Company Announcements

4 June 2020

Allied Minds

Annual Results Release

Allied Minds plc (LSE: ALM) ("the Group" or the "Company"), the IP commercialisation company focused on early stage company development within the technology sector, announces its annual results for the year ended 31 December 2019.

·    Net cash and investments of $90.6 million (2018: $97.7 million) of which $84.1 million (2018: $50.6 million) is held at the parent level.

·    Revenues of $2.7 million (2018: $5.6 million) mainly from non-recurring engineering (NRE) and service contracts, reflecting the early stage nature of our portfolio companies.

·    Net profit of $50.3 million, (2018: net profit of $45.4 million, which is restated) primarily reflects SG&A and R&D spending of $34.3 million and $16.1 million, respectively, to support the portfolio development activities, offset by NRE revenue of $2.7 million, finance income of $9.9 million reflecting the fair value accounting adjustment of the portfolio company preferred shares liability balance, and other income of $89.5 million reflecting $41.2 million of net gain on investments held at fair value as well as $69.8 million due to the deconsolidation of one of the Company's existing portfolio company, Federated Wireless; including $28.9 million share of loss from the deconsolidated entities accounted under the equity method as investments in associates.

·    On 14 February 2020, Allied Minds paid a special dividend of 12.62 pence per ordinary share totaling £30.49 million. 

·    Achieved additional cost efficiencies through restructuring management incentive schemes, reducing headcount at HQ, subletting HQ office space, deconsolidating certain portfolio companies and eliminating other non-essential third party costs

·    Continued progress made towards refocused strategy of delivering shareholder value by focusing on existing portfolio.

Joseph Pignato, Chief Executive Officer of Allied Minds said:

"This has been a transformational year for the business. We have made significant progress in delivering our re-focused strategy, we optimised our cost base, right-sized the business, restructured the Board and delivered substantial value for shareholders.

"The sale of our stake in HawkEye 360 clearly demonstrates the value in our portfolio. Our focus remains on supporting our existing investments through to meaningful commercialization and generating value for shareholders. 

"Our existing portfolio has continued to make significant technical and commercial progress. We saw notable developments from across the portfolio, including Federated Wireless, which received FCC certification and launched a new managed service offering, working with Amazon Web Services and Microsoft Azure as well as BridgeComm, which entered the next stage in its relationship with Boeing HorizonX.

"Whilst the Covid-19 pandemic has brought global uncertainty, we remain focused on supporting our portfolio companies and maximising monetisation opportunities at the right time in order to deliver value to our shareholders in the coming years."

HIGHLIGHTS

Investment Highlights

An aggregate of $104.0 million was invested into new and existing portfolio companies, including:

·    $101.0 million from portfolio company equity fundraisings with $75.8 million coming from third-party investment and $25.2 million from Allied Minds, to support and accelerate the development of seven of the Group's existing and former companies: Federated Wireless, HawkEye 360, Spin Memory, Spark Insights, SciFluor Life Sciences and Precision Biopsy.

o  In February 2019, SciFluor Life Sciences and Precision Biopsy raised $4.0 million and $5.0 million,  respectively, of equity financing, half of which was contributed by Allied Minds.

o  In April 2019, $3.2 million was invested by Allied Minds into Spark Insights, Inc. in a preferred  stock financing.

o  In August 2019, HawkEye 360 secured a $70.0 million funding round at a pre-money valuation of $200.0 million, up from prior round post-money of $89.9 million.

o  In September 2019, Federated Wireless secured a $51.3 million funding round at a pre-money  valuation of $150.0 million, up from prior round post-money of $121.5 million.

·     In addition to these fundraisings, $1.1 million was invested by Allied Minds into two portfolio companies: QuayChain and TableUp in exchange for convertible notes.

·    On 8 November 2019, Allied Minds sold its shareholding in HawkEye 360 for an aggregate cash consideration of $65.6 million.  This enabled the Board to return $40.0 million to shareholders in February 2020.

·    In November 2019, SciFluor Life Sciences raised $950K through the issuance of convertible notes to various third parties.

·    On 16 December 2019, BridgeComm secured $1.0 million from Boeing HorizonX in the form of convertible debt pursuant to a note purchase agreement, with an additional $1.5 million committed subject to achieving conditions precedent. 

Post-period end, an aggregate of $16.1 million was invested into existing portfolio companies, including:

·     BridgeComm issued $2.0 million in convertible notes to Allied Minds under the same note purchase  agreement as that with Boeing HorizonX.

·      SciFluor Life Sciences raised an additional $375K in the second closing of its convertible note financing.

·      Federated Wireless raised an additional $13.7 million from existing shareholders in a second closing of   the preferred financing round from September 2019, half of which was contributed by Allied Minds.

Financial Highlights

·    Net cash and investments of $90.6 million (2018: $97.7 million) of which $84.1 million (2018: $50.6 million) is held at the parent level.

·    Revenues of $2.7 million (2018: $5.6 million) mainly from non-recurring engineering (NRE) and service contracts, reflecting the early stage nature of our portfolio companies.

·    Net profit of $50.3 million, (2018: net profit of $45.4 million, which is restated) primarily reflects SG&A and R&D spending of $34.3 million and $16.1 million, respectively, to support the portfolio development activities, offset by NRE revenue of $2.7 million, finance income of $9.9 million reflecting the fair value accounting adjustment of the portfolio company preferred shares liability balance, and other income of $89.5 million reflecting $41.2 million of net gain on investments held at fair value as well as $69.8 million due to the deconsolidation of one of the Company's existing portfolio company, Federated Wireless; including $28.9 million share of loss from the deconsolidated entities accounted under the equity method as investments in associates.

·    On 14 February 2020, Allied Minds paid a special dividend of 12.62 pence per ordinary share totalling £30.49 million. 

Corporate Developments

·    On 26 April 2019, the Company announced that it would focus exclusively on supporting its existing portfolio companies and maximising monetisation opportunities for portfolio company interests, and not deploy any capital into new portfolio companies.

·    On 11 December 2019, it was announced that additional initiatives were in place to further reduce recurring central expenses to approximately $6.0 million commencing on 1 January 2020 and that Allied Minds would return $40 million of proceeds from the disposal of Hawkeye 360.

Selected Portfolio Company Highlights

·    BridgeComm:

o  Developed its new One-to-Many (OTM) technology that provides bi-directional, ultra-high-speed  mesh connectivity for terrestrial, airborne and space systems

o  BridgeComm entered the next stage in its relationship with Boeing HorizonX to collaboratively   pioneer the development of applications for BridgeComm's OTM technology, which was announced  in January 2020

·    Federated Wireless:

o  Completed the nationwide deployment of its Environmental Sensing Capability (ESC) network and  received full Federal Communications Commission (FCC) approval of its ESC network deployment  and coverage plan, providing authorisation to operate its ESC sensors

o  Received FCC certification of its Spectrum Access System (SAS) and approval of its Initial Commercial  Deployment (ICD)

o  Initiated commercial services with over 20 customers in 36 states in the U.S.

o  In January 2020, the FCC certified the SAS operated by Federated Wireless for full commercial   operations in the 3.5GHz band

o  In February 2020, launched a new managed service offering, working with Amazon Web Services  and Microsoft Azure

·    Orbital Sidekick:

o  Expanded its pilot programs to additional oil and gas pipeline operators to deliver Spectral   Intelligence™ for asset integrity and regulatory compliance monitoring via web-based user interface

o  Captured over 12 million square kilometres of earth imaging data from its first-generation   hyperspectral system on-board the International Space Station (ISS)

·    SciFluor Life Sciences:

o  Pared back clinical development activities to focus exclusively on toxicology studies necessary to   initiate Phase II trials for SF0166

o  Engaged Maxim Group LLC to assist with fundraising efforts

·    Spark Insights:

o  Built a core data science and machine learning team consisting of 6 data scientists, engineers and  machine learning experts

o  Sourced and labelled thousands of satellite and aerial images to support modelling efforts

o  Built initial machine learning models and achieved initial R&D performance milestones for accuracy

·    Spin Memory:

o  Completed design of Spin's patented "Endurance Engine" in collaboration with Arm and submitted  such design for prototype manufacturing; samples of the prototype are due back to the company by  the end of 2020

o  Achieved major advances in the development and demonstration of MRAM for long-term memory  storage applications in cooperation with Applied Materials; MRAM was deposited using Applied's  state-of-the-art Endura platform and processed through Spin's back-end prototype line

o  Was awarded a multi-phase, multi-year, multi-million US government project as subcontractor to a  leading US semiconductor company

·    TableUp:

o  Entered into a partnering agreement with Upserve, a leading point of sale (POS) vendor, which   expanded its partnering relationships

o  Transitioned away from a direct sales model and is expected to reach cash flow break even in 2020  under this new sales strategy

___________________________________

In compliance with Listing Rule 9.6.3R, the following documents will be submitted to the National Storage Mechanism and will shortly be available for inspection at https://www.fca.org.uk/markets/primary-markets/regulatory-disclosures/national-storage-mechanism:

·    Annual Report and Accounts for the year ended 31 December 2019; and

·    Notice of 2020 Annual General Meeting.

Printed copies of these documents will be posted to shareholders shortly. Copies will also be available shortly  on  the  Investor  Relations  section  of  the  Company's  website  at  http://www.alliedminds.com/investor/.

The 2020 Annual General Meeting will be held at 8:00 a.m. EST on 30 June 2020 at the Company's headquarters located at 374 Congress Street, Suite 308, Boston, Massachusetts 02210, USA.

For more information, please contact:

Further information on Allied Minds is available on our website: www.alliedminds.com

Notes

(i) Nature of announcement

This Annual Results Release was approved by the directors on 4 June 2020. The financial information set out in this Annual Results Release does not constitute the Company's statutory accounts for the years ended 31 December 2019 or 2018 but is derived from those accounts.  Statutory accounts for the year ended 31 December 2018 have been filed with the Registrar of Companies. Statutory accounts for 2019 will be delivered to the registrar of companies in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.  The text of the Auditor's report can be found in the Company's full Annual Report and Accounts for the year ended 31 December 2019 (2019 Annual Report). 

(ii) Forward looking statements

This Annual Results Release and the 2019 Annual Report contain statements that are or may be forward-looking statements, including statements that relate to the Company's future prospects, developments and strategies. The forward-looking statements are based on current expectations and are subject to known and unknown risks and uncertainties that could cause actual results, performance and achievements to differ materially from current expectations, including, but not limited to, those risks and uncertainties described in the risk management section of the 2019 Annual Report. These forward-looking statements are based on assumptions regarding the present and future business strategies of the Company and the environment in which it will operate in the future. Each forward-looking statement speaks only as at the date of this Annual Results Release. Except as required by law, regulatory requirement, the Listing Rules and the Disclosure Guidance and Transparency Rules, neither the Company nor any other party intends to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

2019 Annual Report and Accounts

STRATEGIC REPORT 

Chairman's Report

2019 was a transformational year for Allied Minds.  It was a year in which we reset the strategy of the Group to focus exclusively on funding and operating our existing portfolio while ceasing new company formation.  Through disciplined capital allocation, we continue to support our companies and provide follow-on investment alongside other investment syndicate members, where we believe the risk-adjusted value of that position is protected by our continued ownership and effort. To align with this new strategy, we have streamlined our organisation and reduced our central office costs.  Our focus continues to be building value in our portfolio for our shareholders by effectively driving our companies through development to commercialisation and growth.  Our ultimate aim is to deliver strong monetisation events, as illustrated by the sale of our entire shareholding in HawkEye 360 in 2019.  This disposal generated an attractive capital gain leading to a 12.62 pence per share dividend paid to our shareholders in February 2020.  We believe that given the strength of the existing portfolio, the skills of the management teams and our cash position, we have positioned ourselves to deliver additional returns to our shareholders in the next three to four years.

The management team rose to the challenge in 2019 by rapidly effecting the changes to the organisation while contributing significantly to fundraisings in the portfolio, including both HawkEye 360 and Federated Wireless.  Combined, the two companies raised over $120 million and welcomed new corporate partners including Airbus and Esri at HawkEye 360 and SBA Communications at Federated Wireless.  Other significant events during the year in the portfolio included FCC certification of Federated Wireless for the initial commercial deployment of its Spectrum Access System in the 3.5GHz band and BridgeComm entering a joint development agreement with Boeing to collaborate on pioneering the development of applications of its One-to-Many technology.

Recently, we welcomed two new Non-executive board members: Mark Lerdal who joined in December 2019 and Bruce Failing who joined in March 2020.  Coincident with Bruce's appointment, Jeff Rohr and Mike Turner stepped down from the Board.  On behalf of shareholders and the Board, I want to express our sincere appreciation of their dedication and contributions to Allied Minds over the many years.  Mark Lerdal has taken the role of Chair of the Audit Committee and Bruce Failing has stepped in as Chair of the Remuneration Committee.  Both Mark and Bruce have relevant track records in building shareholder value in an entrepreneurial setting and are well-positioned to help us execute on our strategy.

While the work completed in 2019 sets a path for the intended direction of the Group in 2020, we are now confronted with the spread and impact of COVID-19 which has caused significant volatility in the global equity markets.  We are focusing on the safety of our employees and working with the senior management teams at our portfolio companies to mitigate any potential impacts.  COVID-19 has had a significant impact on the capital markets and Allied Minds has not been unscathed.  Nevertheless, the Board believes in the fundamentals of the portfolio and expects to be able to deliver the results of its stated strategy in the coming years.  Finally, I would like to express the Board's appreciation of our shareholders for their continued support and our management team and staff for their hard work and commitment.

Harry Rein, Chairman

4 June 2020

Company Overview

Our Company

Allied Minds has built and now manages a portfolio seeking to commercialise differentiated products and services that have the potential to transform markets.  Historically, collaborating with targeted US federal research institutions, universities, medical institutions, and select corporations and entrepreneurs, we have identified potentially disruptive innovations.  We have created and seed funded portfolio companies with the objective of commercialising these innovations, supporting them with capital, management, operating and other expertise, and shared services.  We typically maintain a significant ownership stake in our portfolio companies.  Our objective is to deliver attractive overall returns for our shareholders.

During 2019, Allied Minds made a series of announcements in connection with its new strategy that involved focusing exclusively on supporting its existing portfolio companies and not deploying any capital into new portfolio companies. In addition to the new strategy, several directorate changes and restructuring initiatives to reduce central costs were made to support the new strategy. 

Allied Minds consulted with larger shareholders on the change in strategy, including cost reductions, ceasing new investments and a managed approach to monetising the portfolio over time, and they expressed support.

Our Portfolio

The Group is currently comprised of seven portfolio companies primarily in the technology sector based upon a broad range of underlying innovative technologies ranging from semiconductors, wireless connectivity, and space-based imagery and analytics.

We have invested in companies at an early stage, including seed investments to build companies based on a technical breakthrough or invention.  As such, our investments have significant upside potential, but also carry significant risk inherent in the early stage model. Allied Minds provides equity funding at the initial seed or Series A investment round and participates in follow-on investment rounds. Additionally, we provide hands-on support through the appropriate level of management, operating and governance support and expertise, and shared services over the life of the portfolio company to commercialisation and monetisation.  A key component of the Company's strategy is to maintain strict discipline in the allocation of financial and human capital to those businesses meeting the objectives or milestones set, and ceasing funds for those where the path to commercialisation is no longer attractive.

Allied Minds has several portfolio companies that we believe are well-positioned for commercialisation and have the potential to realise significant monetisation opportunities, including BridgeComm, Federated Wireless, and Spin Memory. These three portfolio companies currently represent the substantial majority of portfolio company value.

Outside these portfolio companies, Allied Minds has four active earlier stage investments (Orbital Sidekick, Spark Insights, TableUp and SciFluor Life Sciences) that we believe represent exciting opportunities primarily in space/analytics and connectivity, albeit with more work to be done to increase their value and monetisation opportunities.

Our Model

As a manager of a technology-focused portfolio in which we hold significant ownership positions, we seek to provide hands-on support over the life of our companies to support their growth, focusing on enabling and driving commercialisation, supporting follow-on investment rounds and positioning for superior monetisation opportunities. 

Allied Minds offers operational and management support to each of its portfolio companies leveraging the deep domain expertise of our management team in their respective careers as entrepreneurs, operators, directors, advisors and investors.  Our employees have expertise in business strategy, sales and marketing, operations, finance, legal and transaction execution.  

We play an active role in developing the strategic direction of our portfolio companies, and driving ongoing planning and assessment. Our executives serve on the boards of directors of our portfolio companies, working with them to develop and implement strategic, operating and funding plans. We evaluate on an on-going basis the progress and potential of each of the portfolio company's businesses, and make strategic and funding decisions based on the regular review of operational and financial performance and the achievement of key milestones. Together with our management, the respective portfolio company boards of directors define the critical milestones, or inflection points, for each portfolio company and measure tangible progress towards commercialisation and the key factors for a successful monetisation event. Portfolio company management is accountable for these milestones, which are developed into annual management objectives (MBOs).  

As our portfolio companies meet the objectives identified for success, we will participate in subsequent capital raises to mitigate dilution, to the extent consistent with our goal to maximise risk and time-adjusted returns for our shareholders and taking into account competing uses of capital across our portfolio. Co-investors in later rounds include financial, strategic and commercial partners. Where appropriate, we seek to include partners who validate the market opportunity and can provide support and/or commercial commitments to accelerate, expand and/or de-risk the path to commercialisation.

By helping our portfolio companies' management teams remain focused on critical objectives through the provision of human, financial and strategic resources, we believe we are able to accelerate their development and success. We believe that Allied Minds' experience and hands-on support provide our portfolio companies with significant competitive advantages within their respective markets.

Seeking Monetisation Opportunities

In the event of successful monetisation events from the sale of portfolio companies or portfolio company interests, we anticipate distributing the net proceeds to our shareholders, after due consideration of potential follow-on investment opportunities within our existing portfolio and working capital requirements. In general, we will hold our position in a portfolio company as long as we believe the risk and time-adjusted value of that position is maximised by our continued ownership and effort. From time to time, we engage in discussions with other companies interested in our portfolio companies (or our interest in those companies), either in response to inquiries or as part of a process we initiate. To the extent we believe that a portfolio company's further growth and development can best be supported by a different ownership structure or if we otherwise believe it is in our shareholders' best interests, we may seek to sell some or all of our position in the portfolio company.  These sales may take the form of privately negotiated sales of stock or assets, mergers and acquisitions, public offerings of the portfolio company's securities and, in the case of publicly traded portfolio companies, sales of their securities in the open market.  

The value of Allied Minds is dependent upon the value of our existing portfolio companies and our ability to translate that value into cash as effectively and efficiently as possible and to deliver that cash, net of our obligations and operating cash needs, to our shareholders.  

Portfolio Company Valuation

Of the Company's seven active portfolio companies, three are currently majority owned and controlled, and therefore fully consolidated in the Company's consolidated financial statements prepared in accordance with International Financial Reporting Standards as adopted by the European Union (adopted IFRS). The Company's consolidated financial statements do not include current valuations of these portfolio companies.

The Company holds a significant minority stake in the other four portfolio companies.  In each case, Allied Minds is able to exercise significant influence over the portfolio company by virtue of its large, albeit minority, ownership stake in the portfolio company and its representation on the board of directors. The investment in preferred stock in these portfolio companies is accounted for under IFRS 9 and is classified by the Company as an investment at fair value in the Company's consolidated financial statements. The Company's common stockholdings in Spin Memory and Federated Wireless are accounted for under IAS 28 and are classified by the Company as investments in associates.

Allied Minds provides qualitative and quantitative disclosure in relation to the commercial and financial progress of its portfolio companies, and directional commentary on valuation. In addition, where commercially possible, Allied Minds provides, for each portfolio company: (i) the date of the last equity funding round, (ii) the post-money valuation of such round, (iii) the named key co-investors in such round, and (iv) the Company's issued and outstanding ownership, and fully-diluted ownership, of such portfolio company. 

This information is set forth in the Portfolio Review and Developments section below. The ownership interests are as at 1 June 2020.  The fully-diluted percentages take into account outstanding stock options granted to employees, directors and advisors, current stock options available for grant pursuant to the company's stock option plan, and outstanding warrants to purchase common and preferred stock. 

The post-money valuations disclosed for each entity below do not represent IFRS 13 fair values but rather, are based on the pre-money valuation set by the investors in the latest round plus the total money raised in that round. 

There can be no guarantee that the aforementioned post-money valuations of the portfolio companies will be considered to be correct in light of the future performance of the various companies, or that the Company would be able to realise proceeds in the amount of such valuations, or at all, in the event of a sale by it of any of its portfolio companies or its ownership interest in such portfolio companies.

Portfolio Review and Developments

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BridgeComm, Inc. (formerly known as BridgeSat, Inc.) ⁽¹⁾

Formed in 2015 and based in Denver, Colorado, BridgeComm is developing and commercialising optical wireless communication (OWC) solutions and has begun development of a global network of optical ground stations designed to support complementary fixed and mobile terminals that provide high-bandwidth, high-security solutions for unique applications. OWC is a wireless technology offering rapid point-to-point data transmission via beams of light that connect from one telescope to another using low-power, safe, infrared lasers in the terahertz spectrum. It holds tremendous potential to augment RF, fiber and mmWave technologies and extend the capabilities of the terrestrial fiber grid, particularly in hard-to-access environments and in areas where cell towers do not currently exist.

The technology underpinning BridgeComm's offering was sourced originally from The Aerospace Corporation and Draper Laboratories and was initially focused on point-to-point data transmission only. 

During 2019, BridgeComm focused its efforts on developing its new OTM technology which is a breakthrough in OWC that provides bi-directional, ultra-high-speed mesh connectivity for terrestrial, airborne and space systems. OTM builds on the basic connectivity that traditional point-to-point optical terminals provide and enables a much broader set of telecommunications applications. This technology enables optical wireless communications systems to create bi-directional mesh connectivity similar to, and complementary with, radio frequency systems.

OTM is capable of supporting terrestrial, airborne and space systems that require 10-100+ Gbps throughput, as well as the high reliability and redundancy inherent in mesh architecture. Furthermore,  OTM maintains the inherent security features in OWC, while supporting the mesh architecture. OTM also provides a much-needed new option for high-speed connectivity in environments where RF spectrum is limited or congested.

To reflect the expanded breadth of opportunities the OTM technology provides, BridgeSat, Inc. changed its name to BridgeComm, Inc. to better position itself in the marketplace.

BridgeComm has developed a patent portfolio with a number of patents filed covering a broad range of advancements in fiberless optical communications for applicability to space, air, and terrestrial usage including its new OTM technology.

In January 2020, BridgeComm announced the next stage in its relationship with Boeing HorizonX. The two companies are collaboratively pioneering the development of applications of the OTM technology via a joint development agreement, which is expected to be completed in phases over the next 24 months.  BridgeComm secured $1.0 million from Boeing HorizonX in the form of convertible debt financing pursuant to a note purchase agreement, with an additional $1.5 million committed subject to achieving conditions precedent.   Post-period end, Allied Minds subscribed for $2.0 million of convertible debt under the same note purchase agreement.

Holdings and valuation:

·    Date of Last Funding Round: September 2018

·    Post-Money Valuation: $38.0 million

·    Co-Investors: Boeing HorizonX Ventures (venture arm of Boeing Company)

·    Allied Minds' Issued and Outstanding Ownership: 81.30%

·    Allied Minds' Fully-Diluted Ownership: 62.92%

·    BridgeComm has made reasonable progress against its key operational objectives since its last funding round. 

2020 key operational management objectives include:

·    Successfully execute development of applications of OTM technology with Boeing HorizonX

·    Expand the capacity of the global ground network through industry partnerships and ground station installations

·    Expand government customer backlog

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Federated Wireless, Inc.

Founded in 2012, Federated Wireless has led its industry in development of shared spectrum Citizens Broadband Radio System (CBRS) capabilities, taking a lead role in the formation of the CBRS Alliance, being the first to complete a wide range of trials with its Spectrum Access Systems (SAS), and deploying the industry's first nationwide Environmental Sensing Capability (ESC) network. The company's partner ecosystem includes more than 40 device manufacturers and edge partners, all of which are dedicated to collaboration to advance development and proliferation of CBRS services. Federated Wireless' customer base includes companies spanning the telecommunications, energy, hospitality, education, retail, office space, municipal and residential verticals, with use cases ranging from network densification and mobile offload to Private LTE and Industrial IoT.

The company's solution is based on technology developed with support from Virginia Tech and the US Department of Defense (DoD). It has several issued patents and pending applications protecting proprietary technology underpinning its ESC sensor design and its SAS. These patents are primarily focused on systems and algorithms embedded in its core technologies.

Throughout 2019 and through the first few months of 2020 the company has made significant strides towards commercialisation of its products taking advantage of its leading position in the newly emerging shared spectrum industry.

During 2019, Federated Wireless had several achievements including completing its nationwide deployment of its ESC network and receiving full FCC approval of its ESC network deployment and coverage plan, providing authorisation to operate its ESC sensors. The company also received a perfect score on its final SAS lab test report from the Institute for Telecommunication Sciences (ITS), which was a crucial milestone for the company.

In September 2019, there were two major achievements announced.  First, the company secured a $51.3 million funding round, which included new investors SBA Communications and Pennant Investors, alongside existing investors GIC, American Tower and Allied Minds, at a pre-money valuation of $150.0 million, up from prior round post-money of $121.5 million.

Second, the FCC certified the SAS operated by Federated Wireless and approved its Initial Commercial Deployment (ICD), allowing Federated Wireless to initiate its commercial services with over 20 customers in 36 states in the U.S.

In January 2020, the FCC announced that the agency had certified Federated Wireless' SAS paving the way for full commercial operations in the 3.5 GHz band.

In February 2020, Federated Wireless announced a new Connectivity-as-a-Service offering that lets U.S. enterprises buy and deploy private 4G and 5G networks with a single click through the AWS(R) and Microsoft Azure(R) marketplaces. These end-to-end managed services provided by Federated Wireless include discovery, planning, design, build, operation and support, enabling enterprises to reap the benefits of 5G with minimum risk and capital expenditure.

The new service offering was developed with specific attention to the needs of the cloud-native enterprises of today, who have come to depend on seamless integration between their own IT departments and global public clouds. Close collaboration with AWS and Microsoft Azure has resulted in development and delivery of a service that these innovative IT organisations will see as a natural extension of their existing environments.  

The new managed service reduces the complexity of enterprise adoption of 5G private networks with one-click provisioning through the AWS Marketplace and seamless integration with the full range of IoT applications provided by the Amazon Partner Network (APN). AWS-enabled private networks are an ideal solution for industrial and manufacturing IoT environments in which device types, locations and densities are widely varied and wireless interference using legacy WiFi networks is both extremely common and highly detrimental to business performance.

Holdings and valuation:

·    Date of Last Funding Round: September 2019 (second closing post-period end in April 2020)

·    Post-Money Valuation: $215.0 million

·    Co-Investors: American Tower (NYSE: AMT), GIC, Singapore's sovereign wealth fund, Pennant Investors and SBA Communications (NASDAQ: SBAC)

·    Allied Minds' Issued and Outstanding Ownership: 43.11%

·    Allied Minds' Fully-Diluted Ownership: 36.61%

·    Federated Wireless has made significant progress against its key operational objectives since its last funding round. 

2020 key operational management objectives include:

·    Build a significant pipeline of annual recurring revenue

·    Meet customer SLA and SLO targets

·    Develop and launch a scalable cloud enterprise solution

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Orbital Sidekick, Inc.

Orbital Sidekick is a company developing capabilities in aerial and space-based hyperspectral imaging and analytics, initially for the oil and gas industry.  Orbital Sidekick's Spectral Intelligence™ platform is designed to enable more efficient monitoring of natural resource assets and infrastructure integrity. Orbital Sidekick is initially targeting monitoring of assets for the oil and gas market - estimated at over $4 billion annually. There are potentially multiple additional commercial and government applications for its technology.

Orbital Sidekick was founded by Dan Katz and Tushar Prabhakar, leveraging their extensive experience in small-sat design as engineers at Space Systems Loral. The team has built a complementary network of advisors to bring expertise in oil and gas operations and regulations, hyperspectral analysis, and data services.

Allied Minds led the seed round of Orbital Sidekick in April 2018 with an investment of $3.5 million for a significant minority stake. 11.2 Capital, a VC firm specialising in breakthrough technologies, invested alongside Allied Minds.

During 2019, Orbital Sidekick expanded its pilot programs to additional oil and gas pipeline operators to deliver Spectral Intelligence™ for asset integrity and regulatory compliance monitoring via web-based user interface. The company also captured over 12 million square kilometres of earth imaging data from its first-generation hyperspectral system on-board the International Space Station (ISS).

Holdings and valuation:

·    Date of Last Funding Round: April 2018

·    Post-Money Valuation: $11.7 million

·    Co-Investors: 11.2 Capital

·    Allied Minds' Issued and Outstanding Ownership: 33.23%

·    Allied Minds' Fully-Diluted Ownership: 29.67%

·    Orbital Sidekick has made reasonable progress against its key operational objectives since its last funding round. 

2020 key operational management objectives include:

·    Convert existing pilot program participants to customers

·    Deploy additional customer facing analytic tools to customers

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SciFluor Life Sciences, Inc. ⁽¹⁾

SciFluor is a drug development company focused on creating best-in-class compounds, initially targeting the field of ophthalmology. SciFluor's lead clinical asset, SF0166, is a topical eye droplet treatment for Age-related Macular Degeneration (AMD) and Diabetic Macular Edema (DME), both widely prevalent retinal diseases that lead to blindness if left untreated.  

SciFluor sought to raise external equity financing over the course of 2018 and 2019, facilitated by the $4.0 million bridge financing from Allied Minds and Woodford Investment Management (now succeeded by Schroder Investment Management Limited), to fund Phase II trials for SF0166, on the back of safety and preliminary efficacy data from the Phase I/II trials. This process was not successfully completed.  As a result, SciFluor has experienced clinical delays since its last funding round and the valuation is substantially impaired due to a prolonged inability to attract new external financing. Clinical development activities at SciFluor have been pared back, and are now focused exclusively on the toxicology studies necessary to initiate the Phase II trials for SF0166. To assist with its fundraising efforts, SciFluor engaged Maxim Group LLC. During Q4 2019 (and completing in Q1 2020), SciFluor was able to raise $1.325 million of convertible debt financing from third parties and continues its fundraising efforts for an external equity financing to fund Phase II trials. It is uncertain if SciFluor will be successful in securing the required funds in 2020.

Holdings and valuation:

·    Date of Last Funding Round: November 2019 (convertible debt into next preferred equity round)

·    Valuation: n/a

·    Co-Investors: Various third parties

·    Allied Minds' Issued and Outstanding Ownership: 62.67%

·    Allied Minds' Fully-Diluted Ownership: 54.16%

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Spark Insights, Inc. ⁽¹⁾

Spark Insights is an advanced analytics company developing data products for the rapidly growing insurance analytics market. Allied Minds formed Spark Insights in late 2018 and completed a $3.2 million Series Seed financing in April 2019.

Given the increasing prevalence of catastrophic events, including hurricanes, floods, and wildfires, property insurers are struggling to quantify the impact on their policies, both before and after a catastrophic event occurs. Spark Insights plans to leverage the advent of unique data sets, including advances in satellite imagery and weather data, combined with proprietary analytics to transform critical workflows for these property insurers.

Spark Insights' focus is at the intersection of several addressable markets including insurance analytics, underwriting losses, and catastrophe modeling platforms.

Ira Scharf is a co-founder of Spark Insights and has been appointed as the company's CEO. Ira's background includes over 15 years of bringing products to market in the insurance industry and over 10 years in the weather industry, in addition to degrees from MIT and Harvard Business School.

During 2019, Spark Insights built a core data science and machine learning team consisting of 6 data scientists, engineers and machine learning experts, sourced and labelled thousands of satellite and aerial images to support modelling efforts, built initial machine learning models and achieved initial R&D performance milestones for accuracy.

Holdings and valuation:

·    Date of Last Funding Round: April 2019

·    Post-Money Valuation: $3.2 million

·    Co-Investors: n/a

·    Allied Minds' Issued and Outstanding Ownership: 70.59%

·    Allied Minds' Fully-Diluted Ownership: 60.00%

·    Spark Insights has made reasonable progress against its key operational objectives since its last funding round. 

2020 key operational management objectives include:

·    Develop initial product to improve processes in the property insurance industry using novel data sets and analytics capabilities

·    Engage with pilot customers in the insurance and reinsurance industries

·    Build team to support data science, engineering, and business development activities in initial pilots

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Spin Memory, Inc.

Founded in 2006 and based in Fremont, CA, Spin Memory, Inc. is the preeminent MRAM IP provider.  Through collaboration with industry leaders, Spin Memory is transforming the semiconductor industry by addressing the biggest challenge, memory, in next-generation electronics systems such as Artificial Intelligence, Autonomous Driving, 5G Communication and  Computing at the Edge. Spin Memory's disruptive STT-MRAM IP can replace large, power-hungry on-chip SRAM with dense, low-power MRAM and ultimately challenge DRAM as a lower-power, easier-to-use persistent mass-storage solution.

The technology underpinning Spin Memory's offering was sourced originally from New York University and has more than 200 patents issued or pending. These patents cover everything from the fundamental aspects of these areas of invention to derivative improvements. 

During 2019, Spin Memory achieved significant technical milestones in connection with its partnerships with Arm Limited and Applied Materials.  With Arm, Spin completed the design of a prototype demonstration vehicle of Spin's Endurance Engine™ coupled with a working MRAM array to show an order of magnitude improvements in MRAM endurance, one of the key challenges in the industry. The demonstration vehicle will also show the performance of many other Spin-patented circuits. The prototype and test results are expected later this year.

In the area of magnetics, Spin and Applied have made great strides in delivering state-of-the-art MRAM solutions for the semiconductor industry. Both companies believe MRAM will displace most on-chip memory, both long-term storage (Flash) and working memory (SRAM), the former of which is the current focus of the companies' efforts. High-temperature data retention, critical for most long-term memory storage applications, was demonstrated with good yield, with wafers deposited at Applied and finished in Spin's prototype facility.

Finally, Spin Memory was awarded a multi-phase, multi-year, multi-million US government project as subcontractor to a leading US semiconductor company.

Holdings and valuation:

·    Date of Last Funding Round: November 2018 (date of first closing, final closing in April 2019)

·    Post-Money Valuation: $172.0 million

·    Co-Investors: Arm Technology Investments Limited, Applied Ventures, LLC, Abies Venture Fund, Woodford Investment Management (now succeeded by Schroder Investment Management Limited) and Invesco Asset Management

·    Allied Minds' Issued and Outstanding Ownership: 42.69%

·    Allied Minds' Fully-Diluted Ownership: 33.33%

·    Spin Memory has made significant progress against its key operational objectives since its last funding round. 

2020 key operational management objectives include:

·    Expand commercial relationship with Applied Materials including securing first turnkey magnetics license customer

·    Expand the design pipeline with Arm and secure first macro deals

·    Expand upon opportunity provided by the US government project

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TableUp, Inc.

TableUp is a software provider enabling end-to-end transparency through the restaurant supply chain to enable more effective inventory and operations management.  TableUp is a revenue-generating company.  During 2019, it entered into a partnering agreement with Upserve, a leading point of sale (POS) vendor, which expanded its partnering relationships as it transitioned away from a direct sales model. It is expected that TableUp will reach cash flow break even in 2020 under this new sales strategy.

Holdings and valuation:

·    Date of Last Funding Round: April 2018

·    Post-Money Valuation: $12.0 million

·    Co-Investors: n/a

·    Allied Minds' Issued and Outstanding Ownership: 35.52%

·    Allied Minds' Fully-Diluted Ownership: 30.20%

·    TableUp has made reasonable progress against its key operational objectives since its last funding round. 

2020 key operational management objectives include:

·    Expand referral partner network

·    Expand traction in enterprise market segment

·    Build integrations with additional key POS systems

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(1)  Designates that this company is a subsidiary of the Group.

Sold Portfolio Companies

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HawkEye 360, Inc.

Formed in 2015, HawkEye 360 is a data analytics company operating low earth orbit (LEO) small satellites that detect, independently geo-locate and analyse diverse Radio Frequency (RF) signals from space. Using its unique data set, sourced from the Pathfinder satellites, HawkEye 360 applies proprietary algorithms to produce contextually relevant analytics and reports for government and commercial end market applications. 

In August 2019, HawkEye 360 secured a $70.0 million funding round, which included new investors Airbus and Esri, existing investors Razor's Edge Ventures, Allied Minds ($5.0 million), and Shield Capital Partners, and additional undisclosed parties, at a pre-money valuation of $200.0 million, up from prior round post-money of $89.9 million.

On 8 November 2019, Allied Minds completed the sale of its entire shareholding in HawkEye 360 to Advance Publications, Inc. (Advance) for an aggregate cash consideration of $65.6 million. 

Discontinued Portfolio Companies

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During 2019, Allied Minds sold the assets of LuxCath, LLC and all of its shares of QuayChain, Inc., in each case, for undisclosed consideration, and ceased operations and dissolved each of Precision Biopsy, Inc., ABLS Capital, LLC, Allied-Bristol Life Sciences, LLC, ABLS II, LLC, ABLS IV, LLC and Signature Medical, Inc.

Key Performance Indicators

The Key Performance Indicators (KPIs) selected to measure the performance of the Company in 2019 were percentage level of achievement of management by objectives (MBOs). These objectives seek to link financial, operational, technical and other performance milestones established by the Board directly to remuneration and KPIs.  Performance against 2019 KPIs is set out below:

The MBOs set by the Board for 2019, along with the level of achievement against such MBOs, is set forth below:

Notes:

(1)  "Validating Events" represent various material achievements, such as fundraisings, mergers and acquisitions, development partnerships, strategic alliances, customer contracts and other significant corporate events.

(2)  "Technical Milestones" represent various research and development achievements, as well as advancement of clinical trials.

The following Key Performance Indicators (KPIs) were selected to measure the performance of the Company in 2020. These objectives seek to link financial, operational, technical and other performance milestones established by the Board directly to remuneration and KPIs.

The 2020 KPIs, including financial, operational, technical and other performance targets and their weightings for the upcoming year were set at the start of 2020, as follows:

Financial Review

During 2019, $104.0 million was invested into existing subsidiary businesses and associates. This included $26.3 million from subsidiary and associate fundraisings invested by Allied Minds, with $77.7 million coming from third-party investment, to further accelerate the development of the Group's existing companies. 

Consolidated Statement of Comprehensive Profit

For the years ended 31 December

*See note 25 for details of the adjustment.

Revenue decreased by $2.9 million, to $2.7 million in 2019 (2018: $5.6 million). This decrease is primarily attributable to deconsolidation of one of the company's subsidiaries, Federated Wireless, in 2019 as well as the deconsolidation of HawkEye 360 and Spin Memory at the end of 2018. The decrease is partly offset by revenue from new contracts in 2019 at BridgeComm of $1.0 million. Cost of revenue at $1.4 million (2018: $2.8 million) was lower as a percentage of revenue, when compared to the prior year, mainly due to deconsolidation of the Company's subsidiaries and inventory write-offs at closed and dissolved companies in 2018 and 2019.

Selling, general and administrative (SG&A) expenses decreased by $15.0 million, to $34.3 million (2018: $49.3 million). This reduction was mainly due to the restructuring charge for closed and dissolved subsidiaries in 2018 and deconsolidated subsidiaries in the second half of 2018 and 2019. Also, central cost reductions implemented during 2019 had a direct impact towards the decrease of SG&A charges. Total SG&A was offset, in part, by the net gain of $0.1 million from the disposal of assets at LuxCath in the first half of 2019.

Research and development (R&D) expenses decreased by $28.8 million, to $16.1 million (2018: $44.9 million). The decrease was primarily due to the deconsolidated and closed and dissolved subsidiaries in 2018 and 2019. The remainder of the decrease reflects the net effect from R&D spend at the remaining subsidiaries.

Net finance income decreased by $82.9 million in 2019 to $10.0 million (2018: $92.9 million). The decrease reflects the impact from deconsolidation of the Company's subsidiaries in 2018 and 2019 partly offset by net finance income of $9.3 million from IFRS 9 fair value accounting of the subsidiary preferred shares liability balance (2018: $91.6 million), and interest income, net of interest expense, of $0.7 million (2018: $1.3 million).

Other income increased to $89.4 million (2018: $44.0 million, restated) reflecting $41.2 million in gain on investments held at fair value, $7.1 million gain on dissolution of subsidiaries, $69.8 million of gain on deconsolidation of one of the company's subsidiaries. The increase is partly offset by the company's share of loss of $28.9 million from the deconsolidated entities accounted under the equity method.  In addition, the increase reflects $0.2 million of net gain mainly from the disposal of trade and assets at LuxCath. 

·    As a result of Federated Wireless' most recent financing round that was completed in September 2019, Allied Minds' issued and outstanding ownership percentage dropped from 52.23% to 42.57%. Consequently, the Company no longer controls a majority of the outstanding voting stock and does not control a majority of the board seats and as a result, the subsidiary was deconsolidated. Upon deconsolidation, Allied Minds recognised the fair value of the Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock (collectively the "Federated Wireless Preferred Stock") held in Federated Wireless, classified as an investment at fair value of $22.2 million. Additionally, due to Allied Minds Common Stock holdings that have equity-like characteristics, the investment is accounted for under IAS 28 and is classified by the Company as an investment in associate of $16.1 million. The deconsolidation resulted in a total net gain of $69.8 million. At 31 December 2019, Allied Minds' investment was adjusted by the share of losses generated by Federated Wireless from September through December 2019 of $9.3 million.

·    In May 2019, the Company completed an asset sale for LuxCath, LLC in the form of a promissory note and other contingent consideration, reflecting a $0.1 million of net gain from the disposal of such trade and assets. LuxCath was dissolved as of 31 December 2019.

As a result of these factors, total comprehensive income increased by $5.1 million to $51.0 million (2018: $45.9 million, restated). Total comprehensive income attributed to the equity holders of the Group was $52.1 million (2018: $37.9 million, which is restated) and $1.1 million loss (2018: $8.0 million profit, restated) was attributable to the owners of non-controlling interests.

Consolidated Statement of Financial Position

As of 31 December

Significant performance-impacting events and business developments reflected in the Company's financial position at year end include: 

Non-current assets

Property and equipment decreased by $4.5 million to $1.5 million (2018: $6.0 million), primarily as a result of the deconsolidation of Federated Wireless of $6.6 million, impairment loss of $0.4 million and  depreciation expense of $1.1 million, offset by purchases of approximately $3.6 million, mainly at BridgeComm.

Intangible assets decreased by $1.0 million to $0.2 million (2018: $1.2 million) mainly as a result of amortisation expense of $0.6 million, impairment charges and disposals of $0.4 million and the net effect of the deconsolidation of Federated Wireless of $0.2 million, offset by additions of $0.2 million in acquired licenses and software assets.

Investments at fair value increased to $61.9 million (2018: $56.5 million) reflecting $37.5 million increase in fair value adjustments due to fair value accounting for investments held on the date of deconsolidation, $22.2 million recognised as a result of the deconsolidation of Federated Wireless and $2.5 million that was released from escrow by Allied Minds in April 2019 when Spin Memory completed the final closing of its $52.0 million Series B preferred shares financing. The increase was offset by the sale of Allied Minds' entire stake in its portfolio company HawkEye 360 to Advance for cash consideration of $65.6 million. As a result, the Company reduced its investment held at fair value related to its preferred shares in HawkEye 360 of $65.6 million and recognised $35.0 million increase in fair value adjustments due to fair value accounting for investment held in HawkEye 360 on the date of the sale.

Investments in associates decreased to $6.8 million (2018: 19.5 million). As a result of the deconsolidation of Federated Wireless, the company recorded $16.2 million in investments in associates which was offset by share of loss generated by Federated Wireless and Spin Memory as of 31 December 2019 of $28.9 million.

Right-of-use assets increased by $1.0 million (2018: $ nil). On 1 January 2019, the Company adopted the new lease standard using the modified retrospective approach applied to lease arrangements that were in place on the transition date. As such, results reported as of 31 December 2019 are presented under the new standard.

Current assets

Cash and cash equivalents decreased by $7.2 million to $90.5 million (2018: $97.7 million). The decrease is mainly attributed to $69.8 million of net cash used in operations, $26.5 million cash from investing activities and $33.7 million cash from financing activities.

Restricted cash decreased by $2.5 million due to Allied Minds' additional investment in Spin Memory of $2.5 million, cash that was released from the escrow in April 2019.

Trade and other receivables decreased by $0.7 million due to a decrease in trade receivables of $1.2 million primarily due to deconsolidation of Federated Wireless. This decrease is offset in part by an increase in prepaid expenses of $0.6 million as a result of advanced payments made by BridgeComm towards the construction of a ground station.

Other current assets increased by $1.1 million due to the issuance of a new convertible note to Table Up and offset by assets deconsolidated at Federated Wireless.

Current liabilities

Subsidiary preferred shares decreased by $49.2 million to $5.0 million (2018: $54.2 million) primarily driven by the deconsolidation of Federated Wireless of $43.9 million, and $9.3 million in IFRS 9 fair value adjustment for the year offset by issuance of convertible stock by Precision Biopsy and SciFluor of $4.0 million.

Deferred revenue increased by $1.1 million to $3.4 million (2018: $2.3 million) primarily due to new revenue contracts entered by BridgeComm throughout 2019.

Non-current liabilities

Lease liabilities increased by $2.9 million (2018: $ nil) due to the implementation of the new lease accounting under IFRS 16 at 1 January 2019.

Other non-current liabilities increased by $1.5 million (2018: $0.4) due to issuance of new convertible promissory notes at BridgeComm and SciFluor.

Equity

Net equity increased by $31.8 million to $152.6 million (2018: $120.8 million, restated) reflecting the combination of comprehensive income for the period of $51.0 million, $0.1 issuance of ordinary shares and deconsolidation of Federated Wireless of $1.6 million, offset by US subsidiary distribution to shareholders of $12.1 million, change in non-controlling interest of $0.2 million, dissolution of Company's subsidiaries of $7.1 million and a $1.5 million charge due to equity-settled share based payments.

Consolidated Statement of Cash Flows

For the years ended 31 December

The Group's net cash outflow from operating activities of $44.8 million in 2019 (2018: $70.9 million, restated) was primarily due to the losses for the year of $50.3 million, the net effect from movement in working capital of $0.5 million and the adjustment for non-cash items such as depreciation, amortisation, impairments and share-based expenses of $2.0 million offset by other finance charges of $8.1 million, $89.5 million in gain and losses due to deconsolidation, dissolution of subsidiaries and fair value adjustments.

The Group had a net cash inflow from investing activities of $21.5 million in 2019 (2018: $28.0 million). This inflow predominately reflected the proceeds from sale of investments at fair value at HawkEye 360 of $65.6 million and $0.1 million in proceeds from disposal of assets, offset in part by the deconsolidation of Federated Wireless of $33.1 million (2018: $25.9 million), the investments at fair value of $7.5 million (2018: $7.5 million) and purchases of property and equipment and intangibles of $3.6 million (2018: $9.1 million).

The Group's net cash inflow from financing activities of $13.7 million in 2019 (2018: $41.0 million) primarily reflects $2.0 million proceeds from issuance of convertible notes and $25.3 million proceeds from issuance of preferred shares in subsidiaries throughout the year. This includes proceeds from issuance of preferred shares as a result of Federated Wireless' most recent financing round that was completed in September 2019. The increase is offset by $1.5 million in lease payments and $12.1 million in US distributions to shareholders of certain portfolio companies that were dissolved.

The Group's strategy is to maintain healthy, highly liquid cash balances that are readily available for investment in a manner consistent with the Board's strategy for the Company and Group. To further minimise its exposure to risks the Group does not maintain any material borrowings or cash balances in foreign currency.

The Directors have further considered the on-going viability of the Company through to December 2022, as required pursuant to the 2018 version of the UK Corporate Governance Code, in the Management and Governance section of the 2019 Annual Report.

Risk Management

The execution of the Group's strategy is subject to a number of risks and uncertainties. The Board has adopted a system of continuous review in which it regularly consults with management to identify principal and emerging risks facing the Group and to assess and determine how to address and mitigate against such risks in a manner consistent with the Company's risk appetite to achieve its strategic goals.  Throughout the year, the Board considers and reviews both risks arising from the internal operations of the Group, and those arising from the business environment in which it operates. It is possible that one or more of these identified risks could impact the Group in a similar timeframe which may compound their effects.

With our focus on early stage company development, commercialisation and monetisation, the Group inherently faces significant risks and challenges. The overall aim of the risk management policy is to achieve an effective balance of risk and reward, although ultimately, no strategy can provide an absolute assurance against loss.

The Board has carried out a robust assessment of the principal and emerging risks facing the Group, including those that would threaten its business model, future performance, solvency and/or liquidity.  The major risks and uncertainties identified by the Board are set out below, along with the consequences and mitigation strategy of each risk.

1.         The science and technology being developed or commercialised by the Group's businesses may fail and/or the Group's businesses may not be able to develop their innovations and intellectual property into commercially viable products or technologies. There is also a risk that some of the portfolio companies may fail or not succeed as anticipated, whether as a result of technical, product, market, fund-raising or other risks, resulting in an impairment of the Group's value.

Impact: The failure of any of the Group's portfolio companies would impact the Group's value. A failure of one of the major portfolio companies could also impact the Group's reputation as a builder of high value businesses and possibly make additional fund raising at the Group or portfolio company level more difficult.

Mitigation:

·      Before making any follow-on investment in the current portfolio, extensive due diligence is carried out by the Group which covers all the major business risks including market size, strategy, adoption and intellectual property. Where appropriate, we seek validation through co-investment by other strategic and/or financial parties. 

·    A disciplined approach to capital allocation is pursued whereby we closely monitor milestone developments before committing additional capital. Should a project fail to achieve sufficient progress or is unable to attract other co-investors, we may terminate the investment.

·      Dedicated leadership with deep industry or sector knowledge, and relevant technical and/or leadership experience, is recruited to management positions, and the Group ensures that each portfolio company has independent directors and/or other advisors, as appropriate for the relevant stage of development.

·      Each portfolio company holds board of director meetings at least quarterly, with participation from the Group's management and/or investment team, along with senior management and independent directors and/or advisors, as appropriate, of such portfolio company.

·      The shared services model provides meaningful administrative support to our earlier stage portfolio companies, including strong budgetary and financial controls that ensure good governance.

·      Within the Group there is meaningful operating and investment expertise that provide direct, hands-on and strategic, operating and fund-raising support to its portfolio companies, as appropriate.

·      The Group actively uses third party advisors and consultants, specific to the particular domain in which a portfolio company operates, to assist on market strategy and direction. 

2.         The Group expects to continue to incur substantial expenditure in further research and development, product development, sales and marketing and other operational activities of its businesses. There is no guarantee that the Group or any of its individual portfolio companies will become profitable prior to the achievement of a portfolio company sale or other liquidity event, and, even if the Group or any of its individual portfolio companies does become profitable, such profitability may not be sustainable.  The Group may not be able to attract other co-investors, or monetise its ownership interests in portfolio companies, during any specific time frame or otherwise on desirable terms, if at all.

Impact: Allied Minds' objective is to generate returns for its shareholders through early stage company development within the technology sector.  Such value is expected to be delivered through the commercialisation and monetisation of these businesses via a sale or other liquidity event for each. The timing and size of these potential inflows is uncertain and, should liquidity events not be forthcoming, or in the event that they are achieved at values significantly less than the amount of capital invested, then it would be difficult to sustain the current levels of investment in the other portfolio companies.  This would lead to reduced participation in funding rounds, which will result in a lower ownership position, or potentially impact the ability of a company to raise additional funds. 

Mitigation:

·    The Group retains significant cash balances in order to support its cash flow requirements, including Allied Minds' investment requirements for each portfolio company and for corporate resources.

·     The Group has close relationships with a wide group of investors, including within its current shareholder base, and continues to identify and develop strategic and financial relationships for co-investing in the Group's portfolio companies.

·      Senior management continually seeks to build and maintain strategic and financial relationships for the Group, and each portfolio company continually seeks to engage in strategic and financial relationships relevant to their respective markets and to maintain current information on, and awareness of, potential fund-raising and monetisation strategies.

3.          A significant portion of the Group's intellectual property relates to technologies which originated in the course of research conducted in, and initially funded by, US universities or other federally-funded research institutions.  Although the Group has been granted exclusive licenses to use this intellectual property, there are certain limitations inherent in these licenses, for example as required by the Bayh-Dole Act of 1980.

Impact: There are certain circumstances where the US government has rights to utilise the underlying intellectual property without any economic benefit flowing back to the Group. In the event that this were to happen, this could impact the financial return to the Group on its investment in the applicable portfolio companies.

Mitigation:

·      To the Board's knowledge, while these so called "march in" rights exist, the US government has never  had cause to use them.

·      The Group seeks to develop dual use capabilities for the technology it licenses and generally tends to  avoid use cases directly applicable to government use.

·      This risk is also mitigated through employing experienced technology transfer experts supported by our  legal team to assess risks that may arise out of this eventuality.

4.           The Group, including certain of the portfolio companies, currently has in place cooperative research and development agreements with certain US Department of Defense laboratories and other federally funded government institutions.  Certain regulatory measures apply to these agreements which restrict the export of information and material that may be used for military or intelligence applications by a non-US person.  Compliance with these regulatory measures may be complex and limit commercial alternatives.

Impact: If the Group were to breach restrictions on the use of certain licensed technologies, particularly those derived from federally funded research facilities, this could materially impact upon the Group's ability to license additional intellectual property from these establishments.  In certain circumstances, it may also lead to the termination of existing licenses. In the event that this were to happen, this could materially affect a number of the Group's businesses, potentially harm the reputation and standing of the Group and cause the termination of certain important relationships with federally funded research institutions.

Mitigation:

·     Prior to licensing any technology under these agreements, the Group's management seeks to identify the commercial and other alternatives available for products and services associated with such technology and innovations, and to ensure that there are sufficient markets available to justify the capital investment.

·    Prior to the commercialisation process, the Group's management seeks to obtain all the necessary clearances from applicable regulatory bodies to ensure that the export of products based upon the licensed IP is strictly in accordance with government guidelines.

·    The Group, including certain of the portfolio companies, employs a number of individuals with experience in working with various government agencies.

·    Senior management is fully cognisant of the regulations and sensitivities in relation to this issue, in particular with International Traffic in Arms Regulations (ITAR) which regulate the use of technologies for export, and has numerous mitigating actions available should issues arise.

5.        The Group operates in complex and specialised business domains and requires highly qualified and experienced management to implement its strategy successfully.  All of the operations of the Group are located in the United States, which is a highly competitive employment market.  Furthermore, given the relatively small size of the senior management at the corporate level, the Group is reliant on a small number of key individuals.

Impact: There is a risk that the Group may lose key personnel, or fail to attract or retain new personnel.  The loss of key personnel may negatively affect the Group's competitive advantage.

Mitigation:

·    The Board annually seeks external expertise to assess the competitiveness of the compensation packages of its senior management, and to ensure that the structure of compensation is designed to incentivise performance and retention properly.

·    Senior management continually monitor and assess compensation levels to ensure the Group remains competitive in the employment market.

6.        A large proportion of the overall value of the Group's businesses may be concentrated in a small proportion of the Group's businesses. If one or more of the intellectual property rights relevant to a valuable business were terminated, this would have a material adverse impact on the overall value of the Group's businesses.

Impact: The termination of critical IP licenses would materially impact the value of the portfolio company and have a consequent effect on the value of the overall Group.

Mitigation:

·      In each portfolio company, the management is specifically directed to pursue a policy of generating and patenting additional intellectual property to both provide additional protection and create direct IP ownership for the company.

·      Where possible, the Group seeks to negotiate intellectual property ownership rights in any research and development agreement it enters into with a network partner, such that the Group becomes a part owner of the underlying IP.

7.         The US Investment Company Act of 1940 regulates companies which are engaged primarily in the business of investing, reinvesting, owning, holding or trading in securities.  Securities issued by companies other than consolidated partner companies are generally considered ''investment securities'' for purposes of the Investment Company Act, unless other circumstances exist which actively involve the company holding such interests in the management of the underlying company.

Impact: If the Company is deemed to be an ''investment company'' subject to regulation under the Investment Company Act, applicable restrictions could make it impractical for the Group to continue its business as contemplated and could have a material adverse effect on its business. If anything were to happen which would cause the Company to be deemed to be an investment company under the Investment Company Act, requirements imposed by the Investment Company Act, including limitations on capital structure, ability to transact business with portfolio companies and ability to compensate key employees, could make it impractical for it to continue its business as currently conducted.  

Mitigation:

·    The Company intends to monitor and conduct its operations so that it will not be deemed to be an investment company under the Investment Company Act.

·     The Company seeks to build value through its current portfolio of majority-owned or primarily controlled subsidiary companies; it is not engaged primarily in the business of investing, reinvesting, owning, holding or trading in securities and does not own or propose to acquire investment securities above prescribed thresholds under the Investment Company Act.

·    Currently the Company holds more than 50% of the voting securities of certain of its portfolio companies, and more than 25% of all of its other portfolio companies, and intends to continue to try to hold the majority of the voting securities in its portfolio companies, or otherwise maintain primary control.

·    In addition to ownership levels, the Company seeks to maintain primary control of its portfolio companies through a combination of the following:

o  Rights to elect representatives to the board of directors, with ability to exercise influence over the  portfolio company's business strategy, operating plans, budgets and key corporate decisions;

o  Legal rights, such as access to information (books and records) and financial statements, liquidation  preferences, registrations rights, rights of first refusal, pre-emptive rights and co-sale rights;

o  Protective provisions, such as rights to block certain portfolio company actions; and

o  Active involvement in the management of our earlier stage portfolio companies, such as shared  service support, business development introductions, co-locating, and key management recruiting.

8.         The Group expects to remain operational through December 2023 given its current cash and financial position. However, if the Group is unable to generate sufficient revenue, appropriately manage expenses, attract co-investors to participate in follow-on portfolio company financings, or generate a sale or other liquidity event for any of its existing portfolio companies or portfolio company interests prior to the end of such period, then the Group's business, financial condition, results of operations, prospects and future viability could be adversely affected.

Impact: Lack of capital could restrict the Group's ability to further fund, develop and commercialise its existing businesses.  In turn, this could ultimately lead to failure of individual portfolio companies and loss of investment as well as failure of the Group as a whole.  

Mitigation:

·    Senior management continually seeks to build and maintain close relationships with its shareholder base and other strategic partners at the Group level, and each portfolio company continually seeks to engage in strategic relationships relevant to their respective markets and to maintain current information on and awareness of potential fund-raising and monetisation strategies.

·    The Company strives to maintain majority ownership and/or primary control over all of the portfolio companies, so that it can seek to influence optimal capital allocation, use of cash, and fund-raising strategy.  

·    The Company has built a valuable portfolio of companies since its inception.

·    The Company continuously and critically reviews the progress of its portfolio companies against pre-set milestones to ensure its financial capital and human resource is properly allocated to the more promising areas of its portfolio to help strengthen and accelerate the Group's path to monetisation.

Brexit

On 23 June 2016, the UK electorate voted to leave the European Union (EU) in a so-called "Brexit" referendum.  Following several delays, parliament ratified the withdrawal agreement, and the UK left the EU on 31 January 2020. This began a transition period that is set to end on 31 December 2020, during which the UK and EU will negotiate their future relationship. The UK remains subject to EU law and remains part of the EU customs union and single market during the transition, but is no longer part of the EU's political bodies or institutions.

It is expected that companies based in the UK and with significant UK and EU operational focus will be the most directly impacted by Brexit. All of the Group's portfolio companies are based in the US, and substantially all of the business and operations of the Group are conducted in the US. However, the Group has raised significant capital in the UK and, while no such activities are planned, may need to raise additional capital in the UK in the future to support its portfolio companies. The uncertainty caused by Brexit may result in the Group being unable to obtain additional capital on a timely basis on commercially acceptable terms. 

In addition, Brexit exposes the Group to increased foreign currency risk. Foreign exchange risk is an exposure for the Group as it derives substantially all of its revenue in US dollars and the Group's businesses borrow, account in, and are valued in, US dollars, but its shares trade in amounts denominated in pounds sterling.  Any capital raised by the Group in the UK would be denominated in pounds sterling, but would be allocated to portfolio companies which operate in the US and whose functional currency is US dollars.

If the Group requires and fails to obtain sufficient capital on acceptable terms, it may be forced to forego further investment in developing certain of its current businesses, and otherwise be subject to a material adverse impact on the Group's business and financial condition.

COVID-19

The ongoing spread of the coronavirus disease (COVID-19) that started in December 2019 has been declared a public health emergency of international concern by the World Health Organisation.  COVID-19 has the potential to greatly disrupt all aspects of the Group's business.  Potential impacts include the risk to the health and safety of our workforce, the ability for our businesses to operate normally, global economics, and the flow of goods and services.  Our people could be at potential health risk if they come into contact with confirmed cases of COVID-19. In addition, given the mandatory health and safety restrictions across the world, including travel and quarantine restrictions, it may affect the ability of our workforce to continue working normally. There could also be disruption to operations as a result of the virus negatively impacting our suppliers, customers and partners. Finally, the virus has already caused downturn to the global economy, which may become worse as it continues to spread.  This may make it difficult for our portfolio companies to raise money, enter into new strategic partnerships, retain customers, or continue operations. 

In order to mitigate against these risks, we are closely monitoring the health, safety and security of our workforce and complying with applicable regulatory requirements and guidelines. We have put in place temporary travel restrictions and have made accommodations that will allow our workforce to work remotely. We are also in close communication with all of our customers, suppliers and partners to collaborate on how to best support each other's needs in this new environment. 

The Group is closely monitoring developments regarding COVID-19 and will continuously reassess and put in place appropriate continuity plans to mitigate against the risks faced.

Corporate and Social Responsibility

Details on the Group's policies, activities and aims with regard to its corporate and social responsibilities, including diversity, are included in the Sustainability section of the 2019 Annual Report and are incorporated therein by reference.

This Strategic Report has been approved by the Board of Directors.

ON BEHALF OF THE BOARD

Harry Rein                                          Joseph Pignato

Chairman                                            Chief Executive Officer

4 June 2020

Directors' Responsibilities Statement

The Directors are responsible for preparing the Annual Report and Accounts and the Group and parent Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and parent Company financial statements for each financial year.  Under that law, they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (EU) and applicable law, and have elected to prepare the parent Company financial statements on the same basis.

Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period.  In preparing each of the Group and parent Company financial statements, the Directors are required to:

·    select suitable accounting policies and apply them consistently;

·    make judgements and estimates that are reasonable, relevant and reliable;

·    state whether they have been prepared in accordance with IFRS as adopted by the EU;

·    assess the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and 

·    use the going concern basis of accounting unless the Directors either intend to liquidate the Group or the parent Company, cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006.  The Directors are responsible for such internal control as they determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with the relevant law and regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.  Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility Statement of the Directors in respect of the Annual Financial Report

Each of the Directors whose names and functions are set out below confirms that to the best of their knowledge:

·    the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the parent Company and the undertakings included in the consolidation as a whole; and

·    the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal and emerging risks and uncertainties that they face.

We consider the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position, performance, business model and strategy.

ON BEHALF OF THE BOARD         

Harry Rein                                          Joseph Pignato

Chairman                                            Chief Executive Officer

4 June 2020

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME/ (LOSS)

*See accompanying notes to consolidated financial statements. Prior year financials have been restated (see note 25).

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

*See accompanying notes to consolidated financial statements.   Prior year financials have been restated (see note 25).

Registered number: 08998697

The financial statements were approved by the Board of Directors and authorised for issue on 4 June 2020 and signed on its behalf by:

Joseph Pignato

Chief Executive Officer