Veris Residential
Annual Report 2018

Plain-text annual report

Annual Report and Financial Statements VR EDUCATION HOLDINGS PLC Annual Report and Financial Statements for the Year Ended 31 December 2018 Registered Number: 613330 for the Year Ended 31 December 2018 Registered Number: 613330 1 Annual report 2018 2 Annual report and financial statements For the year ended 31 December 2018 Table of contents Company information Chairman’s statement Chief Executive’s review Chief Financial Officer’s review Strategic report Directors’ report Directors’ responsibilities statement Corporate governance report 4 5 6 7 8 10 12 13 Independent auditor’s report to the members of VR Education Holdings PLC 21 Consolidated statement of total 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 Company statement of cash flows Notes to the financial statements 27 28 29 30 31 32 33 34 3 Annual report 2018 Company information Directors Secretary Registered Office Non-Executive Chairman - Richard Cooper Executive Director - David Whelan Executive Director - Sandra Whelan Executive Director - Séamus Larrissey Non-Executive Director - Michael Boyce Non-Executive Director - Tony Hanway One Advisory Limited 201 Temple Chambers 3 - 7 Temple Avenue London EC4Y 0DT United Kingdom Unit 9 Cleaboy Business Park Old Kilmeaden Road Waterford X91 AX83 Ireland Registered Number 613330 Bankers Auditor Nominated Adviser Euronext Growth Advisor Allied Irish Banks Dunmore Road Waterford Ireland PKF Littlejohn LLP 1 Westferry Circus Canary Wharf London E14 4HD United Kingdom Cairn Financial Advisers Llp Cheyne House 62-63 Cheapside London EC2V 6AX United Kingdom J&E Davy Davy House 49 Dawson Street Dublin 2 Ireland Brokers 4 Stockdale Securities Limited 100 Wood Street London EC2V 7AN United Kingdom J&E Davy Davy House 49 Dawson Street Dublin Ireland Chairman’s statement for the year ended 31 December 2018 I am pleased to present the annual report and financial statements of VR Education Holdings PLC for the year ended 31 December 2018. Overview of the year The Company’s shares were admitted to AIM in the United Kingdom and to the Enterprise Securities Market (ESM, now called Euronext Growth), a market regulated by Euronext Dublin, in March 2018 and raised £6m gross of expenses for future expansion. Along with the listing, the board of three executive directors and myself as non-Executive Chairman, was complemented by the recruitment of two highly experienced business people, Tony Hanway and Michael Boyce. This strong board aims to support the executive team in driving the business forward. Review of the business VR Education Holdings PLC is dedicated to transforming education globally by providing new tools to educators and corporate trainers allowing them to provide high quality, low cost content in a virtual networked social learning environment. The ENGAGE platform, the Group’s proprietary VR Education platform, was commercially launched in December 2018 as version 1.0. It provides a platform for creating, sharing and delivering proprietary and third-party VR content for educational and corporate training purposes. ENGAGE version 1.0 follows comprehensive testing of ENGAGE Alpha during 2017 and 2018, which included multiple virtual locations, screen sharing capabilities, interactive lessons, virtual whiteboards and multiuser live 360 video playback via YouTube. A key feature of ENGAGE is the ability for educators and trainers to use the software to create their own VR lessons and presentations on ENGAGE using VR tools provided by the Group or third parties without the need for programming or animation skills. The Group also produces award winning standalone content to showcase the potential of Virtual Reality / Augmented Reality (“VR/AR”) as a tool for educational purposes. Our first release (Apollo 11 VR) has won multiple awards including a Time Warner award and was one of virtual reality’s first big hits when it released on the Oculus Rift and HTC Vive. A High Definition version of this experience was launched in November 2018. Our second release (Titanic VR) was released as an early access experience in November 2017 and as a full experience in August 2018. This has also been very well received and won best PSVR experience in the 2018 UploadVR awards. The Group will continue to release standalone content to promote educational VR/AR and drive users to the Engage platform. Future developments in the business Since the full commercial release of ENGAGE, the Group’s online virtual learning and corporate training platform, the Group has progressed with the onboarding of Shenandoah University and released additional learning content from Oxford University. In addition, ENGAGE users have held multiple live CPD events using the platform, one of which was part of the event known as ‘MIT Hackathon Week’ hosted by MIT. As stated in the Group’s Admission Document at the time of its IPO, the Directors believe that a key feature of ENGAGE is the ability for educators and trainers to use the software to create their own VR lessons and presentations on ENGAGE using VR tools provided by the Group or third parties through ENGAGE. Demand for the Group’s VR showcase experiences, comprising Apollo 11 VR and Titanic VR, remains in line with management’s expectations with new experiences, including Raid on the Ruhr (Dambusters Experience) expected to launch in H1 2019 and Space Shuttle Commander (Working Title) expected in H2 2019. Richard Cooper Chairman 5 March 2019 5 Annual report 2018Chief Executive’s review for the year ended 31 December 2018 2018 was an important year for VR Education and one in which it successfully delivered on the operational milestones that were clearly set out at the time of the Group’s IPO. During the period the Group was admitted to AIM and to the Enterprise Securities Market (now called Euronext Growth), released various new showcase experiences and also completed the full commercial release of ENGAGE, its online virtual learning and corporate training platform, with full payment capabilities. The Group has also expanded the development and marketing team, completed projects with the BBC and Oxford University and released Part 2 of Titanic VR. The Group continues to execute on its strategy of focusing on the commercialisation of ENGAGE whilst launching further showcase experiences to drive awareness, add content to the ENGAGE platform and deliver incremental revenue. VR Education has already started to raise brand awareness by showcasing the ENGAGE platform and its capabilities at high profile tradeshows and conferences around the world. The Group has recently attended the BETT Conference in London in January 2019 and GESS Dubai in February 2019, one of the largest educational events, held annually in the UAE, and will be attending a number of major education conferences in 2019. ENGAGE The Group successfully released the ENGAGE platform on 13 December 2018 via the Steam network and its own website www.engagevr.io. ENGAGE now supports Oculus Rift, HTC Vive, HTC Vive Pro, Windows Mixed Reality and standard PC display devices. With the launch of ENGAGE the Group also released new content provided by Oxford University and additional features such as enhanced web-based media streaming, desktop streaming, selfie avatar generations, Pro and Free licensing, cloud file sharing and a full web-based management system for creating events, quizzes, content and enhanced account management. 2019 is a pivotal year for ENGAGE with the majority of business development and marketing focused on the platform. Showcase experiences In addition to developing ENGAGE, the Group creates showcase experiences, not only to generate revenue but to also build up the Group’s VR asset base. These can be reused by external educators on the ENGAGE platform, whilst also improving the Group’s reputation and attracting developer talent. At the end of the Period, the Group had built two paid-for downloadable showcase VR experiences, being the award- winning Apollo 11 VR experience and the Titanic VR experience. Apollo 11 VR continued to sell well during the year. As at 31 December 2018, Apollo 11 VR had been downloaded a total of 160,000 times. Titanic VR has been very well received since its full launch in August 2018. As at 31 December 2018, Titanic VR had been downloaded a total of 20,000 times with the majority of downloads coming from its PlayStation version which was released towards the end of November 2018. Current trading and outlook 2019 is going to be a busy year for the Group with continued focus on the promotion of ENGAGE and generation of sales on the platform, together with the release of two new showcase experiences. The first experience to be released in 2019 is titled “Raid on the Ruhr” and is based on the Dambusters mission from World War II, to be released in H1 2019. The second experience, a larger space-related project, is scheduled for release in H2 2019. In summary, 2018 has been a solid year for VR Education with the team growing from 20 to 34 employees and the successful release of three new products. The focus for 2019 is the ENGAGE platform and with the release of second- generation VR hardware, such as the Oculus Quest, VR Education is well positioned to remain the leader of next generation educational content and tools. I would like to thank our new and existing shareholders for their support and the Group looks forward to capitalising on significant market opportunities during the course of 2019 and beyond. David Whelan Chief Executive Officer 5 March 2019 6 Chief Financial Officer’s review for the year ended 31 December 2018 Revenue for the year was up 15% on the prior year from €624k to €716k, driven by the continued success of the Apollo 11 VR experience, the release of the full version of Titanic VR and the completion of “1943: Berlin Blitz” for the BBC. EBITDA loss was €1.5 million compared to a loss of €0.5 million in the prior year, in line with management expectations. Loss before tax, after a non-cash convertible debt conversion fair value loss of €2.6 million and associated conversion costs of €0.3 million, was a loss of €4.9 million, in line with management expectations, compared to a loss in the prior year of €0.6 million. Operating cashflows were a net outflow of €2.1 million for the period. The current run-rate of staff costs and other ongoing costs is approximately €250k per month. The Group’s cash position at 31 December 2018 was €3.5 million with no debt. Séamus Larrissey Chief Financial Officer 5 March 2019 7 Annual report 2018Strategic report for the year ended 31 December 2018 The Directors present herewith their strategic report for the year ended 31 December 2018. Results and Dividends The loss for the year after taxation amounted to €4,943,906 (2017: €623,699). No dividends were paid during the year (2017: €Nil) and as such an amount of €4,943,906 was debited to reserves. Review of the business and future developments The review of the business and future developments are set out in the Chairman’s Statement. Key Performance Indicators Revenue Revenue and revenue growth tracks the Groups performance against the strategic aim to grow the business. Revenue for the year was €716k compared to €625k in 2017, an increase of 15%. The Group expect to see further growth in revenue in 2019 with the commercial release of ENGAGE and the full launch of Titanic VR occurring in Q4 2018. Unit Downloads Unit downloads tracks the number of downloads across the various sales platforms of the Groups VR experiences which allows monitoring of the performance of both the experiences and the platforms they are sold on. Unit downloads for the year totalled approximately 80,000 compared to 65,000 in 2017, an increase of 23%. With additional VR experiences to be launched in 2019 we would expect to see further growth in unit downloads. Cash & Cash Equivalents Tracking the cash balance monitors the conversion of revenue into cash ensuring that cash is available for reinvestment. Cash & cash equivalents at 31 December 2018 was €3.5m compared to €0.1m in 2017, an increase of 3265%. This arose from the oversubscribed IPO on 12 March 2018 where €6.75m, before expenses, was raised. Principal Activity The principal activity of the Group is the development of the educational Virtual Reality platform ‘ENGAGE’. The Group also develops and sells Virtual Reality experiences for the education market. Principal Risks and Uncertainties The Group’s strategy is to follow an appropriate risk policy, which effectively manages exposures related to the achievement of business objectives. The key risks which the Group face are detailed as follows: Activity Risk Impact Control(s) Technology Risk Fast moving market that is subject to changing trends and technological advances. Being behind market leaders or the provision of non- standard material for which there is a limited target audience, consequently reducing potential for profit/ revenue. The Company regularly conducts market research to be aware of upcoming trends, and it aims to achieve ‘first mover’ advantage in the VR Educational sector to manage this risk. 8 Strategic Report (continued) Activity Risk Impact Control(s) Business performance Company may not perform as expected. Adverse consequences such as management distraction, disposal and reduced profit. Financial Risk Adequate financial and business controls. Error or fraud, leading to a loss in reputation, business partners and customers. Critical Person Risk Loss of key management or development staff. Operational impact of loss of key staff could see a delay in product / service delivery. Data Protection Risk Loss of customer personal information. Loss of reputation, fines and potential litigation. This risk is managed through a number of measures: authorisation of purchases and capital requirement; ensuring the appropriate management team is in place; budget and business planning; monthly reporting and variance analysis; financial controls; key performance indicators; and regular forecasting. The Company exercises financial and business control through a combination of: qualified and experienced financial personnel; dual signatories; performance analysis; budgeting and cash flow forecasting; local audit to international standards; and clearly defined approval limits. The nature and operation of the board ensures that issues are disseminated to all board members in a timely manner which would help address the loss of any key staff. Keyman insurance policy is also in place for the CEO. Payment processing handled by reputable third party (Stripe); GDPR policies in place and made available to new and existing users; best practise policy and procedure in place for storing user personal data. Going Concern The financial information is presented on the going concern basis. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. As such the Directors continue to adopt the going concern basis of accounting in preparing the Financial Information. Sandra Whelan Director 5 March 2019 Séamus Larrissey Director 5 March 2019 9 Annual report 2018 Directors’ report for the Year Ended 31 December 2018 The Directors present herewith their annual report and audited financial statements for the year ended 31 December 2018. Results and Dividends The results for the period are set out in the Strategic Report on page 8-9. The Directors do not propose to declare a dividend. Directors The present Directors are as listed on page 4 and, unless otherwise indicated, have served throughout the period. Directors’ and Secretary’s interests in shares The direct and indirect interests of the Directors and secretary in the share capital of the Company at the beginning and the end of the period were as follows: 31/12/2018 31/12/2017 Ordinary Shares Share Options Ordinary Shares Share Options Richard Cooper David Whelan Sandra Whelan Séamus Larrissey Michael Boyce Tony Hanway 1,000,000 1,000,000 38,665,000 38,665,000 - - 88,000 910,940 499,942 100,000 - - - - 1 - - - Substantial shareholdings As at 28 February 2019, the following interests in 3% or more of the issued share capital appear in the register: David Whelan Sandra Whelan Octopus Investments Enterprise Ireland Unicorn AIM VCT plc Suir Valley Funds ICAV Kernel Seed Fund 2009 Barry Downes Transactions Involving Directors Transactions involving Directors are disclosed within note 26. 10 - - - - - - 20.0% 20.0% 10.7% 9.8% 8.2% 7.2% 6.8% 6.8% Directors’ Report (continued) Events after the reporting period The Company has evaluated all events and transactions that occurred after 31 December 2018 up to the date of signing of the financial statements. No material subsequent events have occurred that would require adjustment to or disclosure in the financial statements. Research and development Being at the forefront of a competitive industry and in order to strengthen its market position the Group need to continue to break new ground by investing in the development and trial of new technologies. The Group aims to provide educators the tools they need to create their own content in virtual classrooms or virtual training environments and thus improving Customer experience. Accounting Records The measures that the Directors have taken to secure compliance with the requirements of sections 281 to 285 of the Companies Act 2014 with regard to the keeping of accounting records, include the provision of appropriate resources to maintain adequate accounting records throughout the company, including the employment of appropriately qualified personnel and the maintenance of computerised accounting systems. The accounting records of the Company are held at their registered office at Unit 9, Cleaboy Business Park, Waterford, Ireland. Branches outside the state The Company has a branch established in the United Kingdom. Political Donations There were no political donations made during the current or prior year. Disclosure of information to the Auditor Each Director has taken steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. The Directors confirm that there is no relevant information that they know of and of which they know the auditor is unaware. On behalf of the board Sandra Whelan Director 5 March 2019 Séamus Larrissey Director 5 March 2019 11 Annual report 2018 Directors’ responsibilities statement for the Year Ended 31 December 2018 The Directors are responsible for preparing the Directors’ Report and the financial statements in accordance with applicable Irish law and regulations. Irish Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with accounting standards issued by the Financial Reporting Council including IFRS. 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 assets, liabilities and financial position of the Company as at the financial year end date and of the profit or loss of the Company for the financial year and otherwise comply with the Companies Act 2014. In preparing these financial statements the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether the financial statements have been prepared in accordance with applicable accounting standards, identify those standards, and note the effect and the reasons for any material departure; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for ensuring that the Company keeps or causes to be kept adequate accounting records which correctly explain and record the transactions of the Company, enable at any time the assets, liabilities, financial position and profit or loss of the Company to be determined with reasonable accuracy and enable them to ensure that the financial statements and Directors’ Report comply with the Companies Act 2014 and enable the financial statements to be audited. They are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website, www.vreducationholdings.com. Legislation in the Republic of Ireland governing the preparation and dissemination of the Financial Statements may differ from legislation in other jurisdictions. The Company is compliant with AIM Rule 26 regarding the Company’s website. The Directors are responsible for ensuring that the Company is compliant with AIM Rule 26 which is discussed further in the Corporate Governance Report on page 13-20. On behalf of the board Sandra Whelan Director 5 March 2019 Séamus Larrissey Director 5 March 2019 12 Corporate governance report for the Year Ended 31 December 2018 As Chairman of VR Education Holdings plc I have overall responsibility for corporate governance and in promoting high standards throughout the Company. As well as leading and chairing the Board my responsibilities are to ensure: • committees are properly structured and operate with appropriate terms of reference; • the performance of individual directors, the Board and its committees are reviewed on a regular basis; • the Company has a coherent strategy and sets objectives against this; and • there is effective communication between the Company and its shareholders. All the Directors of VR Education Holdings plc believe strongly in the importance of good corporate governance for the creation of shareholder value over the medium to long-term and to engender trust and support amongst the Company’s wider stakeholders. In March 2018, changes to the AIM rules required the formal adoption by all AIM companies of a recognised corporate governance code by 28 September 2018. On its admission to AIM in March 2018 the Directors undertook to take account of the requirements of the QCA guidelines to the extent they consider it appropriate having regard to the Company’s size, board structure, stage of development and resources. In light of the new requirements under AIM rule 26, the Board have decided to formally adopt and adhere to the QCA code (revised in April 2018). The QCA code is constructed around ten broad principles and a set of disclosures. The QCA has stated what it considers to be appropriate arrangements for growing companies and asks companies to provide an explanation about how they are meeting the principles through the prescribed disclosures. The Directors have considered how they apply each principle and below we provide an explanation of the approach taken in relation to each. Any areas of non-compliance are explained in the text below. There were no key governance related matters that occurred during the year. Richard Cooper Chairman 5 March 2019 13 Annual report 2018Corporate governance report (continued) for the Year Ended 31 December 2018 Principle Application Establish a strategy and business model which promotes long-term value for shareholders The Board has concluded that the highest medium and long-term value can be delivered to its shareholders by the adoption of a single strategy for the Company - to transform education globally by providing new tools to educators and corporate trainers, consequently allowing them to provide high quality, low cost content in a virtual networked social learning environment. To achieve this vision the Company’s principal activity is to be active in the Virtual Reality Sector, and develop and sell Virtual Reality experiences for the education market. The Company intends to deliver shareholder returns through capital appreciation and, ultimately, distribution via dividends. The principal challenge to delivering capital appreciation is uncertainty in relation to the performance of Immersive VR Education Limited, although the Board takes steps to mitigate these risks. Further challenges to VR Education’s strategy and long-term goals are highlighted in the Risk Management section below. Seek to understand and meet shareholder needs and expectations The Company places great importance on the need for effective communication and constructive dialogue with investors and the media. To ensure that existing and potential investors and contacts can track its progress and obtain news and updates as soon as available, it encourages registration to the Company’s news alert service, as well as providing communications through Interim and Annual Reports. The Company’s website, www.vreducationholdings.com, is used for both financial and general news relevant to shareholders. The Chair, Richard Cooper, acts as a liaison for shareholders, although queries through the Company’s website are directed to the COO, Sandra Whelan, who monitors and liaises with shareholders on minor queries. The Executive Directors also meet shareholders and other investors/potential investors regularly within the results cycle, and the whole Board aims to participate at the AGM. The AGM will provide an opportunity to meet, listen and present to shareholders, and shareholders are encouraged to attend. In addition, the Company is open to receiving feedback from key stakeholders, and will take action where appropriate. Take into account wider stakeholder and social responsibilities and their implications for long-term success The Board recognises that the long-term success of the Company is reliant upon the efforts of employees, contractors, suppliers, regulators and many other stakeholders. The Board has put in place a range of processes and systems to ensure that there is close oversight and contact with its key resources and relationships. The Company aims to be very responsive to all stakeholder queries, monitoring message boards on various platforms (emails, social media) for all products on a daily basis, responding with technical assistance or product information as requested within 24 hours. 14 Corporate governance report (continued) for the Year Ended 31 December 2018 Principle Application Take into account wider stakeholder and social responsibilities and their implications for long-term success (continued) All employees within the Group are valued members of the team, and the Company seeks to implement provisions to retain and incentivise all its employees. The Group offers equal opportunities regardless of race, gender, gender identity or reassignment, age, disability, religion of sexual orientation. The Company has a policy to conduct annual employee reviews, seeking to understand any issues within the workforce. Employees are incentivised through team building days out and various employee wellness schemes and plans. The Company has close ongoing relationships with a broad range of its stakeholders and provides them with the opportunity to raise issues and provide feedback to the Company. The Company conducts customer reviews, which broaden communication and the opportunity for feedback, as well as holding weekly internal management meetings whereby all aspects of the business are discussed and any issues that arise are actioned by the following week. Furthermore, the Company holds weekly product meetings to ensure that all employee feedback regarding product creation, implementation and processes are taken on board, changed and/or improved, where necessary. The Company has adopted an agile method whereby products follow a two-week sprint process to ensure a smooth process. VR Education is looking at helping and contributing to the local community, and has sponsored a table at the 2018 Annual Gala Ball in aid of Crumlin Children’s Hospital. Additionally, the COO, Sandra Whelan, has spoken on behalf of the Company at the National Mind Over Matter initiative in aid of mental health awareness, where all proceeds went to AWARE. The Group also has no significant environmental impact, but will continue to monitor and will take action if this changes in the future. Embed effective risk management, considering both opportunities and threats, throughout the organisation The Board recognises the need for an effective and well-defined risk management process and it oversees and regularly reviews the current risk management and internal control mechanisms. The Strategic Report also outlines the key risks to the business, see page 8. The Company has a risk register which identifies risks, evaluates the risk level (level of impact and the probability of the risk materialising), and the principal person responsible for each risk. The Board has established appropriate reporting and control mechanisms to ensure the effectiveness of its control systems. The Audit Committee has delegated responsibility for ensuring that the financial performance of the Company is properly monitored and reported. The Board currently considers that there are no risk factors that are considered High Risk Areas. 15 Annual report 2018Corporate governance report (continued) for the Year Ended 31 December 2018 Principle Application Embed effective risk management, considering both opportunities and threats, throughout the organisation (continued) Maintain the Board as a well-functioning, balanced team led by the Chair An internal audit function is not yet considered necessary or practical due to the size of the Company and the day to day control exercised by the Executive Directors. However, the Board will continue to monitor the need for an internal audit function. The Board has established appropriate reporting and control mechanisms to ensure the effectiveness of its control systems. The Board regularly reviews the mechanisms of internal control it has implemented, assessing for effectiveness. The Board comprises: • CEO - David Whelan • COO - Sandra Whelan • CFO - Séamus Larrissey • • • Non-Executive director - Michael Boyce. Michael is currently providing sales consulting services to the Group under a six month consulting contract. Independent Non-Executive director and Chairman - Richard Cooper Independent Non-Executive director - Tony Hanway Richard Cooper and Séamus Larrissey were appointed to the Board on 1 and 29 November 2017, respectively. Both Michael Boyce and Tony Hanway were appointed on 16 February 2018. Biographical details of the Directors can be found here http://www.vreducationholdings. com/content/about-us/board.asp. The letters of appointment of all Directors are available for inspection at the Company’s registered office during normal business hours. All the Non-Executive Directors are expected to dedicate at least 2 days per month to the Company. One third of Board are subject to re-election at each AGM. Meetings are open and constructive, with every Director participating fully. Senior management can also be invited to meetings, providing the Board with a thorough overview of the Company. The Board is satisfied it has a suitable balance between independence on the one hand, and knowledge of the Company on the other. All Directors are encouraged to use their independent judgement and to challenge all matters, whether strategic or operational, enabling the Board to discharge its duties and responsibilities effectively. The Board aims to meet six times in the year and a calendar of meetings and principal matters to be discussed is agreed at the beginning of each year. During the year the board met at 5 dedicated board meetings at which all Directors were present. No committee meetings were held but given the nature of the Company at an early stage all decisions were taken by the board as a whole. In order to be efficient, the Directors meet formally and informally both in person and by telephone. 16 Corporate governance report (continued) for the Year Ended 31 December 2018 Principle Application Maintain the Board as a well-functioning, balanced team led by the Chair (continued) Board and Committee document authors are made aware of proposed monthly deadlines through the calendar of meetings assembled at the beginning of the year. Board papers are collated, compiled into a Board Pack, and circulated at least one week before meetings, allowing time for full consideration and necessary clarifications before the meetings. The Company has Audit, Remuneration, and Compliance Committees. The Committees have the necessary skills and knowledge to discharge their duties effectively. Directors’ conflict of interest The Company has effective procedures in place to monitor and deal with conflicts of interest. The Board is aware of the other commitments and interests of its Directors, and changes to these commitments and interests are reported to and, where appropriate, agreed with the rest of the Board. Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities The Non-Executive Directors have both a breadth and depth of skills and experience to fulfil their roles. The Company believes that the current balance of skills across the Board as a whole reflects a very broad range of personal, commercial and professional skills, providing the ability to deliver the Company’s strategy for the benefit of shareholders over the medium and long-term. The Non-Executive Directors meet without the presence of the Executive Directors during the year, and also maintain ongoing communications with Executives between formal Board meetings. Biographical details of the Directors can be found on the Company’s website. In addition to their general Board responsibilities, the Directors, including the Non- Executives, are encouraged to be involved in specific workshops or meetings, in line with their individual areas of expertise. This allows skill-sets to be kept up to date. ONE Advisory Limited has been contracted by the Company to act as its Company Secretary, and has been given the responsibility for ensuring that Board procedures are followed and that the Company complies with all applicable rules, regulations and obligations governing its operation, as well as helping the Chairman maintain excellent standards of corporate governance. If required, the Directors are entitled to take independent legal advice and if the Board is informed in advance, the cost of the advice will be reimbursed by the Company. The Board shall review annually the appropriateness and opportunity for continuing professional development whether formal or informal. 17 Annual report 2018Corporate governance report (continued) for the Year Ended 31 December 2018 Principle Application Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement At present, this aspect of the Code is not complied with as the Directors consider that the Company and Board are not yet of a sufficient size or suitably developed for a full Board evaluation to make commercial and practical sense, given the stage of the Company. In the frequent Board meetings/calls, Directors can discuss any areas where they feel a change would benefit the Company, and the Company Secretary and other Company advisers remain on hand to provide impartial advice. The Board will keep this under review as the Company develops. Promote a corporate culture that is based on ethical values and behaviours The Board has elected not to establish a Nominations Committee, preferring instead that the Board should, itself, deal with such matters, including succession planning and the balance of the Board. The Company operates on a retirement by rotation policy, and one third of Board are subject to re-election at each AGM. The Board recognises that its decisions regarding strategy and risk will impact the corporate culture of the Company as a whole and that this will impact the performance of the Company. The Board is aware that the tone and culture set by the Board will greatly impact all aspects of the Company as a whole and the way that employees behave. The corporate governance arrangements that the Board has adopted are designed to ensure that the Company delivers long term value to its shareholders, and that shareholders have the opportunity to express their views and expectations for the Company in a manner that encourages open dialogue with the Board. A large part of the Company’s activities are centred upon an open and respectful dialogue with employees, clients and other stakeholders. Therefore, the importance of sound ethical values and behaviours is crucial to the ability of the Company to successfully achieve its corporate objectives. The Board places great importance on this aspect of corporate life and seeks to ensure that this flows through all that the Company does. The Directors consider that at present the Company has an open culture facilitating comprehensive dialogue and feedback and enabling positive and constructive challenge. All of the Company’s policies are made available to all employees and are included in an employee handbook. These are ‘Must Read Policies’ which employees are required to read and acknowledge the policies and which Sandra Whelan, COO, monitors and updates where necessary. The Company also has an Anti-Bribery and Corruption Policy in place to ensure the highest standards of personal and professional ethical behaviour are adhered to. Additionally, as the Company conducts regular employee reviews and internal meetings and has a general close-knit working environment, the Directors are able to determine the extent to which ethical values and behaviours are recognised and respected. The Company has adopted, with effect from the date on which its shares were admitted to AIM, a code for Directors’ and employees’ dealings in securities which is appropriate for a company whose securities are traded on AIM and ESM and is in accordance with the requirements of the Market Abuse Regulation which came into effect in 2016. The Directors seek to align their interests with shareholders. 18 Corporate governance report (continued) for the Year Ended 31 December 2018 Principle Application Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board The Board is committed to, and ultimately responsible for, high standards of corporate governance, and has chosen to adopt the QCA Code. We review our corporate governance arrangements regularly and expect to evolve these over time, in line with the Company’s growth. The Board delegates responsibilities to Committees and individuals as it sees fit, with the Chair being responsible for the effectiveness of the Board, and the Executive Directors being accountable for the management of the Company’s business and primary contact with shareholders, clients and partners. The Chair is responsible for shareholder communications, the leadership of the Board and ensuring its effectiveness in all aspects of its role, including creating the right Board dynamic and ensuring that all important matters, in particular strategic decisions and corporate governance arrangements, receive adequate time and attention at Board meetings. The Executive Directors are responsible for the day-to-day running of the business, the leadership of the management team and the development and execution of corporate strategy. The Non-Executive Directors are tasked with constructively challenging the decisions of executive management and satisfying themselves that the systems of business risk management and internal financial controls are robust. The Board has adopted appropriate delegations of authority which sets out matters which are reserved to the Board as set out below: Internal Controls • Strategy and Management • Structure and Capital • Financial Reporting and Controls • • Finance • Contracts • Communications • Board Membership and other Appointments • Delegation of Authority • Corporate Governance Matters • Approval of Policies The Board delegates authority to three Committees to assist in meeting its business objectives whilst ensuring a sound system of internal control and risk management. The Committees meet independently of Board meetings. Audit Committee The Audit Committee has 2 members, Richard Cooper (Chair) and Tony Hanway. The CFO and external auditors attend meetings by invitation. The Audit Committee is responsible for making recommendations on the appointment of auditors and the audit fee, and for ensuring that the financial performance of the Company is properly monitored and reported. 19 Annual report 2018Corporate governance report (continued) for the Year Ended 31 December 2018 Principle Application Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board (continued) Audit Committee (continued) In addition, the Audit Committee will receive and review reports from management and the auditors relating to the interim report, the annual report and accounts and the internal control systems of the Company. The Audit Committee shall meet not less than twice each financial year. No separate Audit Committee report is presented to shareholders as the Board does not consider at present that this would improve the quality of communication with Shareholders given the simple structure of the Company. The Board will continue to review this approach. Remuneration Committee The Remuneration Committee has 2 members, Tony Hanway (Chair) and Richard Cooper. The members are all Independent Non-Executive Directors. Other members of the Board may attend the Committee’s meetings at the request of the Committee Chairman. The Remuneration Committee is responsible for the review and recommendation of the scale and structure of remuneration of the Executive Directors, the company secretary and such other members of the executive management as it is designated to consider, including any bonus arrangements or the award of share options with due regard to the interests of the Shareholders and the performance of the Company. The Remuneration Committee shall meet not less than twice a year. No separate Remuneration Committee report is presented to shareholders as the Board does not consider at present that this would improve the quality of communication with Shareholders given the simple structure of the Company. The Board will continue to review this approach. Further details of Directors Remuneration is included in Note 8 to the Financial Statements. Compliance Committee The Compliance Committee has three members, Richard Cooper (Chair), Tony Hanway and Michael Boyce. The Compliance Committee will have oversight of the Company’s duties and satisfy itself that the Company has procedures in place to ensure compliance with applicable rules and regulations, including but not limited to the AIM Rules for Companies, the ESM Rules for Companies and the Market Abuse Regime. The Compliance Committee will meet at such times and frequency as necessary. The Board has elected not to establish a Nominations Committee, preferring instead that the Board should, itself, deal with such matters, including succession planning and the balance of the Board. Therefore, the Board will review Board composition. The Chair and the Board continue to monitor and evolve the Company’s corporate governance structures and processes, and maintain that these will evolve over time, in line with the Company’s growth and development. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders The Board is committed to maintaining effective communication and having constructive dialogue with its shareholders. The Company intends to have ongoing relationships with both its private and institutional shareholders as well as shareholder analysts, and for them to have the opportunity to discuss issues and provide feedback at meetings with the Company. In addition, all shareholders are encouraged to attend the Company’s Annual General Meeting. The Board maintains that, if there is a resolution passed at a GM with 20% votes against, the Company will seek to understand the reason for the result and, where appropriate, take suitable action. 20 Independent auditor’s report to the members of VR Education Holdings plc Opinion We have audited the financial statements of VR Education Holdings Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 December 2018 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statement of Financial Position, the Consolidated and Parent Company Statements of Changes in Equity, the Consolidated and Parent Company Statements of Cash Flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is Irish law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2014. In our opinion: • the Group financial statements give a true and fair view of the assets, liabilities and financial position of the group as at 31 December 2018 and its loss for the year then ended; • the Company statement of financial position gives a true and fair view of assets, liabilities and financial position of the Company as at 31 December 2018; • the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2014; and • the Group financial statements and Company financial statements have been prepared in accordance with the requirements of the Companies Act 2014. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (Ireland) (ISAs (Ireland)) 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 have fulfilled our ethical responsibilities under, and we remained independent of the Group in accordance with, ethical requirements applicable in Ireland, including the Ethical Standard issued by the Irish Auditing and Accounting Supervisory Authority (IAASA) as applied to listed entities. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (Ireland) 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. Our application of materiality Materiality for the Group and Company financial statements as a whole was set at €110,000. This has been calculated using a benchmark of 5% of adjusted loss before tax and 2% of gross assets, which we have determined, in our professional judgement, to be one of the principal benchmarks within the financial statements relevant to the members of the Group and Company in assessing financial performance. We report to the Audit Committee all corrected and uncorrected misstatements we identified through our audit in excess of €5,500. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. An overview of the scope of our audit The Group and its one subsidiary are accounted for from a central location in Waterford, Ireland. We travelled to said location in order to undertake the audit for the year end 31 December 2018. 21 Annual report 2018Independent auditor’s report to the members of VR Education Holdings plc (continued) 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. Key Audit Matter The Group carries a material amount in relation to intangible assets capitalised for costs associated with development of virtual reality experiences. As a result, the following risks may arise: • Intangible assets may have been incorrectly capitalised and not conform with the 6 step criteria detailed in IAS 38. • The carrying value of the development cost may • be overstated and therefore, irrecoverable. Inappropriate useful economic lives may have been attributed to assets recognised. How the scope of our audit addressed the key audit matter The work undertaken to mitigate the risk was as follows: • We verified that the Group has capitalised development costs on VR projects on the basis that they meet the 6 step criteria detailed in IAS 38 for that given project. • Additions in the period have been tested and agreed to supporting timesheet analysis as all costs capitalised in the year relate to time spent by developers and artists. This was corroborated through discussions with the CEO as to which employees spent time during the period working on developing intangibles. • We have reviewed management’s impairment assessment and are satisfied that the intangible balance is free from impairment. This is supported by Titanic being the first product to launch and the amount capitalised has been compared to sales volumes in the subsequent 3 months from the launch date. • The amortisation balance and accounting policy have been tested in reference to the market. The VR experiences are to be amortised over a 3 year period which is in line with competitors who typically amortise over 2-5 years. VREH has applied the amortisation charge on a consumption basis meaning that the charge is more heavily weighted in the first 6-12 months from the date of launch, when sales are expected to be at their highest. This prudent approach is deemed to be appropriate. • See note 14 ‘Intangible assets’ for valuation and disclosure of development costs. Other information The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information. Our opinion on the group and parent company financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies 22 Independent auditor’s report to the members of VR Education Holdings plc (continued) 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 2014 Based solely on the work undertaken in the course of the audit, we report that: • • In our opinion, the information given in the directors’ report is consistent with the financial statements; and In our opinion, the directors’ report has been prepared in accordance with the Companies Act 2014. We have obtained all the information and explanations which we consider necessary for the purpose of our audit. In our opinion, the accounting records of the Company were sufficient to permit the financial statements to be readily and properly audited and the Company’s statement of financial position and the statement of other comprehensive income is in agreement with the accounting records. Matters on which we are required to report by exception Based on the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the directors’ report.. The Companies Act 2014 requires us to report to you if, in our opinion, the disclosures of directors’ remuneration and transactions required by Sections 305 to 312 of the Act are not made. Responsibilities of directors As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the group and parent company 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 group and parent company financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (Ireland) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the IAASA’s website at: https://www.iaasa.ie/Publications/Auditing-standards/ This description forms part of our auditor’s report. Use of our report This report is made solely to the company’s members, as a body, in accordance with Section 391 of the Companies Act 2014. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone, other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Alistair Roberts (Senior Statutory Auditor) For and on behalf of PKF Littlejohn LLP Statutory Auditor 5 March 2019 1 Westferry Circus Canary Wharf London E14 4HD 23 Annual report 2018 Communicate Teach 24 Learn 25 Annual report 2018Financial Statements 26 Consolidated statement of total comprehensive income for the Year Ended 31 December 2018 Continuing Operations Revenue Cost of Sales Gross Profit Administrative Expenses Other Income Operating Loss Fair value (loss)/gain arising on derivative financial liabilities Extinguishment Costs IPO Transaction Costs Finance Costs Loss before Income Tax Income Tax Credit Note 3 6 6 5 11 9 10 11 12 2018 € 716,345 (239,701) 476,644 (2,247,337) - (1,770,693) (2,638,063) (267,971) (237,202) (29,977) 2017 € 624,487 (300,143) 324,344 (876,858) 60,333 (492,181) 125,764 - (202,940) (54,342) (4,943,906) (623,699) - - Total comprehensive loss for the year (4,943,906) (623,699) Earnings per Share (EPS) Basic from continuing operations 13 (0.026) - The accompanying notes on pages 34-57 form an integral part of these financial statements. 27 Annual report 2018Consolidated statement of financial position at 31 December 2018 Non-Current Assets Property, Plant & Equipment Intangible Assets Current Assets Trade and other receivables Cash and short term deposits Total Assets Equity and Liabilities Equity Attributable to Shareholders Issued share capital Share premium Other reserves Retained earnings Total Equity Non-Current Liabilities Interest bearing loans and borrowings Derivative financial liabilities Current Liabilities Trade and other payables Total Liabilities Total Equity and Liabilities Note 14 15 17 18 19 19 20 21 24 24 23 2018 € 59,541 956,550 1,016,091 394,113 3,485,186 3,879,299 4,895,391 193,136 21,587,539 (11,314,729) (5,765,750) 2017 € 57,300 435,791 493,091 238,315 103,577 341,892 834,983 - - 157,280 (821,844) 4,700,196 (664,564) - - - 195,195 195,195 195,195 4,895,391 907,180 209,348 1,116,528 383,019 383,019 1,499,547 834,983 The accompanying notes on pages 34-57 form an integral part of these financial statements. Sandra Whelan Director Séamus Larrissey Director On behalf of the board 28 5 March 2019 5 March 2019 Company statement of financial position at 31 December 2018 Non-Current Assets Investment in subsidiaries Current Assets Trade and other receivables Cash and short term deposits Total Assets Equity and Liabilities Equity Attributable to Shareholders Issued share capital Share premium Other reserves Retained earnings Total Equity Current Liabilities Redeemable shares Trade and other payables Total Liabilities Total Equity and Liabilities Note 2018 € 16 15,028,809 15,028,809 17 18 19 19 20 21 23 5,136,849 753,090 5,889,939 20,918,748 193,136 21,587,539 (212,363) (687,587) 20,880,725 - 38,023 38,023 20,918,748 The accompanying notes on pages 34-57 form an integral part of these financial statements. On behalf of the board Sandra Whelan Director 5 March 2019 Séamus Larrissey Director 5 March 2019 2017 € - - 18,750 6,250 25,000 25,000 - - - - - 25,000 - 25,000 25,000 29 Annual report 2018 Consolidated statement of changes in equity for the Year Ended 31 December 2018 Balance at 1 January 2017 Total comprehensive income Loss for the year Total comprehensive income Transactions with owners recognised directly in equity Transfer to derivative liabilities Transfer to other reserves arising from accounting treatment of acquisition of subsidiary Share option expense Balance at 31 December 2017 Balance at 1 January 2018 Total comprehensive income Loss for the year Total comprehensive income Transactions with owners recognised directly in equity Share Capital Share Premium Other Reserves Retained Earnings Total € - - - - - - - € - - - - - - - € € € 104,915 (198,145) (93,230) - - (623,699) (623,699) (623,699) (623,699) (104,915) 137,100 20,180 - - - (104,915) 137,100 20,180 157,280 (821,844) (664,564) Share Capital Share Premium Other Reserves Retained Earnings Total € € € 157,280 (821,844) (664,564) € - - - € - - - - - - (4,943,906) (4,943,906) (4,943,906) (4,943,906) - - - - 21,780,675 (596,212) (11,243,464) 367,667 Issue of ordinary shares 193,136 21,587,539 Share Issue Costs Acquisition of a subsidiary Share option expense - - - - - - (596,212) (11,263,644) 387,847 Balance at 31 December 2018 193,136 21,587,539 (11,314,729) (5,765,750) 4,700,196 The accompanying notes on pages 34-57 form an integral part of these financial statements. 30 Company statement of changes in equity for the Year Ended 31 December 2018 Share Capital Share Premium Other Reserves Retained Earnings Total € - - - € - - - € - - - € - - - Share Capital Share Premium Other Reserves Retained Earnings € - € - € - - € - - € - - - Total € - - (687,587) (687,587) (687,587) (687,587) Balance at 13 October 2017 Total comprehensive income Loss for the year Balance at 31 December 2017 Balance at 1 January 2018 Total comprehensive income Loss for the year Total comprehensive income Transactions with owners recognised directly in equity Issue of ordinary shares 193,136 21,587,539 - Share Issue Costs Share option expense - - - - (596,212) 383,849 - - - 21,780,675 (596,212) 383,849 Balance at 31 December 2018 193,136 21,587,539 (212,363) (687,587) 20,880,725 The accompanying notes on pages 34-57 form an integral part of these financial statements. 31 Annual report 2018Consolidated statement of cash flows for the Year Ended 31 December 2018 Continuing Operations Note 2018 € 2017 € Loss before income tax (4,943,906) (623,699) Adjustments to reconcile loss before tax to net cash flows: Depreciation of fixed assets Amortisation of intangible assets Fair value loss/(gain) arising on derivative financial liabilities Non-cash element of extinguishment costs Non-cash element of advisor warrants Other non-cash items Finance Costs Share Option Expense Movement in trade & other receivables Movement in trade & other payables 6 6 11 11 49,984 175,300 36,621 - 2,638,063 (125,764) 174,651 112,381 1,944 29,977 30,145 (155,798) (187,824) - - - 54,342 20,180 (201,710) 351,339 (2,075,083) (488,691) Bank interest & other charges paid (29,977) (264) Net Cash used in Operating Activities (2,105,060) (488,955) Cash Flows from Investing Activities Purchases of property, plant & equipment Payments to develop Intangible Assets Net cash used in Investing Activities Cash Flows from Financing Activities 14 15 (52,225) (696,059) (748,284) (56,326) (370,514) (426,840) Proceeds from issuance of ordinary shares 6,234,953 Proceeds from issuance of preference shares Proceeds from issuance of convertible loans - - Net cash generated from Financing Activities 6,234,953 Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 3,381,609 103,577 3,485,186 18 18 12,000 250,000 688,000 950,000 34,205 69,372 103,577 32 Company statement of cash flows for the Year Ended 31 December 2018 Continuing Operations Loss before income tax Adjustments to reconcile loss before tax to net cash flows: Non-cash element of extinguishment costs Non-cash element of advisor warrants Non-cash element of redemption of redeemable shares Finance Costs Share Option Expense Movement in trade & other receivables Movement in trade & other payables Bank interest & other charges paid Net Cash used in Operating Activities Cash Flows from Investing Activities Cash Flows from Financing Activities Proceeds from issuance of redeemable shares Redemption of redeemable shares Proceeds from issuance of ordinary shares Net cash generated from Financing Activities Note 2018 € (687,587) 174,651 112,381 (18,750) 276 17,518 (5,118,099) 38,023 (5,481,587) (276) (5,481,863) - - (6,250) 6,234,953 6,228,703 2017 € - - - - - - - - - - - - 6,250 - - 6,250 Net increase in cash and cash equivalents 746,840 6,250 Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 18 18 6,250 - 753,090 6,250 The non-cash element of extinguishment costs and non- cash element of advisor warrants reflect the fact that the group issued warrants to loan note holders, cumulative redeemable preference shareholders and advisors as part of the acquisition of Immersive VR Education Limited and the subsequent IPO transaction. The non-cash element of redemption of redeemable shares relates to the accounting treatment for the cancellation of unpaid redeemable shares during the year. The accompanying notes on pages 34-57 form an integral part of these financial statements. 33 Annual report 2018Notes to the financial statements 34 Notes to the financial statements 1. General Information VR Education Holdings plc (“the Company”) is publicly traded on the Alternative Investment Market (“AIM”) of the London Stock Exchange and on the Enterprise Securities Market (“ESM”), a market regulated by Euronext Dublin. The Company is incorporated and domiciled in the Republic of Ireland. The registered office is Unit 9, Cleaboy Business Park, Old Kilmeaden Road, Waterford and the registered number is 613330. The Company is the parent company of Immersive VR Education Limited (“IVRE”). IVRE is incorporated and domiciled in the Republic of Ireland with the same registered office as the Company. On 12 March 2018 the Company acquired Immersive VR Education Limited and contemporaneously listed on London’s AIM market and Dublin’s ESM market. As part of the Admission process, the Group raised £6 million before expenses, through an oversubscribed placing of 60,000,000 new ordinary shares at a placing price of 10p each. The Group is principally engaged in the development of the educational Virtual Reality platform ‘ENGAGE. The Company also develops and sells Virtual Reality experiences for the education market. 2. Summary of Significant Accounting Policies The principal accounting policies applied in the preparation of the Financial Statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of Consolidation The consolidated financial statements incorporate those of VR Education Holdings plc and its subsidiary Immersive VR Education Limited. All financial statements are made up to 31 December 2018. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group. All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Subsidiaries are fully consolidated from the date on Annual report 2018 which control is transferred to the group. They are deconsolidated from the date on which control ceases. The Group re-assess whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the elements of control. Business Combination Acquisition of Immersive VR Education Limited The Company was incorporated on 13 October 2017 and entered into an agreement to acquire the entire issued share capital of Immersive VR Education Limited on 12 March 2018. The acquisition was effected by way of issue of shares. Due to the relative size of the companies, Immersive VR Education’s shareholders became the majority shareholders in the enlarged capital of the Company. The transaction fell outside of IFRS 3 (“Business Combinations”) and as such has been treated as a group reconstruction. Therefore, although the Group reconstruction did not become unconditional until 12 March 2018, these consolidated financial statements are presented as if the Group structure has always been in place, including the activity from incorporation of the Group’s subsidiaries. Furthermore, as VR Education Holdings plc was incorporated on 13 October 2017, while the enlarged group began trading on 12 March 2018, the Statement of Comprehensive Income and consolidated Statement of Changes in Equity and consolidated Cash Flow Statements are presented as though the Group was in existence for the whole year. On this basis, the Directors have decided that it is appropriate the reflect the combination using merger accounting principles as the transaction falls outside the scope of IFRS 3 and as such has been treated as a Group reconstruction. No fair value adjustments have been made as a result of the combination. The comparative information presented for the Group is that of Immersive VR Education Limited. Significant accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. Judgments In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements: Capitalised development costs In applying the requirements of IAS 38 Intangible Assets, the Group assessed various development projects against the criteria required for capitalisation. Certain projects 35 that did not meet the criteria regarding the ability to determine those projects would generate sufficient future economic benefits were expensed. The judgements reflect the early stage of the VR/AR market and will change over time. Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur. Capitalised development costs impairment review The Group’s impairment review undertaken to assess the carrying value of capitalised development costs includes certain assumptions on future revenues and costs associated with the underlying technology. Those cashflows are discounted at an appropriate discount rate. These estimates and assumptions are reviewed on an on-going basis. Changes in accounting estimates may be necessary if there are changes in the circumstances on which the estimate was based or as a result of new information or more experience. Such changes are recognised in the period in which the estimate is revised. Derivative financial instruments The Group has assessed the fair value of the derivative financial liabilities arising on the conversion feature of convertible secured loan notes and the cumulative redeemable preference shares. This calculation includes assumptions on the expected period of exercise, risk free interest rate and share price volatility. The Group have engaged third party valuations experts to assist them in the selection of such assumptions. Going Concern The financial statements are presented on a going concern basis. In forming this opinion, the Directors have considered all of the information available to them. This includes management prepared forecasts, due consideration of the ability to raise funds on the open market in respect of the dual listing on the Alternative Investments Market on the London Stock Exchange and on the Enterprise Securities Market, a market regulated by Euronext Dublin and the timing as to when such funds will be received. Based on their consideration of these matters the Directors believe the Group and Company to be a going concern. These financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification of liabilities that might be necessary should the group not continue as a going concern. Foreign Currency Translation (a) Functional and Presentation Currency Items included in the Financial Statements of the Group are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). The Financial Statements are presented in euro (€), which is the Group’s functional and presentation currency. (b) Transactions and Balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within ‘finance income or costs’. All other foreign exchange gains and losses are presented in the income statement within Administrative Expenses. Current versus non-current classification The Group presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is current when it is: • Expected to be realised or intended to be sold or consumed in the normal operating cycle • Held primarily for the purpose of trading • Expected to be realised within twelve months after the reporting period; or • Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period All other assets are classified as non-current. A liability is current when: • • • It is expected to be settled in the normal operating cycle It is held primarily for the purpose of trading It is due to be settled within twelve months after the reporting period Or • There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period The Group classifies all other liabilities as non-current. Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions. 36 Annual report 2018 Fair value measurement The Group measures financial instruments such as derivatives at fair value at each balance sheet date. The Company has adopted IFRS 9 for the current year and applied it retrospectively for the preceding financial year however no material adjustments were identified between the requirements of IFRS 9 and the methods applied by the Company in the application of IAS 39. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • • In the principal market for the asset or liabilityor In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. The Group uses valuation techniques that are 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. Revenue Recognition Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods and services supplied, stated net of discounts, returns and Value-Added Taxes (VAT). Under IFRS 15, Revenue from Contracts with Customers, five key points to recognise revenue have been assessed: Step 1: Identify the contract(s) with a customer; Step 2: Identify the performance obligations in the contract; Step 3: Determine the transaction price; Step 4: Allocate the transaction price to the performance obligations in the contract; and Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation. Revenue” for reporting purposes. Revenue is recognised when the license key is delivered to the customer, or when all performance obligations have been achieved. Revenue is received net of commission from the platforms where the Group licenses their content. The gross amount of revenue is recognised in revenue with the corresponding commission portion recognised in cost of sales. Secondly, the Group develops educational VR content on behalf of customers based on specific customer requirements. This is considered “Other Revenue” for reporting purposes. Such revenue is recognised on a percentage completion basis unless there are significant performance obligations that would require deferral until such obligations are delivered. Stage of completion is measured by reference to labour hours incurred to date as a percentage of total estimated labour hours for each contract. When the contract outcome cannot be measured reliably, revenue is recognised only to the extent that the expenses incurred are eligible to be recovered. This is generally during the early stages of development where the specifications need to pass through the customer’s approval as part of the development. The disaggregation of revenue, required under IFRS 15, has been prepared on the basis of the two revenue streams outlined above and is included in Note 3. Government Grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset. Property, Plant and Equipment All property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/ losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity, and specific criteria have been met for each of the Group’s activities, as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. 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. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Where the Group makes sales relating to a future financial period, these are deferred and recognised under ‘deferred revenue’ on the Statement of Financial Position. The Group currently has two revenue streams: Firstly the Group is primarily focused on developing proprietary educational VR content which is sold through licences. This is considered “Showcase Experience Depreciation on assets is calculated using the straight-line method to allocate their cost less residual value over their estimated useful lives, as follows: Office equipment - 3 - 5 years Furniture, fittings and equipment - 5 years Leasehold improvements – over the life of the leased asset 37 The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount, and are recognised in the income statement. The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year. Intangible Assets Research costs are expensed as they are incurred. Development costs that are directly attributable to the design and testing of identifiable and unique commercial software controlled by the Group are recognised as intangible assets when the following criteria are met: • it is technically feasible to complete the software product so that it will be available for use and sale; • 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 future economic benefits; • adequate technical, financial and other resources to complete the development and use or sell the software product are available; and • the expenditure attributable to the software product during its development can be reliably measured. Directly attributable costs that are capitalised as part of the software product include the software development employee costs and subcontracted development costs. Other development expenditure that does not meet these criteria is recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Computer software development costs recognised as assets are amortised over their estimated useful lives, which do not exceed 3 years and commences after the development is complete and the asset is available for use. Intangible assets are amortised over their estimated useful lives based on the pattern of consumption of the underlying economic benefits. Amortisation is included in Administrative Expenses. Impairment of non-financial assets The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses of continuing operations are recognised in the statement of profit or loss in expense categories consistent with the function of the impaired asset. For assets, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Trade Receivables Trade receivables are amounts due from customers for licenses sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not they are presented as non-current assets. Trade receivables are recognised initially at fair value, and subsequently measured at amortised cost using the effective interest method, less provision for impairment. The Group provides for known bad debts and other accounts over a certain age in line with Group policy. The realisation of the asset may differ from the provision estimated by management. Cash and Cash Equivalents In the Statement of Cash Flows, cash and cash equivalents comprise cash in hand and short term deposits. Bank overdrafts are shown within borrowings in current liabilities on the Statement of Financial Position. Share Capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where the issuance of the new shares or options occurs in a subsequent period from when the incremental costs are incurred these costs are prepaid until the issuance takes place. Where the Group purchases its own equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income 38 taxes) is deducted from equity attributable to the Group’s equity holders, until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Group’s equity holders. Share Based Payments The Group has an equity settled employee incentive plan. The cost of equity settled transactions with employees is measured by reference to the fair value at the date at which they are granted and is recognised as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. Fair value is determined using an appropriate pricing model. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the Group. No expense is recognised for awards that do not ultimately vest. At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management’s best estimate of the achievement or otherwise of non- market conditions number of equity instruments that will ultimately vest. The movement in cumulative expense since the previous reporting date is recognised in the profit and loss within administration expenses, with a corresponding entry in the balance sheet in share options reserve. Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled award, the cost based on the original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is recognised if this difference is negative. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the Statement of Comprehensive Income for the award is expensed immediately. Trade Payables Trade payables are obligations to pay for goods or 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 the business 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 method. Leases The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset Annual report 2018 (or assets) and the arrangement conveys a right to use the asset (or assets), even if that asset is (or those assets are) not explicitly specified in an arrangement. A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease. An operating lease is a lease other than a finance lease. Operating lease payments are recognised as an operating expense in the statement of comprehensive income in administrative expenses on a straight-line basis over the lease term. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings, using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. To the extent that there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services, and amortised over the period of the facility to which it relates. Borrowings are classified as current liabilities, unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period. Borrowing costs General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in the income statement within finance costs in the period in which they are incurred. Convertible Financial Instruments Convertible financial instruments issued by the Group comprise convertible loan notes and convertible redeemable Preference Shares that can be converted to ordinary share capital at the option of the holder. The number of shares to be issued may vary with changes in their fair value. 39 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 taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Research and development tax credit The Group undertakes certain research and development activities that qualify for the receipt of a research and development (R&D) tax credit from the Irish tax authorities. Such grants are recognised as a credit against related costs on a cash receipts basis. New standards, interpretations and amendments adopted by the Company On 1 January 2018 the Company adopted IFRS 9 – Financial Instruments. No other new standards were adopted in the year. The Company has not applied the following new and revised IFRSs that have been issued but are not yet effective: Application Date of Standard (Periods Commencing on or after) 1 January 2019 Reference Title Summary IFRS 16 Leases Principles for the recognition, measurement, presentation and disclosure of leases The adoption of these Standards and Interpretations is not expected to have a material impact on the financial information of the Company in the period of initial application when they come into effect. Convertible Financial Instruments (continued) The derivative component arising from the conversion option is recognised at fair value. The debt component is recognised initially as the difference between the fair value of the convertible financial instrument as a whole and the fair value of the derivative. Any directly attributable transaction costs are allocated against the liability. Subsequent to initial recognition, the debt component of the convertible instrument is measured at amortised cost using the effective interest rate method. The derivative component is re-measured at fair value at each subsequent balance sheet date. Current and Deferred Income Tax The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised directly in equity. In this case the tax is also recognised directly in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Group operates and generates 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, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Financial Statements. However, the deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction 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 substantially enacted, by the end of the reporting period 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 assets and liabilities are offset when there is a legally enforceable right to offset current 40 3. Segment Reporting Revenue by Type Showcase experience revenue Other revenue Total Revenue 4. Capital Management 2018 € 592,362 123,983 716,345 2017 € 592,617 31,870 624,487 For the purpose of the Company’s capital management, capital includes issued capital, convertible preference shares, share premium and all other equity reserves. The primary objective of the Group’s capital management is to maximise the shareholder value. Group Interest bearing loans and borrowings Derivative financial liabilities Trade and other payables Less: cash and short term deposits Net Debt Equity Total Equity Capital and net debt 5.Other Income Industry awards proceeds 2018 € - - 195,194 (3,485,186) (3,289,992) 4,296,872 4,296,872 1,006,880 2018 € - 2017 € 907,180 209,348 383,019 (103,577) 1,395,970 (664,564) (664,564) 731,406 2017 € 60,333 41 Annual report 20186.a Expenses by nature Depreciation charges Amortisation expense Operating Lease Payments Foreign Exchange (Gain) / Loss Other Expenses Wages and salaries capitalised Other expenses capitalised Total cost of sales and administrative expenses Disclosed as: Cost of sales Administrative expenses Total cost of sales and administrative expenses 2018 € 49,984 175,300 36,839 (35,027) 2,956,001 3,183,097 (586,937) (109,122) 2,487,038 239,701 2,247,337 2,487,038 6.b Auditor Remuneration Services provided by the Company’s auditor During the year, the Company obtained the following services from the Company’s auditor: Fees payable to the Company’s auditor for the audit of the financial statements Tax Other 2018 € 42,173 11,688 40,776 2017 € 36,621 - 25,115 7,725 1,478,054 1,547,515 (313,501) (57,013) 1,177,001 300,143 876,858 1,177,001 2017 € 56,000 - - 42 7. Employees Employee Benefit Expense Wages and salaries Social security costs Defined contribution pension costs Share option expense Capitalised employee costs Total Employee Benefit Expense 2018 € 1,380,687 136,910 8,961 30,145 (586,937) 969,766 2017 € 731,186 62,887 - 20,180 (313,501) 500,752 Average Number of People Employed 2018 2017 Average number of people (including executive Directors) employed: Operations Administration Marketing Total Average Headcount 22 3 2 27 15 2 - 17 43 Annual report 20188. Directors remuneration Below is the Directors’ remuneration for the year ended 31 December 2018 and for the year ended 31 December 2017: 31 December 2018 Group Directors’ fees paid Pension benefits paid Options issued Total Executive Directors David Whelan Sandra Whelan Séamus Larrissey Non-executive Directors Richard Cooper Michael Boyce Tony Hanway € € 114,181 85,807 86,500 96,077 37,143 23,807 2,017 2,100 2,833 - - - € - - 4,779 € 116,198 87,907 94,112 13,917 109,994 - - 37,143 23,807 443,515 6,950 18,696 469,191 Group Directors’ fees Pension benefits Options issued 31 December 2017 Executive Directors David Whelan Sandra Whelan Séamus Larrissey Non-executive Directors Richard Cooper Michael Boyce Tony Hanway € 70,000 60,000 34,638 - - - At 31 December 2018 164,638 € - - - - - - - € - - 2,944 - - - Total € 70,000 60,000 37,582 - - - 2,944 167,582 The options issued are a non-cash amount and are accounted for in line the treatment of the other share options issued to employees under IFRS 2. Further notes on Share Based Payments are included in Note 22. During the year ended 31 December 2018, Richard Cooper received a fee in relation to the IPO transaction of £50,000. During the year ended 31 December 2018, Michael Boyce received a fee in relation to consultancy services provided to the Company, separate to his role as a Non-Executive Director of £12,031. 44 9. Extinguishment Costs Legal and professional fees paid on behalf of redeemable secured loan note holders and cumulative redeemable preference shares holders Monitoring fee and interest paid post conversion Warrant Costs Total Extinguishment Costs 2018 € 51,500 41,820 174,651 267,971 2017 € - - - - As part of the reorganisation process which occurred prior to the IPO all loan note holders and cumulative redeemable preference share note holders converted their holdings into ordinary shares. During this process the Group agreed to pay: • all interest that would have accrued on these loan notes for the 12 month period from the date of Admission had such loan notes remained in issue. • all monitoring fees that would have accrued for the 12 months period from the date of Admission had such agreements not been terminated. The group also issued warrants to the loan note holders and cumulative redeemable preference shareholders over such number of new Ordinary Shares in the Company as is equal to 3 per cent. of the issued Ordinary Shares at Admission, exercisable at a 50 per cent. premium to the Issue Price expiring 36 months from Admission. 10. IPO Transaction Costs Legal and professional fees Total IPO Transaction Costs 2018 € 237,202 237,202 2017 € 202,940 202,940 Included in Other Reserves 596,212 - The transaction costs relate to the admission of the Group to the AIM market of the London Stock Exchange and the ESM market of the Irish Stock Exchange on 12 March 2018. 45 Annual report 201811. Finance Costs Interest expense: - Notional interest on non-current borrowings - Interest payable on convertible loan notes - Dividend on redeemable convertible preference shares - Bank charges Total finance costs 2018 € - 27,105 1,356 1,516 29,977 2017 € 34,472 14,387 5,219 264 54,342 Fair value (loss) / gain on derivative financial liability (2,638,063) 125,764 The fair value loss on derivative financial liabilities arose in 2018 from the conversion of convertible debt and preference shares to ordinary equity in Immersive VR Education Limited prior to its acquisition by the Group. 12. Income Tax Expense Current tax: Current tax on loss for the year Total current tax Deferred tax (Note 25) Income Tax Expense 2018 € - - - - - 2017 € - - - - The tax assessed for the year differs from that calculated using the standard rate of corporation tax in Ireland (12.5%). The differences are explained below: 2018 € 2017 € Loss Before Tax (4,943,906) (623,699) Tax calculated at domestic tax rates applicable to loss in Ireland of 12.5% (617,988) (77,962) Tax effects of: - Depreciation in excess of capital allowances - Expenses not deductible for tax purposes - Tax losses for which no deferred tax asset was recognised Total tax expense 4,033 406,488 207,467 - 3,178 29,572 45,212 - 46 13. Earnings per share (EPS) Loss attributable to equity holders of the Group: Continuing Operations Weighted average number of shares for Basic EPS Basic loss per share from continuing operations 14. Property, Plant & Equipment 2018 € (4,943,906) 193,136,406 (0.026) Leasehold improvements Fixtures, fittings and equipment Office Equipment € € 2017 € (623,699) 1 - Total € 49,053 56,326 105,379 52,225 45,505 38,663 84,168 46,070 130,238 157,604 10,453 32,215 42,668 43,972 86,640 41,500 43,598 11,458 36,621 48,079 49,984 98,063 57,300 59,541 € - 15,601 15,601 4,740 20,341 - 3,284 3,284 4,607 7,891 12,317 12,450 3,548 2,062 5,610 1,415 7,025 1,005 1,122 2,127 1,405 3,532 3,483 3,493 Group Cost of Valuation At 1 January 2017 Additions At 31 December 2017 Additions At 31 December 2018 Depreciation At 1 January 2017 Charge (note 6) At 31 December 2017 Charge (note 6) At 31 December 2018 Net Book Amount At 31 December 2017 At 31 December 2018 Depreciation expense of €49,984 (2017: €36,621) has been charged in ‘Administrative Expenses’. 47 Annual report 201815. Intangible Assets Group Cost of Valuation At 1 January 2017 Additions At 31 December 2017 Additions At 31 December 2018 Amortisation At 1 January 2017 Charge At 31 December 2017 Charge At 31 December 2018 Net Book Value At 31 December 2017 At 31 December 2018 Software in development costs € 65,277 370,514 435,791 696,059 1,131,850 - - - 175,300 175,300 435,791 956,550 Total € 65,277 370,514 435,791 696,059 1,131,850 - - - 175,300 175,300 435,791 956,550 The software being developed relates to the creation of three virtual reality experiences and an online virtual learning and corporate training platform. ENGAGE is an online virtual learning and corporate training platform currently in development by the Company. A desktop version was released in December 2018 and a mobile version is expected in H1 2019. Amortisation will commence once the mobile version is launched. Titanic VR which is available for sale across all major VR capable platforms since November 2018 has commenced being amortised in the period. Raid on the Ruhr and a Space Shuttle experience are currently in development with expected release during 2019. They are currently not being amortised. Amortisation expense of €175,300 (2017: €Nil) has been charged in ‘Administrative Expenses’. An impairment review was carried out at the balance sheet date. No impairment arose. 48 16. Investments in Subsidiaries Company At Incorporation – 13 October 2017 Additions At 31 December 2017 Additions At 31 December 2018 € - - - 15,028,809 15,028,809 Investments in subsidiaries are recorded at cost, which is the fair value of the consideration paid. On 12 March 2018 the Company has acquired all of the issued capital of Immersive VR Education Limited for a consideration of €15,000,000 which was settled by issuing 133,089,739 Ordinary Shares in the Company. The Company incurred expenses totalling €28,809 as part of the transaction. Name Country of incorporation and residence Immersive VR Education Limited Ireland Nature of business Virtual Reality Technology Proportion of equity shares held by the company 100% This subsidiary undertaking is included in the consolidation. The proportion of the voting rights in the subsidiary undertaking held directly by the Parent Company does not differ from the proportion of ordinary shares held. 17. Trade and Other Receivables Group Company 2018 € 2017 € Trade receivables 180,129 105,450 Less: provision for impairment of receivables - - Trade receivables - net 180,129 105,450 2018 € - - - Amounts due from related parties Prepayments Other debtors VAT - 178,650 4,991 30,343 394,113 - 5,058,589 107,778 23,830 1,257 53,062 - 25,198 238,315 5,136,849 2017 € - - - - - 18,750 - 18,750 As at 31 December 2018, trade receivables of €180,129 (2017: €105,450) were deemed fully recoverable. No bad debt provision charge was incurred during 2018 (2017: €Nil) 49 Annual report 2018 17. Trade and Other Receivables (continued) The carrying amounts of the Company’s trade and other receivables are denominated in the following currencies: Group Company 2018 € 53,028 127,101 2017 € 20,821 84,629 180,129 105,450 2018 € - - - Euro - Neither past due nor impaired Dollar - Neither past due nor impaired 18. Cash and short-term deposits Cash at bank and on hand Group Company 2018 € 3,485,186 3,485,186 2017 € 103,577 103,577 2018 € 753,090 753,090 2017 € - - - 2017 € 6,250 6,250 19. Issued Share Capital and Premium At 01 January 2017 Ordinary Shares Issued At 31 December 2017 Shares issued as consideration for reverse merger Number of shares Ordinary shares Share premium Total - 1 1 € - - - € - - - € - - - 133,089,739 133,090 14,866,910 15,000,000 Ordinary Shares Issued 60,046,666 60,046 6,720,629 6,780,675 At 31 December 2018 193,136,406 193,136 21,587,539 21,780,675 On 12 March 2018 the Company acquired Immersive VR Education Ltd for a purchase price of €15 million through the issue 133,089,739 new ordinary shares of €0.001 and became the legal parent of the Group. On 12 March 2018 the Company listed on London’s AIM market and Dublin’s ESM market. As part of the Admission process, the Group raised £6 million (€6,772,773) before expenses, through an oversubscribed placing of 60,000,000 new ordinary shares at a placing price of £0.10 (€0.1127) per share. 50 20. Other Reserves At 1 January 2017 Transfer to derivative liabilities Transfer to other reserves arising from accounting treatment of acquisition of subsidiary Share option expense At 31 December 2017 At 1 January 2018 Share issue costs Acquisition of a subsidiary Share option expense At 31 December 2018 21. Retained Earnings At 1 January 2017 Loss for the year At 31 December 2017 At 1 January 2018 Loss for the year At 31 December 2018 Group € 104,915 (104,915) 137,100 20,180 157,280 157,280 Company € - - - - - - (596,212) (596,212) (11,263,644) 387,847 (11,314,729) Group € (198,145) (623,699) (821,844) (821,844) (4,943,906) (5,765,750) - 383,849 (212,363) Company € - - - - (687,587) (687,587) 51 Annual report 2018 22. Share Based Payments During the year ended 31 December 2018, VR Education Holdings plc introduced a share-based payment scheme for employee remuneration (“the 2018 Scheme”) to replace the scheme previously in operation within Immersive VR Education Limited (“the 2016 Scheme”). The 2018 Scheme and the 2016 schemes are classified equity settled share based payment plans. Recipients under the scheme are awarded options over ordinary shares of the Company. On the 12 March 2018, the options under the 2016 Scheme were cancelled as part of the Capital Restructure and Listing process and replaced with options under the 2018 Scheme under the equivalent terms and conditions as the 2016 scheme, and a stock split which gave rise to the issue of 740 shares for every 1 share held. The options granted under the 2016 Scheme had vesting periods of up to 36 months. The replacement of the options did not give rise to any additional income statement expense in 2018. There were 311,108 employee options granted during 2018 at an exercise price of €0.135 per share and these vest subject to continued service by the employee over a period of 3 years. Options expire at the end of a period of 7 years from the Grant Date or on the date on which the option holder ceases to be an employee. Share-based payment expense with Director On 12 March 2018, VR Education Holdings plc granted options to purchase 1m ordinary shares to Richard Cooper, the Chairman of the Company. The options vest if the market capitalisation of the Company equals 2.5 times the market capitalisation on admission to listing for a consecutive period of 30 days. Except in the event of a change in control (see below) the options, which are exercisable at a price of £0.0001, cannot be exercised for a period of two years and expire on 12 March 2023. The market capitalisation requirement is a “market condition” under IFRS 2 and the valuation of the option, which amounted to €0.668, takes this market condition into account. In the event of a change in control, in the two years after admission to listing, the options are exercisable at prices ranging from £0.0001 to £0.10. The change in control scenarios gave rise to option values of €0.018 - €0.112. The movement in employee share options and weighted average exercise prices are as follows for the reporting periods presented: 2018 Scheme 2016 Scheme At 1 January 2018 - 2018 4,208 Capital restructure and Listing process 3,113,920 (4,208) Granted during period At 31 December Options outstanding at 31 December Number of shares Weighted average remaining contractual life Weighted average exercise price per share - - - 1,311,108 4,425,028 4,425,028 3.75 years €0.028 Range of exercise price €0.0001 - €0.135 Exercisable at 31 December Number of shares Weighted average exercise price per share 1,997,556 €0.026 2017 - - 4,208 4,208 4,208 4.3 years €19.21 €19.21 893 €19.21 52 22. Share Based Payments (continued) No options were exercised during the period. The weighted average exercise price of options granted during the period was €0.032 (2017: €19.21). The expense recognised in respect of employee share based payment expense and credited to the share based payment reserve in equity was €30,144 (2017: €20,180). Advisor Warrants As part of the listing process and as set out in the admission document, the Company issued warrants over 5,018,328 shares at an exercise price of £0.15, subject to expiry on various dates up to 12 March 2023. The warrants were valued under the Black Scholes model. The expense recognised during the period was €162,871 of which €112,381 was recognised in the income statement and €50,490 in equity. Investor Warrants As part of the arrangements for the listing process and as set out in the admission document, the Company issued warrants over 5,794,092 shares at an exercise price of £0.15, subject to expiry on 12 March 2023. The warrants were valued under the Black Scholes model. The expense of €174,651 was recognised in the income statement during the period. Investor Warrants (continued) The Company has measured the fair value of the services received as consideration for equity instruments of the Company, indirectly by reference to the fair value of the equity instruments. The table below sets out the options and warrants that were issued during the period and the principal assumptions used in the valuation. Employee Director Advisor Investor Number of options / warrants 311,108 1,000,000 5,018,328 5,794,092 Share price at date of grant £0.11 £0.10 Grant date Vesting period Exercise price Volatility Option life Dividend yield Risk free investment rate 26 Apr 18 12 Mar 18 12 Mar 18 12 Mar 18 3 years 2 years - £0.10 £0.15 €0.135 £0.001-£0.10 57% 54.4-59.2% 54.4-57.3% 7 years 5 years 22 months – 5 years 0% 0.14% 0% 0% 0.5-1.16% 0.8-1.16% - £0.10 £0.15 57.3% 3 years 0% 0.87% Fair value per option at grant date €0.058 €0.018-€0.112 €0.018-€0.030 €0.030 Weighted average remaining contractual life in years 6.3 4.2 2.7 2.2 53 Annual report 201823. Trade and Other Payables Trade Payables PAYE/PRSI Redeemable shares Accrued Expenses Group Company 2018 € 28,263 46,923 - 120,009 195,195 2017 € 18,225 45,983 25,000 293,811 383,019 2018 € 9,169 16,362 2017 € - - - 25,000 12,492 38,023 - 25,000 Terms and conditions of the above financial liabilities: • Trade payables are non-interest bearing and are normally settled on 30-day terms • PAYE/PRSI payables are non-interest bearing and are normally settled on 30-day terms • Accrued expenses are non-interest bearing are settled over varying terms throughout the year 24. Non-current Liabilities Group Company Borrowings Redeemable convertible secured loan notes Cumulative Convertible Redeemable Preference Shares Total Borrowings Derivative financial liabilities on conversion feature of redeemable secured loan notes and cumulative redeemable preference shares Total Non-current Liabilities 2018 € - - - - - 2017 € 776,155 131,025 907,180 209,348 1,116,528 2018 € 2017 € - - - - - - - - - - Immediately prior to the acquisition of Immersive VR Education Limited (“IVRE”) by the Company on 12 March 2018 the existing redeemable secured loan notes and cumulative redeemable preference shares with IVRE were redeemed for Ordinary Equity of IVRE. 54 24. Non-current Liabilities (continued) The 2016 Kernel Loan Agreement which resulted in Kernel holding €240,000 in redeemable secured loan notes was redeemed at €19.21 for 12,493 ordinary shares in IVRE. As part of the acquisition of IVRE by the Company, Kernel were issued 9,244,820 ordinary shares in the Company, using a share swap ratio of 740 to 1. The 2017 Kernel Loan Agreement which resulted in Kernel holding €400,000 in redeemable secured loan notes was redeemed at €83.916 for 4,767 ordinary shares in IVRE. As part of the acquisition of IVRE by the Company, Kernel were issued 3,527,580 ordinary shares in the Company, using a share swap ratio of 740 to 1. The 2017 Suir Valley Ventures Loan Agreement which resulted in Suir Valley Ventures holding €288,000 in redeemable secured loan notes was redeemed at €19.21 for 14,992 ordinary shares in IVRE. As part of the acquisition of IVRE by the Company, Suir Valley Ventures were issued 11,094,080 ordinary shares in the Company, using a share swap ratio of 740 to 1. The 2017 Enterprise Ireland Agreement which resulted in Enterprise Ireland holding €250,000 in Cumulative Convertible Redeemable Preference Shares was redeemed at €19.21 for 13,014 ordinary shares in IVRE. As part of the acquisition of IVRE by the Company, Enterprise Ireland were issued 9,630,360 ordinary shares in the Company, using a share swap ratio of 740 to 1. Derivative financial liabilities on conversion feature of redeemable secured loan notes and cumulative redeemable preference shares Group Company 2018 € Balance as at beginning of period 209,348 Transfer from other reserves Movement in current period Redemption of loan notes and preference shares - 2,638,063 (2,847,411) 2017 € - 104,915 104,433 - Balance as at end of period - 209,348 2018 € 2017 € - - - - - - - - - - 25. Deferred Tax Deferred income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefit through future taxable profits is probable. The Company did not recognise deferred income tax assets of €410,683 (2017: €79,597) in respect of losses and depreciation in excess of capital allowances amounting to €3,285,467 (2016: €636,773) that can be carried forward against future taxable income. 55 Annual report 201826. Related Parties During the year the Directors received the following emoluments: Directors 2018 € Group 2017 € Aggregate emoluments 450,465 164,638 Share option expense 18,696 469,161 2,944 167,582 2018 € 406,787 18,696 425,483 Company 2017 € - - - Included in the above is an amount of €96,077 (2017: €Nil) paid to Luclem Estates and Advisory Limited, a company in which Richard Cooper, a director of the Company, is also a director. These fees relate to Richard Cooper’s consultancy services to the Company. As at 31 December 2018 €Nil was outstanding. 27. Operating Leases The Company leases a motor vehicle and office space under non-cancellable operating lease agreements with lease terms between three years and four years nine months. The lease expenditure charged to the income statement during the year is disclosed in Note 6. Future minimum rentals payable under non-cancellable operating leases as at 31 December are, as follows: Motor Vehicles Within one year After one year but not more than five years Land and buildings Within one year After one year but not more than five years 2018 € 6,570 3,285 Group 2017 € 6,570 9,854 9,855 16,424 2018 € 25,000 53,125 Group 2017 € 25,000 78,125 78,125 103,125 Company 2017 € - - - Company 2017 € - - - 2018 € - - - 2018 € - - - 56 28. Ultimate controlling party The Directors believe that there is no ultimate controlling party as no one shareholder has control of the Company. 57 Annual report 201858 Notes Annual report 2018 59 VR Education Holdings PLC Unit 9 Cleaboy Business Park Old Kilmeaden Road Waterford X91 Ax83 Ireland Tel: +353-51-585-837 Web: immersivevreducation.com Email: info@immersivevreducation.com 60 

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