with ISA 500. Based on our audit work detailed above, we confirm that we have nothing material to report, and or draw attention to in respect of these matters. 37 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TEKCAPITAL PLC TEKCAPITAL PLC 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 other- wise 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. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the 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 strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its 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 in relation to which 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 directors As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the parent company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so. 38 www.tekcapital.com INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TEKCAPITAL PLC 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 mis- statement, 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 mis- statement 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: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our audit report This report is made solely to the parent company’s members, as a body, in accordance with chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the parent company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the parent company and the parent company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Carolyn Hazard (Senior Statutory Auditor) For and on behalf of HW Fisher Chartered Accountants Statutory Auditor Acre House 11/15 William Road London NW1 3ER United Kingdom Dated 5 May 2020 39 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 NOVEMBER 2019 YEAR ENDED 30 NOVEMBER 2019 The Group has used the exemption under S408 CA 2006 not to disclose the Company income statement. Items in the statement above are disclosed net of tax. The notes on pages 46 to 76 are an integral part of these consolidated financial statements. 40 www.tekcapital.comCONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 NOVEMBER 2019 The notes on pages 46 to 76 are an integral part of these financial statements. The financial statements on pages 40 to 76 were authorised for issue by the Board of Directors on 5 May 2020 and were signed on its behalf. M J Malcolm Groat Director Tekcapital PLC Registered number 08873361 Dr Clifford M Gross Chairman and CEO 41 COMPANY STATEMENT OF FINANCIAL POSITION COMPANY STATEMENT OF FINANCIAL POSITION AT 30 NOVEMBER 2019 AT 30 NOVEMBER 2019 The notes on pages 46 o 76 are an integral part of these financial statements. The financial statements on pages 40 to 76 were authorised for issue by the Board of Directors on 5 May 2020 and were signed on its behalf. The Company’s profit before tax for the year ended 30 November 2019 was $30,688. M J Malcolm Groat Director Tekcapital PLC Registered number 08873361 42 Dr Clifford M Gross Chairman and CEO www.tekcapital.com CONSOLIDATED STATEMENT OF CHANGES IN THE EQUITY FOR THE YEAR ENDED 30 NOVEMBER 2019 Share premium - amount subscribed for share capital in excess of nominal value, net of directly attributable costs. Translation reserve - amount subscribed for foreign exchange differences recognised in Other Comprehensive Income Merger reserve - amount subscribed for share capital in excess of nominal value in relation to the qualifying acquisition of subsidiary undertakings. Profit and loss account - cumulative net profit and losses recognised in the consolidated statement of comprehensive income The notes on pages 46 to 76 are an integral part of these financial statements. 43 COMPANY STATEMENT OF CHANGES IN THE EQUITY COMPANY STATEMENT OF CHANGES IN THE EQUITY FOR THE YEAR ENDED 30 NOVEMBER 2019 FOR THE YEAR ENDED 30 NOVEMBER 2019 Share premium – amount subscribed for share capital in excess of nominal value, net of directly attributable issue costs. Translation reserve – amount subscribed for foreign exchange differences recognised in Other Comprehensive income. Profit and loss account – cumulative net profits and losses recognised in the consolidated financial statements of comprehensive income The notes on pages 46 to 76 are an integral part of these financial statements. 44 www.tekcapital.comCONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 NOVEMBER 2019 No significant non-cash transaction occured during the period. 45 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 1. General Information Tekcapital PLC is a company incorporated in England and Wales and domiciled in the UK. The address of the registered office is detailed on page 30 of these financial statements. The Company is a public limited company limited by shares, which listed on the AIM market of the London Stock Exchange in 2014. The principal activity of the parent company is that of an investment entity and that of the Group is to provide universities and corporate clients with a wide range of technology transfer services. The Group and the parent company also acquire exclusive licences for disruptive technologies it has acquired for its own portfolio, for subsequent commercialisation. The principal accounting policies applied in the preparation of these consolidated financial statements and parent company financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Amounts presented in this report are rounded to nearest US$1. 2. 2.1 Accounting policies Statement of compliance The consolidated financial statements of Tekcapital PLC Group have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) as adopted by the European Union and the Companies Act 2006 applica- ble to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention. The consolidated financial statements comprise the financial statements of Tekcapital plc and its subsidiaries, Tekcapital Europe Ltd and Tekcapital LLC. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are dis- closed in note 4. The financial statements of the parent company have been prepared in accordance with Financial Reporting Standard 101 “Reduced disclosure framework” (‘FRS 101’). The company will continue to prepare its financial statements in accordance with FRS101 on an ongoing basis until such time as it notifies shareholders of any change to its chosen accounting framework. The Company financial statements have been prepared using the historical cost convention except where other measurement basis are required to be applied and in accordance with IFRS under FRS 101. In accordance with FRS101, the Company has taken advantage of the following exemptions: • IAS 7, ‘Statement of Cash Flows’ • Requirements of IAS 24, ‘Related Party Disclosures’ to disclose related party transactions entered into between two or more members of a group. 2.1.1 Going concern The Group and the Company meet their day to day working capital requirements through its service offerings and monies raised through the issues of equity. The Group’s forecasts and projections indicate that the Group and the Company have sufficient cash re- serves to operate within the level of its current facilities, including its recent placing for $1,15m before expenses, which is conditonal on shareholder approval which the directors expect to obtain at the General Meeting on the 19 May 2020. Whilst it is the Group’s and the Company’s intention to rely on the available cash reserves, future income generated from its growing service offerings and reduc- tions in its cost base, a negative variance in the forecasts and projections would make the Group’s and the Company’s ability to continue as a going concern dependent on an additional fund raise. If the Group’s forecasts are not achieved, the Directors would seek to raise the additional funds through equity issues. Whilst the COVID-19 epidemic is contributing to uncertainty in the markets and the full im- pact is difficult to measure, at the time of approving the accounts after making enquiries, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. The Group and the Company therefore continues to adopt the going concern basis in preparing both its consolidated financial state- ments and for its own financial statements. 46 www.tekcapital.comNOTES TO THE FINANCIAL STATEMENTS 2.1.2 Changes in accounting policy and disclosures New standards and interpretations not yet adopted by the Group: IFRS 16 Leases IFRS 16 was issued in January 2016 and is effective for accounting periods beginning on or after 1 January 2019. The Group has not chosen to early adopt this standard and will adopt it for the accounting period beginning 1 December 2019. Directors do not expect any material impact on the consolidated financial statements, as most of its operating lease commitment disclosed in Note 25 (US$61,925) will be satisfied by 1 December 2019. No other issued but not endorsed amendments to IFRS will have a material impact on the Group’s financial statements once they be- come endorsed and effective. New standards and interpretations adopted by the Group: IFRS 9 IFRS 9 was issued in July 2014 and is effective for accounting periods on or after 1 January 2018. The Group has adopted the full retro- spective method of adoption; however, the adoption of this standard has not had an impact on the financial performance or position of the Group for the year or comparative period. IFRS 15 Revenue from contracts with customers IFRS 15 was issued in September 2015 and is effective for accounting periods beginning on or after 1 January 2018. The Group has adopted IFRS 15 on 1 December 2018, effectively replacing IAS 18 used by the Group previously. The Group has adopted the full retrospective method of adoption; however, the adoption of this standard has not had an impact on the financial performance or position of the Group for the year or comparative period. Additional disclosures were included in Note 6 to satisfy the IFRS disclosure requirements. 2.2 Business combinations Tekcapital PLC was incorporated on 3 February 2014 and on 18 February 2014 entered into an agreement to acquire the issued share capital of Tekcapital Europe Limited by way of share issue. On 19 February 2014 it acquired the issued share capital of Tekcapital LLC also by share issue. This has been accounted for as a common control transaction under IFRS 3 using the pooling of interest method by using the nominal value of shares exchanged in the business combination and no fair value adjustment. The consolidated financial statements comprise the financial statements of Tekcapital PLC and all subsidiaries controlled by it. Subsidiaries are entities that are controlled by the Group. Control is achieved when the Group has the power to govern the financial and operating policies of an entity so as to obtain economic benefit from its activities. Inter-company transactions, balances and unreal- ised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated when necessary amounts reported by subsidiaries have been adjusted to conform to the Group’s accounting policies. 2.3 Foreign currencies (a) Functional and presentation currency These consolidated financial statements are presented in US Dollars which is the presentation currency of the Group. This is because the majority of the Group’s transactions are undertaken in US Dollars. Each subsidiary within the Group has its own functional currency which is dependent on the primary economic environment in which that subsidiary operates. Effective 1 December 2014 Tekcapital PLC and Tekcapital Europe Limited changed their functional currency to UK Sterling. This is because, the primary economic activity of these entities is undertaken in the UK. 47 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (b) Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the dates of the transac- tions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year-end ex- change rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Foreign ex- change gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within ‘finance income or costs’. (c) Group companies The results and financial position of all Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) (ii) (iii) assets and liabilities for each balance sheet presented are translated at the closing exchange rates at the date of that balance sheet. income and expense for each income statement are translated at the average rates of exchange during the period (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions) all resulting exchange differences are recognised in other comprehensive income. 2.4 Investment in subsidiaries Investments in subsidiaries including Tekcapital Europe Ltd and Tekcapital LLC are recognised initially at cost. The cost of the invest- ment includes transactions costs. The carrying amounts are reviewed at each reporting dated to determine whether there is any indica- tion of impairment. Investments in portoflio companies are held at fair value through the profit and loss. Directors’ judgment was exercised in determining that the Group meets the following criteria and should be recognized as an investment entity under IFRS 10 par. 27. Directors re-evalu- ated the below criteria and concluded they were met as at 30 November 2019: • Obtains funds from one or more investors for the purpose of providing clients with investment management services • Commits to its investors that its business purpose is to invest funds solely for return from capital appreciation, investment income or both • Measures and evaluate the performance of substantially all of its investments on a fair value basis. Tekcapital’s IP search and technology transfer investment services represent investment advisory services, and therefore Tekcapital Europe Limited and Tekcapital LLC continue to be treated as subsidiaries and are consolidated in the Group financial statements. These services may be provided to investors, clients and third parties. The Board considers that the criteria are met in the group’s current circumstances. The Board envisages that Tekcapital’s shareholder returns will derive primarily from mid to long-term capital appreciation of a portion of its intellectual property investments, as well as from providing IP investment services to clients. Consequently, the Group’s portfolio companies are measured at fair value in accordance with IFRS 9 as disclosed in Note 2.9. 2.5 Non-controlling interests Losses applicable to non-controlling interests in a subsidiary are allocated to the non-controlling interests, even if doing so causes the non-controlling interests to have a deficit balance. Adjustments to non-controlling interests arising from transactions that do not involve the loss of control are based on a proportionate amount of the net assets of the subsidiary. Upon the loss of control the assets and liabilities of the subsidiary, any non-controlling interests and other components of equity related to the subsidiary are derecog- nised. Any resulting gain or loss is recognised in the profit and loss. 48 www.tekcapital.com NOTES TO THE FINANCIAL STATEMENTS 2.6 Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation of assets are calculated to write off the cost less the estimated residual value of tangible fixed assets by equal instalments over the estimated useful economic lives as follows: Furniture Computer equipment Leasehold improvements 3 years 3 years 5 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. The assets’ carrying amounts are written down immediately to its recoverable amount if the assets’ carrying value are greater than their recover- able amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are recognised within ‘Other gains / (losses) – net’ in the income statement. When re-valued assets are sold, the amounts included in other reserves are trans- ferred to retained earnings. 2.7 Intangible assets (a) Invention Evaluator This is an intangible asset and a piece of computer software acquired for use by one of the subsidiaries of the Group and is shown at original cost of purchase less impairment losses. Under IAS38, this asset is regarded by the Directors as being an intangible asset with an indefinite useful life. The Directors believe that the asset is unique in that no competitor offering currently exists, the service appeals globally to many types of clients including For- tune 100 companies, there is no expectation of obsolescence in the foreseeable future, and the service provided by the asset generates sufficient ongoing revenue streams. Consequently, no write down in the value of this asset either by way of amortisation or impairment has occurred in this financial year. In the Directors’ opinion this asset has an indefinite useful life. (b) Computer software and website development Costs associated with maintaining computer software programmes and the Company website are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the following criteria are met: (i) (ii) (iii) (iv) (v) it is technically feasible to complete the software product so that it will be available for use; management intends to complete the software product and use or sell it; there is an ability to use or sell the software product; it can be demonstrated how the software product will generate probable future economic benefits; adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and the expenditure attributable to the software product during its development can be reliably measured. (vi) Computer software development costs recognised as assets are amortised over their estimated useful lives, which do not exceed four years. 49 NOTES TO THE FINANCIAL STATEMENTS (c) Licences Costs associated with the acquisition of Licences for technologies with the express purpose of developing them further for a commer- cial market are recognised as an intangible asset when they meet the criteria for capitalisation. That is, they are separately identifiable and measurable and it is probable that economic benefit will flow to the entity. Further development costs attributable to the licensed technology are recognised as an intangible asset when the following criteria are met: (i) (ii) (iii) (iv) (v) it is technically feasible to complete the technology for commercialisation so that it will be available for use; management intends to complete the technology and use or sell it; there is an ability to use or sell the technology; it can be demonstrated how the technology will generate probable future economic benefits; adequate technical, financial and other resources to complete the development and to use or sell the technology are available; and the expenditure attributable to the technology during its development can be reliably measured. (vi) Licences and their associated development costs are amortised over the life of the licence or the underlying patents, whichever is shorter. (d) Vortechs Group This is an intangible asset acquired for use by one of the subsidiaries of the Group and is valued at original cost of purchase. Under IAS38, the Group’s Vortechs Group asset is regarded by the Directors as being an intangible asset with an indefinite useful life. The Directors believe that this asset is unique as it operates in a niche market, it generates an ongoing revenue stream, and there is no expectation of obsolescence. This asset meets the requirements of IAS38 as it is separately identifiable, controlled by the Group, the cost can be measured reliably, and as a result of owning this asset future economic benefits in the form of service revenue are gener- ated for the Group. In the opinion of the Directors this asset has an indefinite useful life and there has been no amortisation or impair- ment provided in the current year. 2.8 Impairment of non-financial assets Intangible assets that have an indefinite useful life or intangible assets not ready to use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circum- stances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying value exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows, (CGUs). Prior impairments of non-financial assets (other than goodwill) are reviewed for possible reversal at each reporting date. 2.9 Financial instruments 2.9.1 Classification The Group and the Company classifiy their financial assets depending on the purpose for which the asset was acquired. Management determines the classification of its financial assets at initial recognition. During the financial year the Group and the Company held investments into portfolio companies classified as equity investments. They are included in current assets and are measured at fair value through profit and loss in accordance with IFRS 9. The Company also has loans, convertible loan notes and receivables that are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities that are greater than 12 months after the end of the reporting year. These are classified as non-current assets. The Group’s loans and receivables comprise ‘trade and other receivables’ in the balance sheet. The Group also has cash and cash equivalents. 50 www.tekcapital.com All short term financial liabilities are measured at cost, the Group does not hold any long term financial liabilities. 2.9.2 Recognition and measurement The Company and the Group investments into the portfolio companies are recognised on the acquisition or formation date and meas- ured at fair value through profit or loss in accordance with IFRS 9. Loans and receivables are recognised on the trade date in which the transaction took place and are recognised at their fair value (which equates to cost) with transaction costs expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the loans or receivables have been collected, expired or transferred and the Group has subsequently transferred substantially all risks and rewards of ownership. Short term financial liabilities are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate method. 2.9.3 Fair value Financial instruments are measured at fair value including investments in portfolio companies, cash and cash equivalents, trade and other receivables, trade and other payables, and borrowings. This measurement policy does not apply to subsequent measurement at amortised cost of short term financial liabilities and trade receivables. The Group measures portfolio companies using valuation techniques appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Our fair value valuation policy is as follows: • The fair value of new portfolio companies is estimated at the cost of the acquired IP or equity plus associated expenses to facilitate the acquisition. • Existing portfolio companies are valued as follows: - If a market transaction such as third-party funding has occurred during the past 18 months we will value our ownership in the portfolio company at this observed valuation, taking account of any observed material changes during the period. - In the absence of a recent market transaction, fair value will be estimated by alternative methods and where appropriate by an external, qualified valuation expert. The valuation technique used fall under Level 2 – Observable techniques other quoted prices and Level 3 - other techniques as defined by IFRS 13. Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables, and trade and other paya- bles approximate their fair value. The fair value of borrowings equals their carrying amounts, as the impact of discounts is not signifi- cant. 2.10 Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is the intention to settle on a net basis or realise the asset and settle the liability simultane- ously. 2.11 Impairment of financial assets The Group assesses at the end of each reporting year whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (a ‘loss event’) and the loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisa- tion, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. 51 NOTES TO THE FINANCIAL STATEMENTS For the loans and receivables category, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the finan- cial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement. If a loan or held-to maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price. If, in a subsequent year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as the improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated income statement. 2.12 Trade receivables Trade receivables are amounts due from customers for the provision of services performed in the ordinary course of business. Collection is normally expected within three months or less (in the normal operating cycle of the business) and is classified as current assets. In the rare circumstances that they exceed a period of greater than one year they are presented as non-current assets. In some instances, the Group accepts convertible loan notes for trade debts these are held separately on the statement of financial position until maturity or disposal on the open market. Any value received which is greater or less than the value of the original debt is taken to the consoli- dated statement of comprehensive income. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. 2.13 Cash and cash equivalents In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with other banks, other short term highly liquid investments with maturities of three months or less and bank overdrafts. In the consolidated statement of financial position, bank overdrafts are shown within borrowings in current liabilities. 2.14 Share capital Ordinary Shares Ordinary shares are classified as equity. Share premium The share premium account has been established to represent the excess of proceeds over the nominal value for all share issues, including the excess of the exercise share price over the nominal value of the shares on the exercise of share options as and when they occur. Incremental costs directly attributable to the issue of new ordinary shares and new shares options are shown in equity as a deduction, net of tax, from the proceeds. Merger Reserve The consolidated financial statements are accounted for using the ‘pooling of interests’ method’, which treats the Group as if it had been combined throughout the current and comparative accounting periods. Pooling of interests principles for this combination gave rise to a merger reserve in the consolidated statement of financial position, being the difference between the nominal value of new shares issued by the Company for the acquisition of the shares of the subsidiary and the subsidiary’s own share capital. Non-controlling interest Non-controlling interest is the portion of equity ownership in a subsidiary not attributable to the parent company. 52 www.tekcapital.comNOTES TO THE FINANCIAL STATEMENTS 2.15 Trade payables Trade payables are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of busi- ness if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method. 2.16 Share based payments The Company operates a number of equity-settled, share-based compensation plans, under which the entity receives services from em- ployees as consideration for equity instruments (options) of the Company. The fair value of the employee services received in exchange for the grant of options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted: • • • including any market performance conditions; excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period); and excluding the impact of any non-vesting conditions (for example the requirement of the employees to save). Assumptions about the number of options that are expected to vest include consideration of non-market vesting conditions. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to the original estimates, if any, in the income statement, with a corresponding adjustment to equity. When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transactions costs are credited to share capital (nominal value) and share premium when the options are exercised. 2.17 Current and deferred tax The tax expense for the year comprises current and deferred tax. Tax is recognised in the consolidated income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognised on temporary timing differences arising between the tax bases of assets and liabilities and their car- rying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transac- tion other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. 53 NOTES TO THE FINANCIAL STATEMENTS Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries only to the ex- tent that it is probable the temporary difference will reverse in full in the future and there is sufficient taxable profit available against which the temporary difference can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle balances on a net basis. 2.18 Provisions Provisions and any other anticipated foreseen liabilities are recognised: when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties, and employee termination payments. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by con- sidering a class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as an interest expense. 2.19 Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Rentals payable under the operating leases are charged to income on a straight-line basis over the term of the relevant lease. 2.20 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for the services supplied, stated net of discounts, and value added taxes. The Group recognises revenue when the contract is identified, performance obligation is determined, transaction price is determined and allocated to performance obligation in accordance with IFRS 15. The Group also recognises an unrealised profit/loss on the revaluation of investments in share of portfolio companies in accordance with the fair value policy outlined in Note 2.9. Provision of services The Group provides following lines of services: - Invention Evaluator services: provision of reports assessing potential of any new technology. Revenue is recognised upon delivery of a complete report - IP Acquisition Opportunities services: provision of reports identifying attractive university developed IP. Revenue is recognised upon delivery of a complete report - Tech transfer recruitment services: recruitment services specialising in technology transfer executives. Revenue is recognised when the placement is successfully completed - Training services: custom solutions for new tech transfer offices, spin out companies and accelerators delivered via in person trainings. Revenue is recognised over time based on completion stage of each session. Interest income Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. 54 www.tekcapital.com 3. 3.1 (a) Financial Risk Management Financial risk factors Portfolio Risk/Investment Risk management Investment into portfolio companies held by the Group requires long-term commitment with no certainty of return. The fair value of each portfolio company represents the best estimate at a point in time and may be impaired if the business does not per- form as well as expected, directly impacting the Group’s value and profitability. This risk is mitigated as the size of the portfolio increases. The Group performed sensitivity analysis with regards to assumptions used in determination of fair value of the portfolio in Note 12. The Group also regularly monitors portfolio companies’ liquidity required for returns to occur. (b) Credit Risk management Credit risk is managed on a Group basis. In order to minimise this risk, the Group endeavours to only deal with companies that are demonstrable creditworthy, and the Directors continuously monitor the exposure. The Group’s maximum exposure to credit risk for the components of the statement of financial position at 30 November 2019 and 2018 is the carrying amounts of its current trade and other receivables as illustrated in Note 15. The Group monitors credit risk related to performance of portfolio companies, including considerations related to recoverability of con- vertible loan notes issued. Progress is monitored and regular discussions are held with management of portfolio companies to assess commercial progress and financial information provided. The Group also monitors credit risk related to creditor amounts due from portolio companies. (c) Liquidity Risk management Cash flow forecasting is performed on a Group basis. The Directors monitor rolling forecasts of the Group’s liquidity requirements to en- sure it has sufficient cash to meet operational needs. At the reporting date the Group held bank balances of US $472,899. Post period end, the Group completed placements for US$0.9m and conditional placing for US$1.15m. All amounts shown in the consolidated statement of financial position under current assets (US$ 1,288,765) and current liabilities (US$429,255) mature for payment within one year, with Trade and Other Receivables exceeding Trade and Other Payables by US$ 505,706. (d) Financial risk management The Company’s Directors review the financial risk of the Group. Due to the early stage of its operations the Group has not entered into any form of financial instruments to assist in the management of risk during the period under review. (e) Market risk management Due to low value and number of financial transactions that involve foreign currency and the fact that the Group has no borrowings to manage, the Directors have not entered into any arrangements, adopted or approved the use of derivative financial instruments to assist in the management of the exposure of these risks. It is their view that any exchange risks on such transactions are negligible. The Group also regularly monitors risk related to fair value of financial instruments held such as convertible loan notes held. (f) Foreign exchange risk management Foreign exchange risk arises when individual Group entities enter into transactions denominated in a currency other than their functional currency. The Group’s policy is, where possible, to allow Group entities to settle liabilities denominated in their functional currency, with the cash generated from their own operations in that currency. Where Group entities have liabilities denominated in a currency other than their functional currency (and have insufficient reserves of that currency to settle them), cash already denominated in that currency will, where possible, be transferred from elsewhere within the Group. A sensitivity analysis has been performed to assess the exposure of the Group to foreign exchange movements. If the exchange rate weak- ened by 10 percent then the effect on the profit before tax would decrease by US$33,177 and equity would decrease by US$37,788. 55 NOTES TO THE FINANCIAL STATEMENTS (g) Impact of the COVID-19 pandemic The current Coronavirus epidemic may produce negative economic activities which could reduce the Group’s economic performance and the performance of its portfolio companies in ways that are difficult to quantify at this juncture. It may cause a recession in the markets in which the Group operates, reduce the Group’s net asset values, revenue, cash flow, access to investment capital and other factors which could negatively impact the Group. 3.2 Capital management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders, benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to adjust or maintain the capital structure, the Group may adjust the level of dividends paid to its shareholders, return capital to shareholders, issue new shares or sell assets to reduce borrowings. The Group has no external borrowings. This policy is periodically reviewed by the Directors, and the Group’s strategy remains unchanged for the foreseeable future. The capital structure of the Group consists of cash and bank balances and equity consisting of issued share capital, reserves and re- tained losses of the Group. The Directors regularly review the capital structure of the Company and consider the cost of capital and the associated risks with each class of capital. The Company has no external borrowings and this has no impact on the gearing levels of the Group as at 30 November 2019. The Company’s historic cost of capital has been the cost of securing equity financings, which have averaged around 10%. The Company’s long-term financial goal is to optimise its returns on invested capital (ROIC) in excess of our weighted average cost of capital (WACC) and as such create value for our shareholders. The method the Company seeks to employ for achieving this is to utilise its structural intellectual capital developed through its Discovery Search Network, its Invention Evaluator service and its Vortechs Group Service to mitigate selection bias and improve returns on invested capital. Ultimately, management will seek to monetize these returns with exits from its investments in portfolio companies. 4. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Directors made the following judgements: - determination as to the classification of the Group as an investment entity as discussed in Note 2.4 - determination of operating segments as disclosed in Note 5 - determination of reliance of the Group’s portfolio companies on funding to achieve their fair values discussed in Note 12. The Directors also make estimates and assumptions concerning the future. The resulting accounting estimates will by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying value of the assets and liabilities within the next financial year are detailed below. 56 www.tekcapital.comKey estimate area Key assumption Valuation of unquoted equity invest- ments In applying valuation techniques to determine the fair value of unquoted equity investments the Group and the Company makes estimates and assumptions regarding the future poten- tial of the investments. The policy of the Group and the Company is to value new portfolio companies at cost of the acquired IP or equity plus associated expenses to facilitate the ac- quisition. Existing portfolio companies are valued using either a market transaction such as third-party funding or, in the absence of a recent market transaction, by alternative methods and where appropriate by an external, qualified valuation expert. The fair value of Guident Limited reflects the fair value of Guident’s net assets. This value is primarily based on its IP portfolio detailed in Note 12, valued using the royalty relief method. The estimates used in this valuation include market size, market penetration used to determine projected sales, the royalty relief rate and the discount factor. These estimates are key to calculation of the net present value of future cashflows associated with the patent. The fair value calculation assumes Guident Limited obtains sufficient funding to execute its strategy. The fair value of Salarius Limited reflects the fair value of Salarius’ net assets. This value is primarily based on the US patent 8,900,650 valued using the royalty relief method. The estimates used in this valuation include market size, market penetration used to determine projected sales, the royalty relief rate and the discount factor. These estimates are key to calculation of the net present value of future cashflows associated with the patent. The fair value calculation assumes Salarius Limited obtains sufficient funding to execute its strategy. The fair value of Lucyd Limited reflects: - Lucyd’s ecommerce platform valued by estimating the net present value of future cashflows associated with the e-shop. Key assumptions used in estimating future cash flows are projected profits including market size and market penetration used to determine pro- jected sales, and a discount factor applied for the net present value of future cashflows from the platform. - Lucyd’s trademark value based on the Net book value stated at cost. The Directors have considered the useful life of the Invention Evaluator website to be indefinite because of the uniqueness of the service it provides and that there is no competi- tor in the market in which the Group operates who is able to provide a similar service. The Directors undertake an annual review that considers an appropriateness of the use of an indefinite useful life in addition to impairment review and if required make a provision in the financial statements. The Directors have considered the useful life of Vortechs Group to be indefinite because of the ongoing service revenue that is being generated. The business operates in a specialised market, with few competitors. The Directors undertake an annual review that considers an appropriateness of the use of an indefinite useful life in addition to impairment review and if required make a provision in the financial statements. Useful life of Invention Evaluator website Useful life of Vortechs Group Share based payment The estimate of share based payments costs requires the Directors to select an appropriate valuation model and make decisions about various inputs into the model including the volatility of its own share price, the probable life of the options and the risk free interest rate. Potential impact within the next finan- cial year Potential impact in the longer term Note refer- ence for sensitivity analysis Note 12 Note 13 Note 13 Note 26 57 NOTES TO THE FINANCIAL STATEMENTS Key esti- mate/judg- ment area Deferred Taxes Key assumption Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted or substantively enacted at the balance sheet date. The Group did not recognize deferred tax liability on fair value gains associated with the revaluation of shares in its portfolio companies due to availability of the substantial shareholdings exemption. This is considered a permanent difference and not a temporary difference. Potential impact within the next financial year Potential impact in the longer term Note refer- ence for sensitivity analysis Note 22 5. Segmental reporting The Directors consider the business to have two segments for reporting purposes under IFRS 8 which are: • professional services, including the provision of recruitment services via Vortechs Group, provision of reports and services provided to locate and transfer technologies to customers, as well as R&D tax relief credits and provision of management services to its portfolio companies. The activities grouped under this segment share similar economic characteristic of provision of intellectual property services to third party customers; • licencing and investment activities, including acquiring licences for technologies, portfolio company investment, development. The activities share the goal of increasing the fair value of investments made into portfolio companies by the Group. 58 www.tekcapital.com The Group’s operations are now strictly divided between those of professional services or licensing and investment, therefore no amounts are presented under “Other” compared to previous years. 6. Revenue from Services The below table discloses disaggregated Revenue from Services by their nature/categories as well as timing of the revenue. Please refer to Note 12 for disaggregation of Group’s Unrealised profit on the revaluation of investments. 59 NOTES TO THE FINANCIAL STATEMENTS * The Group received an R&D tax relief, the directors consider this to be income. All of the Group’s major service lines are sold directly to consumers and not through intermediaries. All revenue recognised in the reporting period represent performance obligations satisified in the current period. 7. Expenses 7.1 Expenses by nature Included in the Other administration expenses is the amount of US$ 65,848 related to payments under operating lease for the of- fice rental agreement also referenced in Note 25. 7.2 Auditor remuneration 8. Employees 8.1 Director’s emoluments The highest paid Director received a salary of US$187,760 (2018: US$191,865) and benefits of US$21,050 (2018 US$15,253). The highest paid Director received a bonus of US$0 (2018: US$0). The highest paid Director did not exercise any share options or receive any shares from the Company during the current year. No termination benefits, post-employment benefits were provided to Directors. Total of short term benefits in kind of US$21,050 were provided during the year. The amounts in the table above do not include Employers NI in the amount of US$14,447. Key management personnel (including Directors and Group Financial Controller) received salary of US$368,042, excluding stock based compensation disclosed in the Director’s Remuneration Report. Please also refer to Director’s Report. 60 www.tekcapital.com 8.2 Employee benefit expenses 8.3 Average number of people employed Average number of employees with the Company in 2019 and 2018 was two, both with the Management. To enhance flexibility and improve cost control, the Group utilises consultants for scientific review, administrative and operations support, software development and other knowledge-intensive services. 9. Income tax expense 61 NOTES TO THE FINANCIAL STATEMENTS The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits. The weighted average applicable tax rate was 19% (2018: 17%). The Group applied 17% tax rate in FY 2018 based on expectation of corporation tax rate adjustment that did not materialise. Unused tax losses for which no deferred tax assets have been recognised is attributable to the uncertainty over the recoverability of those losses through future profits. 10. Earnings per share Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of Ordinary Shares outstanding during the period. Diluted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the sum of weighted average number of (1) Ordinary Shares outstanding during the period and (2) any dilutive potential Ordinary Shares outstanding at 30 November 2019: The effect of 2.9m share options granted in August 2019 contributed to the difference between basic weighted average number of shares and diluted weighted average number of shares. Post period end, the Group completed a placement of 14,800,000 new ordinary shares and a conditional placement of 9,250,000 new ordinary shares. 11. Investments in subsidiaries 62 www.tekcapital.com As at the year end, the Company has no interest in the ownership of any other entities or exerts any significant influence over or provides funding which constitutes an “unconsolidated structured entity”. All UK subsidiaries are exempt from the requirement to file audited accounts by virtue of section 479A of the Companies Act 2006. Tekcapital Europe Ltd (registered address 12 New Fetter Lane, London, United Kingdom, EC4A 1JP) and Tekcapital LLC (registered address 12000 Biscayne Boulevard, Suite 222, Miami, Florida, 33133, United States) are consolidated by Tekcapital plc because they continue to provide advisory services in IP search and technology transfer. All other entities are measured at fair value through profit and loss based in IFRS 10 as referenced in Note 2.4. The Group provides management service support to Lucyd Limited, Salarius Limited and Guident Limited, as well as has provided working capital assistance to Salarius Limited through convertible loan note financing (see also Note 15). The Group also assists the entities with their fundraising activities. Registered office of all four subsidiaries owned by Tekcapital Europe Limited: Acre House, 11-15 William Road, London, England, NW1 3ER. 63 NOTES TO THE FINANCIAL STATEMENTS 12. Financial Assets at Fair Value through Profit and Loss Group’s investments in portfolio companies in the years ended 30 November 2019 and 30 November 2018 are listed below and classified as equity instruments. The principal place of business for portfolio companies listed below is England and Wales. Comparative investments in portfolio companies in the year ended 30 November 2018: Total fair value gain of US$6.5m for the year reflects uplift in value of shares of Guident, Salarius and Belluscura, offset mostly by reduction in valuation of Lucyd Limited. Considering early stage of commercialisation, fair value of remaining portfolio companies was recorded based on the cost of acquired IP, as their carrying amounts represent a reasonable approximation of fair value. The valuation techniques used fall under, Level 2 – Observable techniques, other than quoted prices, and Level 3- Other techniques as defined by IFRS 13. These techniques were deemed to be the best evidence of fair values considering early stage of portfolio companies. There has been no transfer between levels during the period. Fair value measurement hierarchy for financial assets as at 30 November 2019 with comparative amounts as of 30 November 2018: 64 www.tekcapital.comGuident (US$7.0m gain) An external valuation by an independent patent valuation expert was prepared for Guident’s IP portfolio including: 1. US patent 9,429, 943 (“FAMU 943”) 2. International Patent Filing WO2019/147569: Visual Sensor Fusion and Data Sharing Across Connected Vehicles (MSU 569) -added this period 3. US Patent No. 9,964,948 (FIU 948) - added this reporting period The total fair value of $15.5m reflects the fair value of Guident’s net assets as determined by: • Valuation of FAMU 943 of US$16.2m (2018:US$10.3m) conducted by an external, qualified valuation expert using the Income Approach, Royalty Relief Method. Following valuation inputs were applied by the valuation expert: - Total US market size of US$35b for autonomous vehicles and drones (as the patent applies to both) for the 11 years period ended 30 December 2033. 1% market penetration of Guident’s patent starting in 2022 with annual increase of 1% leading to a 12% market penetration by 2033, resulting in projected US$3b in sales of drones/vehicles underlying licensing revenue between 2022 and 2033. This market penetration assumption is based on a number of factors: o o Broad protection and claims included in the IP The protection given to the product by its US patent, which effectively gives Guident a barrier to entry in the US through 2033 The strength and experience of the management team, whose proven expertise is in the exact areas required to bring the product to market and build the brand; There are no foreseeable software development barriers in the commercialisation process Other foreseeable challenges for directors to deliver successful commercialisation appear to be well within the abilities of directors to handle. Innovative nature of Guident’s IP and the fact that the AV market is dependent on innovators. o o Improving regulatory environment with more states in the United States legalizing autonomous vehicles o o o operation in 2019 including large states such as Florida and California. The increase in FV of FAMU 943 compared to 2018 was driven by reduction in discount factor from 18% to 17%, updated for inflation rate, and increase in the royalty rate from 5.375% to 6% based on a list of comparable transactions updated by the valuation expert for the most recent data. • Valuation of MSU 569 of US$2.8m conducted by an external, qualified valuation expert using the Income Approach, Royalty Relief Method. The following valuation inputs were applied by the valuation expert: - In January 2024, Guident also expects to introduce an additional, complementary component featuring the MSU 569 technology (Sensory Fusion Component). This component would enable sensory data sharing between the vehicles, providing for new safety standard. Guident expects the Sensor Fusion Component to be sold to customers of the Standard Initial Component when 5G is available so as to further generate an additional $500 of revenue for each sale of the Sensor Fusion. For the estimate of the US market derived revenue, using the units of underlying Autonomous Vehicles from FAMU 943, the management assumed 10% of FAMU customers would choose to pay for this additional safety improving capability, starting with 10% of them in 2024 with the share growing to 40% in 2027. For the estimate of the international market derived revenue, the management applied comparative share of countries included in the international filing based on authoritative literature from the May 2018 Allied Market Research report. 65 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS These market penetration assumptions are based on assumptions similar to those considered for the patent FAMU 943. • Valuation of FIU 948 of US$0.3m conducted by an external, qualified valuation expert using the Income Approach, Royalty Relief Method. Following valuation inputs were applied by the valuation expert: - US sidewalk delivery drone market size of US$1.27b between 2022 and 2036. 1% market penetration starting in 2022 with annual increase leading to 25% in 2027. This market penetration rate assumption is based on factors analogous to those listed for FAMU 943, with additional legislative/regulatory requirements included as well. Recent regulatory developments in United States make it mandatory to have back-up human control operators taking control of an AV in the event of an accident or mishap. • Assumptions applied to valuations of all three patents above: - Total 6% license royalty rate, with 3% royalty attributable to the patent owner and 3% comprising Guident’s - - licencing revenue based on comparable market transactions, with the exception of 30% for FIU 948 and MSU 569 (whereby 2.5% is due to the university) Corporate income tax rate of 19% applied to projected licensing costs saved 17% discount rate used to discount proceeds as determined by opportunity cost (10%), inflation rate (2%) and technology risk (5%) The deferred tax liability of (US$ 3.6m) recorded by Guident based on UK corporate tax rate of 19% applied to the fair value gain associated with the patent Net book value of other assets and liabilities of <(US$ 0.2m) - - Guident Ltd obtains sufficient funding to execute its strategy. . Salarius (US$ 0.9m gain) An external valuation by an independent patent valuation expert was prepared for US patent 8,900,650. The fair value of US$ 1.8m recorded by the Group reflects the fair value of Group’s 97.5% stake in Salarius’ net assets valued at US$ 1.9m as determined by: • Valuation of US patent 8,900,650 of US$ 3m (2018: US$ 1.1m) conducted by an external, qualified valuation expert using the Income Approach, Royalty Relief Method. Following valuation inputs were applied by the valuation expert: - Market penetration of 0.5% in 2020 growing to 10% in 2030. These market penetration assumptions are Sales of low sodium salt to snack food manufacturers (“B2B”) of US$ 44m for the 10-year period ended 2030. based on a number of factors: o o o o o o Microsalt is a unique product substantially in advance of alternative, developed, and tested in terms of market acceptability and ready to market; The protection given to the product by its US patent, which effectively gives Salarius a barrier to entry in the US for 11 more years; The strength and experience of the management team, whose proven expertise is in the exact areas required to bring the product to market and build the brand; There are no foreseeable manufacturing barriers in the commercialisation process. Manufacturing has been established and outsourced in 2019; Post period end, the company secured two food ingredient brokerage agreements for sales of Microsalt covering multiple geographical areas of the United States; First customers were secured ; Other foreseeable challenges for management to deliver successful commercialisation appear to be well within the abilities of management to handle. - Sales of salty snacks (“B2C”) estimated at $106m for the 10 year period ended in 2030. The projections assume Salarius chips being sold in 300 individual stores by the end of 2020 growing annually to the total of 16,400. This assumption is based on factors analogous to the B2B segment, with the expectation of the following progress after the year end o o Securing distribution agreement with one of North America’s largest natural food distributors for the launch of SaltMe snacks in all 4 flavors; the distributor supplies thousands of stores on a daily basis Securing sales contract brokerage agreement for sales of SaltMe snacks in all 4 flavors; - Licence royalty rate of 8.2% with 3% royalty attributable to the university and 5.2% comprising Salarius’ licencing revenue based on comparable market transactions 66 www.tekcapital.com - 12% discount rate used to discount proceeds as determined by opportunity cost (10%) and inflation rate (2%). Technology risk was determined at 0%, as the patent describes easily manufactured salt compositions, maybe manufactured in many production facilities without extensive modifications. The end product has already been manufactured and used to conduct consumer acceptance tests. Sales and distribution channels have been estabished. The increase in the fair value of US patent 8,900,650 was driven by addition of B2C sales projections in the forecast used in the valuation, increase in license royalty rate from 7.8% to 8.2%, based on a list of comparable transactions updated by the valuation expert for the most recent data, as well as reduction in discount rate used from 13% to 12% due to lower expected inflation rate. • • The deferred tax liability of US$ 0.5m recorded by Salarius based on UK corporate tax rate of 19% applied to the fair value gain associated with the patent Net book value of liquid assets, creditors and debtors of

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