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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Aiq Limited | LSE:AIQ | London | Ordinary Share | KYG0180A1022 | ORD GBP0.01 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 3.00 | 1.00 | 5.00 | 3.00 | 3.00 | 3.00 | 106,106 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Business Services, Nec | 282k | -526k | -0.0081 | -3.70 | 1.94M |
From Apr 2021 to Apr 2024
TIDMAIQ
RNS Number : 1466X
AIQ Limited
30 April 2021
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF EU REGULATION 596/2014, WHICH IS PART OF UK LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018.
30 April 2021
For Immediate Release
AIQ Limited
("AIQ" or the "Company" or, together with Alchemist Codes, the "Group")
Final Results and Publication of Annual Report
AIQ (LSE: AIQ), a company focused on acquiring and developing businesses in the e-commerce sector, announces its final results for the year ended 31 October 2020.
Summary
Hot Features
Premium
-- Acquisition of Alchemist Codes Sdn Bhd ("Alchemist Codes") completed in March 2020
-- The COVID-19 pandemic has had a profound impact on Alchemist Codes and the business model of its OctaPLUS e-commerce platform:
o Retailers transitioned to focus on direct-to-consumer online sales & marketing, which had a severe impact on OctaPLUS' affiliate marketing commission model
o Economic uncertainty resulted in customers delaying purchasing decisions for IT consultancy projects and stringent lockdown measures in Malaysia prevented management meeting with potential customers and business contacts
-- With continued government lockdowns in Malaysia and Hong Kong leading to significant uncertainty over post-pandemic economic recovery, trading conditions for the Group have greatly deteriorated post year end resulting in negligible sales activity
-- Revenue for the year ended 31 October 2020 was GBP154,649 (2019: 2019: GBPnil); revenue since year end to date has fallen to approximately GBP11,000
-- Cash balance of GBP1.8 million at 31 October 2020 and approximately GBP1.1 million currently
-- I mpairment charge recognised against goodwill and intangibles of GBP2.4 million from the investment in Alchemist Codes
-- Net loss for the year ended 31 October 2020 (after writing-off the investment in Alchemist Codes) was GBP3.6 million (2019: GBP0.5 million loss)
-- The Board has implemented a number of cost-cutting measures and initiated a strategic review to assess the viability of Alchemist Codes
-- The Board's immediate priority is to conclude the strategic review
Graham Duncan, Chairman of AIQ, said: "When we completed the acquisition of Alchemist Codes in March 2020, the business was at a relatively early stage of development, but it had what was believed to be exciting technology and potential; and we had a growth strategy in place. However, the COVID-19 pandemic has had a profound impact on Alchemist Codes with both the roll-out of its OctaPLUS e-commerce platform and its IT consultancy business being met with severe headwinds such that little progress could be made and revenues were significantly below the Board's expectations. In particular, the consumer trends emerging from the pandemic that initially supported Alchemist Codes' e-commerce proposition resulted in retailers enhancing their direct-to-consumer sales & marketing channels, which was to the detriment of the OctaPLUS affiliate model.
"Since year end, trading conditions have deteriorated further and Alchemist Codes' sales activity has been negligible. Consequently, the performance of the business has been extremely disappointing. These factors, combined with the continued uncertainty over the post-pandemic economic recovery and market outlook, have led to significant cost-cutting measures and a fundamental strategic review to assess the viability of Alchemist Codes. The completion of the strategic review is the Board's immediate priority."
Enquiries
AIQ Limited c/o +44 (0)20 7618 9100 Graham Duncan, Chairman VSA Capital Limited (Financial Adviser & Broker) +44 (0)20 3005 5000 Andrew Raca (Corporate Finance) Luther Pendragon (Media Relations) Claire Norbury +44 (0)20 7618 9100
Overview
On 26 March 2020, AIQ completed the acquisition of Alchemist Codes Sdn Bhd ("Alchemist Codes"), a Malaysian incorporated information technology solutions developer focusing on the e-commerce sector. The acquisition was for a consideration of GBP2.3 million satisfied through the issue of ordinary shares in the Company. While the initial outlook for the business held promise, the prolonged and multifaceted impact of the COVID-19 pandemic, which was compounded by Alchemist Codes being at a relatively early stage of development, resulted in a very disappointing performance for the year to 31 October 2020 and the incurring of substantial losses. Since year end, trading conditions have deteriorated further and there has been negligible sales activity. As a result, and given the continued significant uncertainty over the post-pandemic market recovery, the Board has recognised an impairment of goodwill and intangibles of GBP2.4 million from the investment in acquiring Alchemist Codes and is undertaking a strategic review to determine the future of the business.
Operational Review
Alchemist Codes has two areas of activity: an e-commerce solution, OctaPLUS, which is an online shopping platform that was launched at the end of 2019, and an IT business that provides clients with customised software and web and app development, with its primary offering being messaging solutions. However, the performance of both OctaPLUS, which was anticipated to be the primary driver of growth, and the IT business has been significantly below the Board's expectations.
The revenue model for OctaPLUS is that Alchemist Codes receives, from retailers, a portion of the consumer spend on the retailers' products through the platform. In response to the pandemic, retailers have reduced the commission they are willing to pay for such affiliate referrals. With the closing of physical stores due to lockdown measures as well as a reduction in foot traffic due to public health concerns, retailers have also significantly enhanced their online direct-to-consumer marketing. This has significantly altered the competitive landscape for OctaPLUS as well as its ability to attract retailers to sell their products via the platform, which impacts OctaPLUS' offer to consumers. In addition, the travel and tourism industry, which was severely impacted by the pandemic, had been identified as a key target sector for OctaPLUS as it was expected to provide the highest commission rates.
As a result, the forecast growth in registered users and customer spend on the platform did not materialise and the rate of commission from retailers was materially below expectations.
In the IT business, which accounts for the vast majority of Alchemist Codes' revenue and which is primarily project-based, whilst some minor projects were delivered during the year, sales were significantly below management's expectations and lower than the prior year. Throughout the period following the acquisition of Alchemist Codes, Malaysia was subject to a series of strict government lockdowns - known as "movement control orders" ("MCO") - as a result of the pandemic, which restricted opportunities for management to meet physically with its customers, prospective customers and business partners. In addition, the economic downturn and uncertainty caused customers to delay purchasing decisions or reallocate resources. Consequently, Alchemist Codes did not secure the new IT projects that had been anticipated.
In the second half of the year, the Company took a number of measures designed to improve the outlook for the business, such as refocusing some of Alchemist Codes' R&D efforts. However, these have not been able to stem the decline in the Company's financial performance. In July 2020, an office was opened in Hong Kong with a view to leveraging the government grant schemes for IT solutions providers, but this office has not yet generated any significant revenues. Post period, the Company has made redundancies and other cost savings, including reductions to all of the Directors' fees.
The government lockdown has continued to be extended in Malaysia, which is still subject to MCO measures (either MCO, conditional MCO or recovery MCO depending on district). As a result, trading conditions remain extremely challenging and Alchemist Codes' sales activity has been negligible. In addition, pipeline revenues have suffered from the inability to secure IT projects during the year that would be completed post period.
As a consequence of the above, along with the considerable uncertainty over post-pandemic market conditions, the Board of AIQ has initiated a strategic review to assess the viability of Alchemist Codes and to stem the losses of the business, whilst also seeking to evaluate its future. The strategic review is the Board's immediate focus and highest priority.
Financial Review
The net loss for the year ended 31 October 2020 was GBP3.6 million (2019: GBP0.5 million loss). The increase in the loss compared with 2019 is primarily due to an impairment against goodwill and intangibles of GBP2.4 million, reflecting the impact of the pandemic on the Group's business model, operational losses of Alchemist Codes of GBP442,000, amortisation costs of GBP240,000 and transaction costs of GBP380,000 associated with the acquisition and re-admission. Management anticipate that the further extensions to COVID-19 lockdowns in Malaysia and the prolonged impact on international travel and tourism will limit revenue opportunities in the short to medium term. Updated forecasts prepared by the Company assume much lower revenue than anticipated when Alchemist Codes was acquired. As a consequence, these forecasts no longer support the carrying value of intangibles that were recognised on the acquisition in March 2020.
As a result of the increased net loss, the loss per share increased to 6.1 pence (2019: 1.0 pence loss per share).
The Group had cash of GBP1.8 million at 31 October 2020 (compared with GBP3.7 million at 31 October 2019) and
approximately GBP1.1 million as at the date of the signing of the annual report and accounts.
Alchemist Codes
The acquisition of Alchemist Codes completed in March 2020, and therefore approximately seven months' activities have been included in these consolidated results.
In the six months ended 30 April 2020 (which covers a period largely prior to the acquisition by the Company), Alchemist Codes generated revenue of 1.26 million Malaysian Ringgit ("RM") (approximately GBP238,000). However, the period between April and October 2020 was badly affected by the pandemic and revenues for the seven-month period since acquisition were RM834,000 (approximately GBP155,000). The majority of revenue was based on software development and maintenance for Alchemist Codes' messenger apps customers.
Alchemist Codes' loss before tax for the seven months from the acquisition to year end was RM2,384,000 (approximately GBP442,000) compared with a profit before tax for the six-month period ended 30 April 2020 of RM110,000 (approximately GBP20,000).
As detailed above, since the year end, trading conditions have deteriorated further with negligible sales activity. As a result, Alchemist Codes has generated revenues from 1 November 2020 to date of only RM20,000 (GBP4,000).
Alcodes International Limited ("AIL")
AIL was incorporated in Hong Kong in July 2020. AIL did not contribute any revenues to the Group during the period to 31 October 2020 and incurred a net loss of GBP25,000. Approximately HK$73,000 (GBP7,000) in revenue has been received in the period since the year end, resulting in total Group revenue since year end of approximately GBP11,000.
Going Concern
The financial statements are required to be prepared on the going concern basis unless it is inappropriate to do so.
The Group incurred losses of GBP3.6 million during the year and cash outflows of GBP1.9 million. As at 31 October 2020, the Group had net current assets of GBP1.5 million and cash of GBP1.8 million. The Group's cash position was approximately GBP1.1 million at the date of the annual report.
The Group meets its day-to-day working capital requirements through cash generated from the capital it raised on admission to the London Stock Exchange and, subsequent to the acquisition of Alchemist Codes, from the operations of its subsidiary.
COVID-19 has been identified as having a significant impact on the Group in the 2020 financial year due to the prolonged public lockdown in Malaysia. The Board has taken, and continues to take, a number of actions to protect operating cash flow in the short term. As a means of securing the Group's long-term future, the Board has initiated a strategic review to assess the viability of Alchemist Codes and to stem the losses of the business and reduce the cost base, whilst also seeking to evaluate its future. The Group's cash position gives sufficient headroom while the Board conducts this process, in which it will consider all options for the future of the business. The Group's assessment of the COVID-19 pandemic is detailed in the Operational Review above.
The Directors have prepared forecasts and projections for a period of at least 12 months from the date of approval of these financial statements, and have specifically performed a detailed review of those forecasts for the 15 months to July 2022. These reflect the expected trading performance of the Group on the basis of best estimates of management using current knowledge and expectations of trading performance. These forecasts and projections have also been stress tested to consider what the Directors believe to be a 'worst plausible case scenario'.
The Directors report that they have re-assessed the principal risks, reviewed current performance and forecasts, combined with expenditure commitments, including capital expenditure. The Group's forecasts demonstrate it will have sufficient cash reserves to enable it to meet its obligations as they fall due, for a period of at least 12 months from the date of signing of the financial statements.
These 'worst plausible case scenario' conditions indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. This, in turn, has led Group management to undertake a strategic review of the Group's activities going forwards, which is due to be reported shortly. The unknown outcome of the strategic review, coupled with the uncertainty of future trading performance, give rise to a material uncertainty over the going concern status of the Group. The Directors consider the Group to be a going concern but have identified a material uncertainty in this regard.
Publication of Annual Report
The Company's annual report and accounts for the year ended 31 October 2020 has been published today and is available on the AIQ website at: https://aiqhub.com/investors/financial-reports/
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 OCTOBER 2020
Year ended Year ended
31 October 31 October
2020 2019
Note
GBP GBP
Revenue 5 154,649 -
Cost of sales (143,268) -
------------- -------------
Gross profit 11,381 -
Administrative expenses 7 (1,367,162) (487,791)
Transaction costs 12 (380,495) -
Impairment of intangible
assets 13 (2,400,931) -
Losses on foreign exchange
(net) (2,926) (35,630)
Operating loss (4,140,133) (523,421)
Finance income 13,852 19,813
Finance costs (4,306) -
Loss before taxation (4,130,587) (503,608)
Taxation 9 493,000 -
------------- -------------
Loss attributable to equity
holders of the Company (3,637,587) (503,608)
============= =============
Other comprehensive income
(as may be reclassified
to profit
and loss in subsequent periods,
net of taxes):
Exchange difference on translating (7,619) -
foreign operations
Comprehensive income attributable
to equity holders of the
Company (3,645,206) (503,608)
============= =============
Loss per share basic and
diluted (GBP) 10 (0.061) (0.010)
Current and prior year amounts are all derived from continuing operations.
The accompanying notes form an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 OCTOBER 2020
Note 31 Oct 2020 31 Oct 2019
GBP GBP
Assets
Non-current assets
Property, plant and
equipment 11 204,684 -
Right of use assets 14 270,727 -
Intangible assets 13 - -
Rental deposits 31,453 -
------------ ------------
506,864 -
Current assets
Trade receivables 15 7,799 -
Prepayments and other receivables 61,660 12,300
Tax receivable 9 24,764 -
Cash and cash equivalents 16 1,827,379 3,703,592
------------ ------------
Total current assets 1,921,602 3,715,892
------------ ------------
Total assets 2,428,466 3,715,892
------------ ------------
Equity and liabilities
Capital and reserves
Ordinary shares 20 647,607 518,394
Share premium 6,019,207 3,848,420
Foreign currency translation
reserve 21 (7,619) -
Accumulated losses (4,795,471) (1,157,884)
------------ ------------
Total equity 1,863,724 3,208,930
------------ ------------
Liabilities
Current liabilities
Trade payables 17 155,468 -
Accruals and other payables 18 136,573 218,151
Lease liabilities 14 94,012 -
Amounts due to directors 19 - 288,811
------------ ------------
Total current liabilities 386,053 506,962
------------ ------------
Non-current liabilities
Lease liabilities 14 178,689 -
------------ ------------
Total non-current 178,689 -
liabilities
------------ ------------
Total equity and liabilities 2,428,466 3,715,892
------------ ------------
The accompanying notes form an integral part of these consolidated financial statements. The financial statements were approved and authorised for issue by the Board of Directors on 29 April 2021.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 OCTOBER 2020
Share Share Foreign Accumulated Total equity
capital premium currency losses
translation
reserve
GBP GBP GBP GBP GBP
Balance as at 31 October
2018 518,394 3,848,420 - (654,276) 3,712,538
Total comprehensive
loss for the
year - - - (503,608) (503,608)
Balance at 31 October
2019 518,394 3,848,420 - (1,157,884) 3,208,930
---------- ---------- ------------- ------------- --------------
Total comprehensive
loss for the
year - - (7,619) (3,637,587) (3,645,206)
Issue of shares
(Note 20) 129,213 2,170,787 - - 2,300,000
Balance at 31 October
2020 647,607 6,019,207 (7,619) (4,795,471) 1,863,724
---------- ---------- ------------- ------------- --------------
The accompanying notes form an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARED 31 OCTOBER 2020
Year Year ended
ended 31 October
31 October 2019
2020 GBP
GBP
Cash flows from operating activities
Loss before taxation (4,130,587) (503,608)
Adjustment for:-
Depreciation charges 31,031 -
Amortisation charges 239,765 -
Impairment of intangible assets 2,400,931 -
Interest income (13,852) (19,813)
Loss on foreign exchange 16,623 35,630
----------------- -------------
Operating loss before working
capital changes (1,456,090) (487,791)
(Increase)/decrease in receivables (33,544) 3,408
Increase in payables 19,579 99,864
Decrease in amount owing to directors (290,317) -
Tax paid (18,184) -
----------------- -------------
Cash used in operations (1,778,556) (384,519)
Interest received 13,852 19,813
----------------- -------------
Net cash used in operating activities (1,764,704) (364,706)
----------------- -------------
Cash flows from investing activities
Cash acquired on purchase of subsidiary
(Note 12) 111,073 -
Acquisition of plant and equipment (194,244)
Net cash used in investing activities (83,171) -
----------------- -------------
Cash flows from financing activities
Repayment of lease liabilities (22,637) -
Net cash used in financing activities (22,637) -
----------------- -------------
Net decrease in cash and cash
equivalents (1,870,512) (364,706)
Cash and cash equivalents at beginning
of the year 3,703,592 4,103,928
Effect of exchange rates on cash
and cash equivalents (5,701) (35,630)
Cash and cash equivalents at end
of the year 1,827,379 3,703,592
----------------- -------------
Material non-cash transactions:
The Company's acquisition of Alchemist Codes was a non-cash transaction satisfied wholly by the issue of shares in the Company, as described in Note 12 below.
The accompanying notes form an integral part of these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION
AIQ Limited ("The Company") was incorporated and registered in The Cayman Islands as a public limited company on 11 October 2017 under the Companies Law (as revised) of The Cayman Islands, with the name AIQ Limited, and registered number 327983.
The Company's registered office is located at 5th Floor Genesis Building, Genesis Close, PO Box 446, Cayman Islands, KY1-1106.
On 20 March 2020, the Company completed the acquisition of the entire issued share capital of Alchemist Codes Sdn Bhd ("Alchemist Codes"), (together, the "Group"), a Malaysian incorporated information technology solutions developer focusing on the e-commerce sector.
The Company has a standard listing on the London Stock Exchange.
The consolidated financial statements include the financial statements of the Company and its controlled subsidiaries (the "Group") as follows:
Name Place of Registered address Principal Effective interest
incorporation activity
31.10.2020 31.10.2019
--------------- ------------------- --------------------- ----------- -----------
Alchemist Malaysia 2-9, Jalan Puteri Design and 100% -
Codes Sdn 4/8, Bandar development
Bhd Puteri, 47100 of software
Puchong, Selangor
Darul
Ehsan
Malaysia
--------------- ------------------- --------------------- ----------- -----------
Alcodes International Hong Kong 20/F One Pacific Software 100% -
Limited* Centre, 414 and app development
Kwun Tong Road
Kwun Tong, Hong
Kong
--------------- ------------------- --------------------- ----------- -----------
* Held by Alchemist Codes Sdn Bhd.
2. PRINCIPAL ACTIVITIES
The principal activity of the Company is to seek acquisition opportunities and to act as a holding company for a group of subsidiaries that are involved in the e-commerce sector.
The Company completed the acquisition of Alchemist Codes, as noted above and more fully described in Note 12 below, during the year. Alchemist Codes' principal activities comprise designing and developing information technology solutions for clients and the development of its own e-commerce solution.
3. ACCOUNTING POLICIES
a) Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS") issued by the International Accounting Standards Board ("IASB"), including related interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC").
As permitted by Companies Law (as revised) of The Cayman Islands only the consolidated financial statements are presented.
The financial statements are presented in Pound Sterling ("GBP") which is the presentational currency of the Company. All values are rounded to the nearest pound, except where otherwise indicated.
The results for 31 October 2020 are prepared for a 12-month period and include the subsidiaries from acquisition and or incorporation. Therefore, the comparative information which relates to the Company only is not entirely comparable.
New interpretations and revised standards effective for the year ended 31 October 2020
The accounting policies adopted are consistent with those of the previous financial year except for the following new and amended standards and interpretations during the year that are applicable to the Group.
Other Standards
The Group has adopted the following new standards and interpretations in accordance with the relevant transitional provisions which became effective on 1 January 2019:
- IFRS 16 'Leases'. - IFRIC 23 'Uncertainty over income tax treatments'.
With the exception of IFRS 16 the adoption of these standards has not had a material impact on the financial statements.
IFRS 16 Leases
IFRS 16 is effective from 1 November 2019 and supersedes IAS 17 Leases. The standard eliminates the classification of leases as either operating or finance leases and introduces a single accounting model for all leases, except for short-term leases and leases of low value assets. Lessees are required to recognise a right-of-use asset and related lease liability for their operating leases and show depreciation of leased assets and interest on lease liabilities separately in the statement of comprehensive income. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise substantially all leases on the statement of financial position.
The Group adopted IFRS 16 effective 1 November 2019 using the modified retrospective method of adoption. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognised at the date of initial application as an adjustment to the opening balance of retained earnings. Accordingly, prior year financial information has not been restated and will continue to be reported under IAS 17 Leases. The right-of-use asset and lease liability have initially been measured at the present value of remaining lease payments, with the right-of-use asset being subject to certain adjustments.
Impact of adoption
The adoption of the standard has impacted on the Group in relation to a lease which was entered into in August 2020. Prior to this date, the Group had no long-term leases and accordingly, no adjustments have been recognised in the Statement of Financial Position at 1 November 2019.
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date: whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.
All leases are accounted for by recognising a right of use asset and a lease liability except for:
-- leases of low value assets; and
-- leases with a duration of 12 months or less.
Identifying leases
The Group accounts for a contract, or a portion of a contract, as a lease when it conveys the right to use an asset for a period of time in exchange for consideration. Leases are those contracts that satisfy the following criteria:
-- there is an identified asset;
-- the Group obtains substantially all the economic benefits from use of the asset; and
-- the Group has the right to direct use of the asset.
The Group considers whether the supplier has substantive substitution rights. If the supplier does have those rights, the contract is not identified as giving rise to a lease.
In determining whether the Group obtains substantially all the economic benefits that arise from use of the asset, the Group considers only the economic benefits that arise from use of the asset, not those incidental to legal ownership or other potential benefits.
In determining whether the Group has the right to direct use of the asset, the Directors consider whether the Group directs how and for what purpose the asset is used throughout the period of use. If there are no significant decisions to be made because they are pre-determined due to the nature of the asset, the Directors consider whether the Group was involved in the design of the asset in a way that predetermines how and for what purpose the asset will be used throughout the period of use. If the contract or portion of a contract does not satisfy these criteria, the Group applies other applicable IFRSs rather than IFRS 16 "Leases".
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the Group's incremental borrowing rate on commencement of the lease is used, which the Directors have assessed to be 6%.
Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.
On initial recognition, the carrying value of the lease liability also includes:
-- amounts expected to be payable under any residual value guarantee;
-- the exercise price of any purchase option granted in favour of the Group if it is reasonably certain to assess that option; and
-- any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.
Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:
-- lease payments made at or before commencement of the lease; -- initial direct costs incurred; and
-- the amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset.
Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right of use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.
When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at the same discount rate that applied on lease commencement. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term.
Practical expedients have been applied for leases whose term ends within 12 months of the date of initial application. Such leases have been accounted for in the same way as short-term leases (i.e. expensed through profit or loss on a straight line basis).
If this expedient is applied, such leases would be accounted for in the same way as short-term leases (i.e. usually expensed through profit or loss on a straight line basis). This transitional expedient is independent of the short term lease recognition exemption. The recognition exemption must be applied consistently to leases of underlying assets in the same class whereas the transitional expedient can be applied on a lease-by-lease basis.
Standards and interpretations in issue but not yet effective
There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the Group has decided not to adopt early. The most significant of these are as follows:
-- IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment - Definition of Material);
-- Revised Conceptual Framework for Financial Reporting -- Amendments to IFRS 3 Definition of a Business -- Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform -- Amendments to IFRS 16 COVID-19-Related Rent Concessions -- Amendments to IAS 37 Onerous Contracts - Cost of Fulfilling a Contract -- Amendments to IAS 16 Property, Plant and Equipment: Proceeds before Intended Use
-- Amendments to IFRS 3 Business Combinations (Amendment - Definition of Business); and Revised Conceptual Framework for Financial Reporting
The Directors does not anticipate the adoption of any of these standards issued by IASB, but not yet effective, to have a material impact on the financial statements of the Group.
b) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to the end of the reporting period. Subsidiaries are entities over which the Group has control. The Group controls an investee if the Group has power over the investee, exposure to variable returns from the investee, and the ability to use its power to affect those variable returns.
The consolidated financial statements present the results of the Company and its subsidiaries as if they formed a single entity. Inter-company balances and transactions between Group companies are therefore eliminated in full. The financial information of subsidiaries is included in the Group's financial statements from the date that control commences until the date that control ceases.
On 20 March 2020, the Company completed a conditional share purchase agreement (the "SPA") with Alchemist Codes Sdn. Bhd ("Alchemist Codes") for the acquisition by the Company of 100% of the issued share capital of Alchemist Codes (the "Transaction") which is more fully described in Note 12.
The acquisition of Alchemist Codes Sdn Bhd by the Company does not meet the definition of a reverse acquisition under IFRS 3 due to:
- a greater proportion of share capital in the Group being held by shareholders of AIQ Limited, rather than pre-acquisition shareholders of Alchemist Codes;
- AIQ Limited's shareholders have the ability to appoint or remove a majority of the members of the Board;
- greater Board representation in the Group of the AIQ Limited Board of directors rather than pre-acquisition members of the Alchemist Codes' Board; and
- the composition of the senior management of the Group consists mostly of AIQ Limited management.
The acquisition of Alchemist Codes has therefore been accounted for under the acquisition method.
Under the acquisition method, the results of Alchemist Codes are included from the date of acquisition. At the date of acquisition, the fair values of the net assets of Alchemist Codes have been determined and these values are reflected in the Consolidated Financial Statements. The cost of acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. Any excess of the purchase consideration of the business combination over the fair value of the identifiable assets and liabilities acquired is recognised as goodwill. Goodwill, if any, is not amortised but reviewed for impairment at least annually. If the consideration is less than the fair value of assets and liabilities acquired, the difference is recognised directly in the statement of comprehensive income.
Acquisition-related costs are expensed as incurred.
In July 2020, the Company established a wholly-owned Hong Kong subsidiary, Alcodes International Limited.
c) Going concern
The financial statements are required to be prepared on the going concern basis unless it is inappropriate to do so.
The Group incurred losses of GBP3.6 million during the year and cash outflows of GBP1.9 million. As at 31 October 2020, the Group had net current assets of GBP1.5 million and cash of GBP1.8 million. The Group's cash position was approximately GBP1.1 million at the date of this report.
The Group meets its day-to-day working capital requirements through cash generated from the capital it raised on admission to the London Stock Exchange and, subsequent to the acquisition of Alchemist Codes, from the operations of its subsidiary.
COVID-19 has been identified as having a significant impact on the Group in the 2020 financial year due to the prolonged public lockdown in Malaysia. The Board has taken, and continues to take, a number of actions to protect operating cash flow in the short term. As a means of securing the Group's long-term future, the Board has initiated a strategic review to assess the viability of Alchemist Codes and to stem the losses of the business and reduce the cost base, whilst also seeking to evaluate its future. The Group's cash position gives sufficient headroom while the Board conducts this process, in which it will consider all options for the future of the business. The Group's assessment of the COVID-19 pandemic is detailed in the Operational Review above.
The Directors have prepared forecasts and projections for a period of at least 12 months from the date of approval of these financial statements, and have specifically performed a detailed review of those forecasts for the 15 months to July 2022. These reflect the expected trading performance of the Group on the basis of best estimates of management using current knowledge and expectations of trading performance. These forecasts and projections have also been stress tested to consider what the Directors believe to be a 'worst plausible case scenario'.
The Directors report that they have re-assessed the principal risks, reviewed current performance and forecasts, combined with expenditure commitments, including capital expenditure. The Group's forecasts demonstrate it will have sufficient cash reserves to enable it to meet its obligations as they fall due, for a period of at least 12 months from the date of signing of these financial statements.
These 'worst plausible case scenario' conditions indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. This, in turn, has led Group management to undertake a strategic review of the Group's activities going forwards, which is due to be reported shortly. The unknown outcome of the strategic review, coupled with the uncertainty of future trading performance, give rise to a material uncertainty over the going concern status of the Group. The Directors consider the Group to be a going concern but have identified a material uncertainty in this regard.
d) Revenue
Revenue is recognised at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer net of sales taxes and discounts. A performance obligation may be satisfied at a point in time or over time. The amount of revenue recognised is the amount allocated to the satisfied performance obligation.
(i) Revenue from software sales
Revenue from sales of software application is recognised progressively over time based on milestones and customers' acceptance by using the output method.
(ii) Revenue from maintenance and support contracts
The Group enters into annual fixed price support and maintenance services and managed services contracts with its customers. Revenues are recognised on a straight-line basis over the term of the contract. This method best depicts the transfer of services to the customer as there is no reliable prediction that can be made as to if and when any individual customer will require the service.
(iii) Revenue from merchant contracts
The Group earns commissions from merchants when transactions are completed on the OctaPLUS e-commerce platform. The commissions are generally determined as a percentage based on the value of merchandise being sold by the merchants. The variable consideration is estimated at contract inception and updated at the end of each reporting period if additional information becomes available. Revenue related to commissions is recognised based on the expected value when the performance obligation is satisfied.
e ) Foreign currency transactions and translation
Functional and presentational currencies
The presentational currency of AIQ Limited is Pounds Sterling. The functional currency of the Company is also Pound Sterling. This is based on the principal currency of expenditure and the Company's equity raise, all being in Sterling.
The functional currency of Alchemist Codes Sdn Bhd is Malaysian Ringgit, being the currency in which the majority of the company's transactions are denominated.
The functional currency of Alcodes International Limited is the Hong Kong dollar.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity's functional currency are recorded at the rate of exchange prevailing on the date of the transaction.
At the end of each financial year, monetary items denominated in foreign currencies are retranslated at the rates prevailing as of the end of the financial year. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on retranslation of monetary items are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.
In order to satisfy the requirements of IAS 21 with respect to presentation currency, the consolidated nancial statements have been translated into Pounds Sterling using the procedures outlined below:
-- Assets and liabilities where the functional currency is other than Pounds were translated into Pounds at the relevant closing rates of exchange;
-- non-Sterling trading results were translated into Pounds at the relevant average rates of exchange; and
-- differences arising from the retranslation of the opening net assets and the results for the period are recognised in other comprehensive income and taken to the foreign currency translation reserve.
f) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:
Computers 5 years Furniture and fittings 10 years Office equipment 10 years Renovations 10 years
Depreciation methods, useful lives and residual values are reviewed at each balance sheet date.
g) Intangible assets
With the exception of goodwill, intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses.
Goodwill
Goodwill represents the amount by which the fair value of the cost of a business combination exceeds the fair value of the net assets acquired. Goodwill is not amortised and is stated at cost less any accumulated impairment losses.
The recoverable amount of goodwill is tested for impairment annually or when events or changes in circumstance indicate that it might be impaired. Impairment charges are deducted from the carrying value and recognised immediately in the income statement. For the purpose of impairment testing, goodwill is allocated to each of the Group's cash generating units expected to benefit from the synergies of the combination. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
Acquisition-related intangible assets
Net assets acquired as part of a business combination includes an assessment of the fair value of separately identifiable acquisition-related intangible assets, in addition to other assets, liabilities and contingent liabilities purchased. These are amortised on a straight-line basis over their useful lives which are individually assessed. Useful lives are regularly reviewed.
The estimated useful lives of the Group's intangible assets are as follows:
-- OctaPLUS Platform 3 years -- Messenger App 3 years -- Software 3 years
As more fully described in Note 13, each of these intangible assets were fully impaired.
h) Research and development expenditure
Research expenditure is recognised as an expense when it is incurred.
Development expenditure is recognised as an expense except that costs incurred on development projects are capitalised as long-term assets to the extent that such expenditure is expected to generate future economic benefits. Development expenditure is capitalised if, and only if an entity can demonstrate all of the following:-
(i) its ability to measure reliably the expenditure attributable to the asset under development;
(ii) the product or process is technically and commercially feasible; (iii) its future economic benefits are probable; (iv) its ability to use or sell the developed asset; and
(v) the availability of adequate technical, financial and other resources to complete the asset under development.
Capitalised development expenditure is measured at cost less accumulated amortisation and impairment losses, if any. Development expenditure initially recognised as an expense is not recognised as assets in subsequent periods.
i) Impairment of financial assets
IFRS 9 "Financial Instruments" requires an expected credit loss model as opposed to an incurred credit loss model under IAS 39 "Financial Instruments: Recognition and Measurement". The expected credit loss (ECL) model requires the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. The credit event does not have to occur before credit losses are recognised. IFRS 9 "Financial Instruments" allows for a simplified approach for measuring the loss allowance at an amount equal to lifetime expected credit losses for trade receivables and contract assets.
The Group has one type of financial asset subject to the expected credit loss model: trade receivables.
The Group recognises a loss allowance for expected credit losses on trade receivables. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument.
The expected credit losses are estimated using a provision based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate.
As the Group is at an early stage, it does not have significant amounts of historic information on credit losses. Accordingly, only specific provisions have been made.
The Group considers a financial asset in default when contractual payments are between 30 to 180 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
j) Impairment of non-financial assets
At each reporting date, the Directors assess whether indications exist that an asset may be impaired. If indications do exist, or when annual impairment testing for an asset is required, the Directors estimate the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value-in-use, and 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. Where the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the Directors consider the asset impaired and write the subject asset down to its recoverable amount. In assessing value-in-use, the Directors discount the estimated future cash flows to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, the Directors consider recent market transactions, if available. If no such transactions can be identified, the Directors utilise an appropriate valuation model.
When applicable, the Group recognises impairment losses of continuing operations in the "Statements of Profit or Loss and Other Comprehensive Income" in those expense categories consistent with the function of the impaired asset.
k) Right of use assets
A right of use asset is recognised at the commencement date of a lease. The right of use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset.
Right of use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Right of use assets are subject to impairment or adjusted for any re-measurement of lease liabilities.
The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred.
l) Leases
The Group has adopted IFRS 16 which became effective on 1 January 2019. The standard replaces IAS 17 'Leases' and for lessees eliminates the classifications of operating leases and finance leases. Except for short-term leases and leases of low-value assets, right of use assets and corresponding lease liabilities are recognised in the statement of financial position. Straight-line operating lease expense recognition is replaced with a depreciation charge for the right-of-use assets (included in operating costs) and an interest expense on the recognised lease liabilities (included in finance costs).
m) Financial instruments
Financial assets and financial liabilities are recognised in the Consolidated Statement of Financial Position when the Company becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value.
Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, and trade and other payables.
Trade and other receivables
Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses.
Trade and other payables
Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits.
n) Financial assets
(i) Initial recognition and measurement
The Company classifies its existing financial assets as financial assets carried at amortised cost. The classification depends on the nature of the assets and the purpose for which the assets were acquired. Management determines the classification of its financial assets at initial recognition and this designation at every reporting date.
Financial assets carried at amortised cost
Financial assets carried at amortised cost are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are presented as current assets, except for those expected to be realised later than twelve months after the reporting date which are classified as non-current assets. They include cash and bank balances, and a rental deposit.
Subsequent to initial recognition, these assets are measured at amortised cost using the effective interest rate method, less impairment.
Impairment of financial assets is considered using a forward-looking expected credit loss (ECL) review.
(ii) De-recognition
Financial assets are de-recognised when the contractual rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership. On de-recognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.
o) Financial liabilities
The Company's financial liabilities include trade and other payables and accruals. Financial liabilities are recognised when the Company becomes a party to the contractual provision of the instrument. All financial liabilities are recognised initially at their fair value, net of transaction costs, and subsequently measured at amortised cost, using the effective interest method, unless the effect of discounting would be insignificant, in which case they are stated at cost.
The Company derecognises financial liabilities when, and only when, the Company's obligations are discharged, cancelled or they expire.
p) Share capital
Proceeds from issuance of ordinary shares are classified as equity. Amounts in excess of the nominal value of the shares issued are recognised as share premium.
Transaction costs that are directly attributable to the issue of share capital are deducted from share premium.
q) Taxation
Current tax
Current tax is the expected amount of income taxes payable in respect of the taxable profit for the reporting period and is measured using the tax rates that have been enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous financial years.
Deferred tax
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Group's Financial Statements. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and expected to apply when the related deferred tax is realised or the deferred liability is settled.
Deferred tax assets are recognised to the extent that it is probable that the future taxable profit will be available against which the temporary differences can be utilised.
r) Cash and cash equivalents
Cash and cash equivalents include cash in hand, demand deposits and other short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
s) Finance income and expense
Finance income comprises interest receivable on funds invested.
Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method.
t) Employee benefits
Short-term benefits
Short-term employee benefit obligations; wages, salaries, paid annual leave, sick leave, bonuses and non-monetary benefits, are measured on an undiscounted basis and are expensed in the profit or loss as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
Long-term benefits
Defined contribution plans
The income statement expense for the defined contribution pension plans operated represents the contributions payable for the year. As required by law, companies in Malaysia make contributions to the state pension scheme, the Employees Provident Fund ("EPF") which is charged to profit or loss in the year to which they relate. Once the contributions have been paid, the Group has no further liabilities in respect of the defined contribution plans.
u) Earnings per share
Basic earnings per share is computed using the weighted average number of shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of shares during the period plus the dilutive effect of dilutive potential ordinary shares outstanding during the period.
4. ACCOUNTING ESTIMATES AND JUDGEMENTS
Preparation of financial information in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources.
The key estimates and underlying assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. In particular:
Key judgments
Acquisition of Alchemist Codes
The Directors judged that under IFRS 3 Business Combinations, the accounting acquirer is considered to be AIQ Limited as described above in the note describing the basis of consolidation. The acquisition of Alchemist Codes has therefore been accounted for under the acquisition method.
Going concern
As more fully described above, the Directors have prepared forecasts and projections for the Group for the purposes of assessing the Company's going concern assumptions.
The Directors have concluded that it is appropriate to adopt the going concern basis of accounting in preparing the Annual Report but have identified a material uncertainty in this regard. Having undertaken a detailed review of forecasts to July 2022, considering the impact on the Group's cash position and the unknown outcome of the pending strategic review, the Directors consider there to be a material uncertainty over the going concern status of the Group.
Key estimates
Valuation of Intangible Assets
The determination of the fair value of assets and liabilities including goodwill arising on the acquisition of Alchemist Codes in March 2020, and development expenditure which is expected to generate future economic benefits, is based to a considerable extent on management's judgement.
The fair value of these assets was determined by discounting estimated future net cash flows generated by the asset. The assets are bespoke and cannot be benchmarked against a market transaction price. The use of different assumptions for the expectations of future cash flows and the discount rate would change the valuation of the intangible assets.
Allocation of the purchase price affects the results of the Group as finite life intangible assets are amortised, whereas indefinite lived intangible assets, including goodwill, are not amortised and could result in differing amortisation charges based on the allocation to indefinite lived and finite lived intangible assets.
The useful life used to amortise intangible assets relates to the expected future performance of the assets acquired and management's estimate of the period over which economic benefit will be derived from the asset.
The estimated useful life principally reflects management's view of the average economic life of each asset and is assessed by reference to historical data and future expectations. Any reduction in the estimated useful life would lead to an increase in the amortisation charge.
The fair value of intangibles acquired in the acquisition of Alchemist Codes has been based on a discounted cash flow income approach. The fair value of the OctaPLUS Platform and Messenger App acquired with Alchemist Codes during the year ended 31 October 2020 was determined using a discount factor of 22.4%.
The fair values of intangible assets acquired through the business combination has been based on the Multi-Period Excess Earnings Method ("MEEM") which is within the income approach. The multi-period excess earnings method estimated value is based on expected future earnings attributable to the assets which have been discounted to a net present value using a discount rate of 22.4%, based on the Group's weighted average cost of capital. If the estimation of the cost of capital was reduced by 1%, the valuation of acquired intangible assets would have increased by approximately GBP162,000.
The useful life used to amortise intangible assets relates to the expected future performance of the assets acquired and management's estimate of the period over which economic benefit will be derived from the asset.
The estimated useful life principally reflects management's view of the average economic life of each asset and is assessed by reference to historical data and future expectations. Any reduction in the estimated useful life would lead to an increase in the amortisation charge. The average economic life of the intangible assets has been estimated at 3 years. If the estimation of economic life was reduced by one year, the amortisation charge would have increased by approximately GBP123,000.
Impairment reviews
IFRS requires management to undertake an annual test for impairment of indefinite lived assets and, for finite lived assets, to test for impairment if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Impairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters including management's expectations of:
-- growth in EBITDA, calculated as adjusted operating profit before depreciation and amortisation;
-- long-term growth rates; and -- the selection of discount rates to reflect the risks involved.
The Group prepares and approves a detailed annual budget and longer-term strategic plan for its operations, which are used in the fair value calculations.
Changing the assumptions selected by management, in particular the discount rate and growth rate assumptions used in the cash flow projections, could significantly affect the Group's impairment evaluation and hence results.
Goodwill of GBP546,874 relating to the acquisition of Alchemist Codes was allocated to the Alchemist Codes business and represents a Cash Generating Unit ("CGU") and tested for impairment as of the reporting date. The goodwill and other intangible assets were tested for impairment on the basis of value in use, including a discount rate of 22.4% based on the rate that would be used by a market participant. As described in Note 13 below, these impairment tests indicated an impairment loss is required and this loss has resulted in the full write-down of goodwill and intangibles arising from the acquisition of Alchemist Codes.
5. REVENUE
Year Year
ended ended
31 October 31 October
2020 2019
GBP GBP
Sale of software products 99,596 -
Maintenance income 41,725 -
Cashback income 13,043
Other 285 -
Total 154,649 -
-------- ------------
All revenues were generated in Malaysia.
During the year ended 31 October 2020, one customer accounted for 55.16% of the Group's revenues. No other customers accounted for more than 10%.
6. SEGMENT REPORTING
IFRS 8 defines operating segments as those activities of an entity about which separate financial information is available and which are evaluated by the Board of Directors to assess performance and determine the allocation of resources. The Board of Directors is of the opinion that under IFRS 8 the Group has only one operating segment. The Board of Directors assesses the performance of the operating segment using financial information that is measured and presented in a manner consistent with that in the Financial Statements. Segmental reporting will be reviewed and considered in light of the development of the Group's business over the next reporting period.
7. OPERATING LOSS BEFORE TAXATION
Loss from operations has been arrived at after charging:
Year Year
ended ended
31 October 31 October
2020 2019
----------------------------------------------------------------------- ------------ -------------
GBP GBP
Auditor's remuneration:
* Audit of the financial statements* 58,000 33,000
* Reporting accountant and transaction services - 35,875
* Other services - 3,000
* Additionally, GBP107,033 for services were performed in the year
to 31 October 2020 by the previous auditor.
Year Year
ended ended
31 October 31 October
2020 2019
Cost of sales: GBP GBP
Wages and salaries 135,350 -
Cashback expenses 7,860 -
Other 58 -
-------------
143,268 -
------------ -------------
Year Year
ended ended
31 October 31 October
2020 2019
Administrative expenses: GBP GBP
Directors' remuneration 165,212 139,000
Wages and salaries 158,293 -
Marketing expenses 296,398 -
Consultancy fees 84,322 115,727
Outsourcing fees 90,000 -
Amortisation of intangibles 239,765 -
Depreciation of tangible fixed 6,483 -
assets
Depreciation of right of use 24,548 -
assets
Office rental 13,051 30,104
Professional fees 18,982 41,583
Regulatory fees 14,802 20,227
Secretarial fees 33,143 28,849
Audit fees 61,281 33,000
Bookkeeping costs 6,000 24,000
Share service fees 12,390 15,221
Vetting fees 35,000 -
Other costs 107,492 40,080
1,367,162 487,791
------------ -------------
8. STAFF COSTS AND KEY MANAGEMENT EMOLUMENTS
Year Year
ended ended
31 October 31 October
2020 2019
Staff costs: GBP GBP
Wages and salaries (including
directors) 433,931 139,000
Social security costs 2,397 -
Post-employment benefits 22,527 -
458,855 139,000
-------- ------------
Key management personnel are considered to be the directors and one senior member of staff. Their remuneration was as follows:
Year Year
ended ended
31 October 31 October
2020 2019
Key management personnel: GBP GBP
Wages and salaries (including
directors) 224,445 139,000
Social security costs 100 -
Post-employment benefits 2,287
226,832 139,000
-------- ------------
Included within accruals is GBP23,196 (2019: GBP154,000), which relates to Directors' remuneration yet to be paid.
The average monthly number of employees during the year ended 31 October 2020 was as follows:
Year Year
ended ended
31 October 31 October
2020 2019
No. No.
Management 2 -
Administrative 2 -
Operations 25 -
29 -
---- ------------
The Company did not have any employees during the year ended 31 October 2019, other than the Directors.
9. TAXATION
The Company is incorporated in the Cayman Islands, and its activities are subject to taxation at a rate of 0%.
In Malaysia, Alchemist Codes has applied for MSC Pioneer Status which, if granted, would result in the company becoming income tax exempt. Although the application has been submitted there is no certainty as to whether Alchemist Codes will be successful in obtaining MSC Pioneer Status. Alchemist Codes continues to account for tax and makes scheduled tax payments, which are recoverable if the Pioneer status is granted. A total of RM133,200 has been paid on account in this regard (equivalent to GBP24,764). The income tax rate in Malaysia is calculated at the Malaysian statutory tax rate of 24% of the chargeable income for the year, except for companies with paid-up capital of RM2.5million (approximately GBP470,000) and below at the beginning of the basis period and gross income from source of business not exceeding RM50million (approximately GBP9.4 million), the first RM600,000 (approximately GBP110,000) of chargeable income is subject to tax at a rate of 17%.
A reconciliation of income tax applicable to the loss before taxation at the statutory tax rate to the income tax at the effective tax rate of Alchemist Codes is as follows:
Year Year
ended ended
31 October 31 October
2020 2019
GBP GBP
Loss before taxation (4,130,587) (503,608)
Tax calculated at the standard
rate of tax applicable to Alchemist
Codes of 24% (2019: at 0%) (991,340) -
Tax effects of:
Non-deductible expenditure 25,827 -
Effect of different tax rates
in foreign jurisdictions 87,030 -
Deferred tax assets on temporary
differences not recognised 385,483 -
Tax credit (493,000) -
------------ ------------
The deferred tax recognised on the business combination was recognised at the rate of 24%, being the rate of tax prevailing in Malaysia. Following the impairment charge to fully write-down the goodwill and identifiable assets recognised on the acquisition of Alchemist Codes, the deferred tax provision was released accordingly.
10. LOSS PER SHARE
The Company presents basic and diluted loss per share information for its ordinary shares. Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the reporting period. Diluted earnings per share are determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.
There is no difference between the basic and diluted earnings per share, as the Company has no potential ordinary shares.
Year ended Year ended
31 October 31 October
2020 2019
Loss attributable to ordinary
shareholders (GBP) (3,637,587) (503,608)
Weighted average number of shares 59,818,130 51,839,375
Loss per share (expressed as GBP
per share) (0.061) (0.010)
11. PROPERTY PLANT AND EQUIPMENT
Fixtures Computer
and fittings Office equipment equipment Renovations Total
GBP GBP GBP GBP GBP
Cost
At 1 November 2018
and 2019 - - - -
Additions through
business
combinations 393 3,023 13,195 427 17,038
Other additions 74,487 6,827 15,557 97,373 194,244
Currency
translation
differences 176 (119) (560) 233 (270)
As at 31 October
2020 75,056 9,731 28,192 98,033 211,012
-------------- ----------------- ------------- ------------- --------
Accumulated
depreciation
At 1 November 2018
and 2019 - - - - -
Depreciation for
the year 1,247 381 3,202 1,653 6,483
Currency
translation
differences - (13) (143) 1 (155)
-------------- ----------------- ------------- ------------- --------
As at 31 October
2020 1,247 368 3,059 1,654 6,328
-------------- ----------------- ------------- ------------- --------
Carrying amounts
At 31 October 2020 73,809 9,363 25,133 96,379 204,684
============== ================= ============= ============= ========
At 31 October 2019 - - - - -
============== ================= ============= ============= ========
12. ACQUISITION OF ALCHEMIST CODES SDN BHD
On 20 March 2020, the Company completed a conditional share purchase agreement (the "SPA") with Alchemist Codes Sdn. Bhd ("Alchemist Codes") for the acquisition by the Company of 100% of the issued share capital of Alchemist Codes (the "Transaction"), and, on 26 March 2020 readmission of the enlarged share capital to trading on the Main Market of the London Stock Exchange. Alchemist Codes is a Malaysian incorporated information technology solutions developer focusing on the e-commerce sector.
Under the terms of the SPA, the consideration was GBP2.3 million which was settled through the allotment and issue of 12,921,346 ordinary shares of 1 pence each in the capital of AIQ (the "Consideration Shares") at 17.8 pence per share.
The following table summarises the consideration paid for Alchemist Codes, the fair value of assets acquired, and liabilities assumed at the acquisition date.
Book value Fair value Fair value
adjustments
------------------------------------ ----------- ------------- -----------
Consideration GBP GBP GBP
------------------------------------ ----------- ------------- -----------
Consideration shares 2,300,000
Total consideration 2,300,000
------------------------------------ ----------- ------------- -----------
Recognised amounts of identifiable
assets acquired and liabilities
assumed
------------------------------------ ----------- ------------- -----------
Cash and cash equivalents 111,073 - 111,073
Property, plant and equipment 17,038 - 17,038
Software 38,676 - 38,676
Trade and other receivables 80,011 - 80,011
Trade and other payables (55,818) - (55,818)
OctaPLUS platform - 1,328,996 1,328,996
Messenger App - 726,150 726,150
Deferred tax (493,000) (493,000)
------------------------------------ ----------- ------------- -----------
Total identifiable net assets 190,980 1,562,146 1,753,126
Goodwill 546,874
Total 2,300,000
------------------------------------ ----------- ------------- -----------
The goodwill arising is attributable to the acquired workforce, anticipated future profit from expansion opportunities and synergies of the business. Fair value adjustments were deemed necessary in respect of the OctaPLUS platform and the Messenger App, both of which have been recognised within intangible fixed assets.
Deferred tax on the fair value adjustments has been recognised at 24%, being the rate of tax prevailing in Malaysia.
Alchemist Codes contributed GBP154,649 of revenue for the period between the date of acquisition and the balance sheet date and GBP442,175 loss before tax. If the acquisition of Alchemist Codes had been completed on the first day of the financial year, Group revenues would have been approximately GBP210,000 higher and Group loss attributable to equity holders of the parent would have been approximately GBP38,000 lower.
Transaction costs of GBP380,495 were expensed in the year ended 31 October 2020 relating to the acquisition of Alchemist Codes and re-admission to the Official List of the London Stock Exchange. No amounts were directly attributable to issuing new shares which would otherwise be deducted from equity.
13. INTANGIBLE ASSETS
OctaPLUS Messenger
Goodwill Software Platform App Total
GBP GBP GBP GBP GBP
Cost
At 1 November 2019 - - - -
Additions through
business combinations - 38,676 - - 38,676
Arising on acquisition 546,874 - 1,328,996 726,150 2,602,020
As at 31 October
2020 546,874 38,676 1,328,996 726,150 2,640,696
--------- ---------- ---------- ---------- ----------
Accumulated amortisation
and impairment
At 1 November 2019 - - - - -
Amortisation for
the year - - 155,050 84,715 239,765
Impairment provision 546,874 38,676 1,173,946 641,435 2,400,931
As at 31 October
2020 546,874 38,676 1,328,996 726,150 2,640,696
--------- ---------- ---------- ---------- ----------
Carrying amounts
At 31 October 2020 - - - - -
========= ========== ========== ========== ==========
At 31 October 2019 - - - -
========= ========== ========== ========== ==========
Goodwill and acquisition related intangible assets recognised have arisen from the acquisition of Alchemist Codes in March 2020 and purchase price allocation as described in Note 12. The OctaPLUS Platform and Messenger App are being amortised over their estimated useful economic life of three years.
Goodwill
The Group tests goodwill annually for impairment or more frequently if there are indications that these assets might be impaired. The recoverable amounts of the CGU are determined from value in use. The value of the goodwill comes from using the assets as they are (i.e. there is no expansionary capex assumed).
The key assumptions for the value in use approach are those regarding growth in revenues and associated earnings and a discount rate. The Group monitors its pre-tax Weighted Average Cost of Capital and those of its competitors using market data. In considering the discount rate applying to the CGU, the Directors have considered the relative sizes, risks and the inter-dependencies of its CGUs. The Group prepares cash flow forecasts derived from the most recent financial plan approved by the Board and extrapolates revenues, net margins and cash flows for the following five years based on a forecast monthly growth rate of 15% in active users of the CGU. Cash flows beyond this period have been ignored in assessing the need for any impairment provisions. A discount rate of 22.4% has been assumed. The directors consider these assumptions are consistent with that which a market participant would use in determining fair value. As a result of the COVID-19 pandemic, the anticipated growth has not materialised, and the impairment testing has considered the significant uncertainties as to future activity with no growth assumed.
The Company has tested goodwill for impairment and determined that the recoverable amount relating to the acquisition of Alchemist Codes is lower than its carrying amount and is therefore impaired. An impairment loss of GBP546,874 has therefore been recognised to write off the goodwill which arose on the acquisition.
OctaPLUS platform and messenger app
The OctaPLUS platform and messenger app relate to the valuation of the technology developed by Alchemist Codes at the time of acquisition in March 2020.
The fair value of these assets on acquisition was determined by discounting estimated future net cash flows generated by the assets where no active market for the assets exists.
The fair values of intangible assets acquired through the business combination has been based on the Multi-Period Excess Earnings Method ("MEEM") which is within the income approach.
The Multi-Period Excess Earnings Method ("MEEM") which is within the income approach was adopted as being the most appropriate methodology. The multi-period excess earnings method estimated value is based on expected future earnings attributable to the assets which have been discounted to a net present value using a discount rate of 22.4%, based on the Group's weighted average cost of capital.
Under this method the following were key inputs:
- The number of internet users in Malaysia - Monthly active user growth - Average spend per user of RM83-95 per month - Advertising spend of RM1.50 per user per month - App software maintenance fee of RM75,000 per customer per annum - OctaPLUS sales commission of 7% from merchants - OctaPLUS cash back spend of 71% of sales commission - Software development licence income of RM416,000 per licence sale - Taxation at the rate of 24%
The Group tests intangible assets for impairment only if there are indications that these assets might be impaired. An impairment loss is calculated as the difference between its carrying amount and the present value of the estimated future cash flows which is highly sensitive to the expected revenue.
Both the rollout of OctaPLUS and Alchemist Codes' IT consultancy business met with severe headwinds during the year. The competitive landscape for the Group's e-commerce solution evolved as retailers transitioned to focus their efforts on online sales. Accordingly, retailers enhanced their direct-to-consumer sales & marketing, which was to the detriment of emerging online marketplaces such as OctaPLUS that are based on a commission model. In addition, the travel and tourism industry, which was expected to be one of the key sectors for OctaPLUS as it typically provides higher commission rates, was particularly badly impacted by the pandemic.
For the IT consultancy business, the stringent restrictions imposed on travel and the social distancing measures introduced by the Malaysian government - with the country subject to lockdown measures throughout the period - prevented Alchemist Codes from meeting with customers and business partners; and the economic downturn and uncertainty impacted customers' budget availability and the willingness to commit resources to new projects.
Revised business plans have assumed much lower levels of activity and a significant reduction in long-term potential. Since year end, trading conditions have remained very challenging as Malaysia continues to be under government lockdown, causing a further reduction in demand, and there is continued uncertainty over the post-pandemic economic recovery and market outlook. As a result, the Board has initiated a strategic review to stem the losses of the business and reduce the cost base, whilst also seeking to evaluate its future.
The revised business plans have been used in the testing for impairment of the Alchemist Codes CGU (the Group's only CGU) and the tests indicate that the recoverable amount of the CGU has been reduced to nil. The carrying amount of the intangible asset has therefore been fully impaired by recognising an impairment loss of GBP1,815,381.
Software
The software acquired in the business combination has also been fully impaired by recognising a loss of GBP38,676. Updated forecasts prepared by the Company assume much lower revenue than anticipated when Alchemist Codes was acquired. Accordingly, these forecasts no longer support the carrying value.
14. RIGHT OF USE ASSETS AND LEASE LIABILITIES
Land and
buildings Total
GBP GBP
Cost
At 1 November 2019 - -
Additions 295,338 295,338
As at 31 October 2020 295,338 295,338
----------- --------
Accumulated amortisation
At 1 November 2019 - -
Depreciation for the year 24,548 24,548
Currency translation differences 63 63
----------- --------
As at 31 October 2020 24,611 24,611
----------- --------
Carrying amounts
At 31 October 2020 270,727 270,727
=========== ========
At 31 October 2019 - -
=========== ========
Future minimum lease payments associated with these leases were as follows:
As at As at
31 Oct 2020 31 Oct 2019
GBP GBP
Not later than one year 107,817 -
Later than one year and not later
than five years 188,680 -
Total minimum lease payments 296,497 -
------------- -------------
Less future finance charges (23,796) -
Present value of minimum lease
payments 272,701 -
------------- -------------
Current liability 94,012 -
Non-current liability 178,689 -
272,701 -
------------- -------------
The lease may be extended at the end of its two year term for a further two years, at a new rental rate to be based on the prevailing market rate provided, that in the event that there is any increase in rental, such increase shall not exceed 15% of the preceding's rental rate. No option to extend has been assumed in the above calculations. In previous years, the Company's lease commitments related to operating leases which expired in the year ended 31 October 2019.
Impact of IFRS 16 "Leases" on the statement of comprehensive income
The following table summarises the effect of IFRS 16 "Leases" on the Group's loss before tax:
Year ended Year ended
31 October 31 October
2020 2019
GBP GBP
Loss before tax excluding lease
charges (3,595,682) (473,504)
Lease payments under short-term
and low-value
assets (13,051) (30,104)
Depreciation of right-of use assets (24,548) -
Lease finance expense (4,306) -
Loss before tax after lease charges (3,637,587) (503,608)
-------------- ------------
15. TRADE RECEIVABLES
As at As at
31 October 31 October
2020 2019
GBP GBP
Trade receivables 7,799 -
Provision for expected - -
credit losses
------------ --------------
Total trade receivables 7,799 -
------------ --------------
All balances are reviewed specifically due to the limited number of receivables and limited history of average rates of default losses to rely on.
16. CASH AND CASH EQUIVALENTS
As at As at
31 October 31 October
2020 2019
GBP GBP
Cash at bank 1,816,583 3,703,592
Cash in hand 10,796 -
------------ ------------
1,827,379 3,703,592
------------ ------------
Cash at bank earns interest at floating rates based on daily bank deposit rates.
17. TRADE PAYABLES
As at As at
31 October 31 October
2020 2019
GBP GBP
Redeemable cash back 123,100 -
credit
Other trade payables 32,368 -
------------ --------------
155,468 -
------------ --------------
18. ACCRUALS AND OTHER PAYABLES
As at As at
31 October 31 October
2020 2019
GBP GBP
Accruals 123,998 218,151
Deferred revenue 1,464 -
Taxes and social security 11,111 -
------------ ------------
136,573 218,151
------------ ------------
19. AMOUNTS DUE TO A DIRECTOR
31 October 31 October
2020 2019
GBP GBP
Amounts due to a director - 288,811
--------- -----------
The amounts due to a director were unsecured, interest free and repayable on demand. The balance arose from administrative expenses and transaction costs settled by the director on behalf of the Company in the period ended 31 October 2018, prior to the Company's bank account being opened. All amounts were repaid in the year ended 31 October 2020.
20. SHARE CAPITAL
Number Nominal
value
GBP
Authorised
Ordinary shares of GBP0.01 each 800,000,000 8,000,000
As at 1 November 2019 51,839,375 518,394
Issue of shares in the year 12,921,346 129,213
At 31 October 2020 64,760,721 647,607
------------ ----------
Year Year
ended ended
31 Oct 2020 31 Oct 2019
GBP GBP
As at beginning of year 518,394 518,394
Issued during the year 129,213 -
As at end of year 647,607 518,394
------------ ------------------
During the year ended 31 October 2020, the Company allotted and issued a total of 12,921,346 Ordinary Shares of 1 pence each at 17.8 pence each for a total consideration of GBP2,300,000 in connection with the acquisition of Alchemist Codes (the "Consideration Shares") as described in Note 12 above.
Readmission of the enlarged share capital of 64,760,721 Ordinary Shares to listing on the Standard Listing Segment of the Official List of the FCA and to trading on the Main Market of the London Stock Exchange (together, the "Readmission") occurred on 26 March 2020. The holders of Ordinary Shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.
21. FOREIGN CURRENCY TRANSLATION RESERVE
The foreign currency translation reserve represents cumulative foreign exchange differences arising from the translation of the financial statements of foreign subsidiaries and is not distributable by way of dividends.
22. FINANCIAL RISK MANAGEMENT
a) Categories of financial instruments
The carrying amounts and fair value of the Group's f inancial assets and liabilities as at the end of the reporting period are as follows:
Financial assets:
As at As at
31 October 31 October
2020 2019
GBP GBP
Trade receivables 7,799 -
Tax recoverable 24,764 -
Deposits and other receivables 45,008 12,300
Cash and cash equivalents 1,827,379 3,703,592
1,904,950 3,715,892
---------- ------------
Financial liabilities at amortised cost:
As at As at
31 October 31 October
2020 2019
GBP GBP
Trade payables 155,468 -
Accruals and other payables 136,573 218,151
Amounts due to directors - 288,811
Finance leases 272,701 -
564,742 506,962
-------- ------------
The financial assets and financial liabilities maturing within the next 12 months approximate their fair values due to the relatively short-term maturity of the financial instruments.
b) Financial risk management objectives and policies
The Group is exposed to a variety of financial risks: market risk (including interest rate risk and currency risk), credit risk and liquidity risk. The risk management policies employed by the Company to manage these risks ar e discussed below. The primary objectives of the financial risk management function ar e to establish risk limits, and then ensure that exposure to risk stays within these limits. The operational and legal risk management functions ar e intended to ensure proper functioning of internal policies and procedures to minimise operational and legal risks.
i) Interest rate risks
Certain cash holdings and cash equivalents are held in accounts with variable rates. If interest rates were to increase or decrease by 1%, the effect would not be material.
ii) Currency risks
The Group is exposed to exchange rate fluctuations as certain transactions are denominated in foreign currencies.
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate due to changes in foreign exchange rates. The Group's exposure to the risk of changes in foreign exchange rates relates primarily to its financing activities (when cash balances are denominated other than in a company's functional currency).
Most of the Group's transactions are carried out in Pounds and Malaysian Ringgit ('RM'). Foreign currency risk is monitored closely on an ongoing basis to ensure that the net exposure is at an acceptable level.
The Group maintains a natural hedge whenever possible, by matching the cash inflows (revenue stream) and cash outflows used for purposes such as capital and operational expenditure in the respective currencies. The Group's net exposure to foreign exchange risk was as follows:
US$ Total
As at 31 October 2020 GBP'000 GBP'000
------------------------------ ------- -------
Financial assets denominated
in GBP 894 894
Financial liabilities - -
denominated in GBP
------------------------------ ------- -------
Net foreign currency exposure 894 894
------------------------------ ------- -------
US$ Total
As at 31 October 2019 GBP'000 GBP'000
------------------------------ ------- -------
Financial assets denominated
in GBP 3,037 3,037
Financial liabilities - -
denominated in GBP
------------------------------ ------- -------
Net foreign currency exposure 3,037 3,037
------------------------------ ------- -------
Foreign currency sensitivity analysis:
The following tables demonstrate the sensitivity to a reasonably possible change in foreign currency exchange rates, with all other variables held constant.
The impact on the Group's loss before tax is due to changes in the fair value of monetary assets and liabilities. The Group's exposure to foreign currency changes for all other currencies is not material.
A 10 per cent. movement in US Dollar ($) would increase/(decrease) net assets by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.
US$
As at 31 October 2020 GBP'000
---------------------- -------
Effect on net assets:
Strengthened by 10% 89
Weakened by 10% (89)
---------------------- -------
US$
As at 31 October 2019 GBP'000
---------------------- -------
Effect on net assets:
Strengthened by 10% 304
Weakened by 10% (304)
---------------------- -------
At 31 October 2020 the Company had GBP893,965 (2019: GBP3,036,744) of cash and cash equivalents in United States Dollar accounts. At 31 October 2020, had the exchange rate between the Pound Sterling and United States Dollar increased/decreased by 10%, the effect on the result in the period would be a gain of GBP89,396 (2019: GBP303,674) / loss of GBP89,396 (2019: GBP303,674).
At 31 October 2020 the Company had GBP894,587 (2019: GBPnil) of cash and cash equivalents in Malaysian Ringgit accounts. At 31 October 2020, had the exchange rate between the Pound Sterling and Malaysian Ringgit increased/decreased by 10%, the effect on the result in the period would be a gain of GBP89,459 (2019: GBPnil) / loss of GBP89,459 (2019: GBPnil).
iii) Credit risk
Credit risk refers to the risk that a counterp ar ty will default on its contractual obligations resulting in financial loss to the Group. Credit allowances are made for estimated losses that have been incurred by the reporting date. No such amounts have been made to date.
Concentrations of credit risk exist to the extent that the equivalent of GBP885,082 of the Group's cash balances were held with RHB Bank Berhad in Singapore and the equivalent of GBP900,012 was held with Hong Leong Bank in Malaysia.
S&P Global Ratings affirmed on 31 October 2020 the issuer credit ratings of RHB Bank Bhd at BBB+/Stable/A-2, while their ASEAN regional scale ratings were affirmed at "axA+"/"axA-1."
In February 2020, Moody's Investors Services Ltd upgraded the Hong Leong Bank's baseline credit assessment to a3 and reaffirmed its long-term rating at A3 and short-term rating at P2, with a stable outlook.
Accordingly, the Company considers that the credit risk in relation to its cash holding to be small.
iv) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities. The Company's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation.
The Group's financial liabilities ar e prim ari ly trade and other payables. The amounts are unsecured, interest-free and repayable on demand.
23. CAPITAL MANAGEMENT
The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the balance between debt and equity.
The capital structure of the Group as at 31 October 2020 consisted of Ordinary Shares and equity attributable to the shareholders of the Company, totalling GBP1,863,724 (2019: GBP3,208,930) (disclosed in the statement of changes in equity).
The capital structure is reviewed on an on-going basis. As part of this review, the Directors consider the cost of capital and the risks associated with each class of capital.
24. RELATED PARTY TRANSACTIONS
The remuneration of the Directors and the key management personnel of the Company is set out in the Report of the Remuneration Committee.
A total of GBP42,000 (2019: GBP21,000) was paid during the year to Luther Pendragon for financial PR services, a company in which Harry Chathli is a director and shareholder.
As at 31 October 2019, there was a balance due to a director of GBP288,811 which was repaid during the year ended 31 October 2020 (see Note 19).
Included within accruals is GBP23,196 (2019: GBP154,000), which relates to Directors' remuneration outstanding.
A total of GBP24,000 (2019: GBPnil) was paid during the year to Graham Duncan Limited for accounting services, a company in which Graham Duncan is a director and shareholder.
The related party transactions were made on terms equivalent to those that prevail in arm's length transactions.
25. MATERIAL SUBSEQUENT EVENTS
There are no events subsequent to the year-end that require disclosure in these financial statements.
26. ULTIMATE CONTROLLING PARTY
As at 31 October 2020, no one entity owns greater than 50% of the issued share capital. Therefore, the Company does not have an ultimate controlling party.
27. COVID-19
The outbreak of SARS-CoV-2 ("COVID-19") severely impacted the Group's revenues and results for the year. The stringent lockdown measures introduced by the Malaysian government - known as "movement control orders" (MCO), which were in effect throughout the period following the acquisition - prevented Alchemist Codes from meeting with customers and business partners; and the economic downturn and uncertainty impacted customers' budget availability and the willingness to commit resources to new projects. The pandemic also severely impacted the rollout of the Group's e-commerce solution, OctaPLUS, due to retailers significantly enhancing their direct-to-consumer marketing and reducing the commission they are prepared to pay for affiliate referrals. The impact of the pandemic on the Group was particularly pronounced due to Alchemist Codes being at an early stage of development.
The pandemic continues to have a profound impact on the Group's operations, with MCO measures in Malaysia being extended in Malaysia into April.
As a consequence of the above, along with the considerable uncertainty over post-pandemic market conditions, the Board of AIQ has initiated a strategic review to stem the losses of the business and reduce the cost base, whilst also seeking to evaluate its future.
Management has needed to revise its assumptions as to going concern, and has made provision for impairment to the carrying value of goodwill and other intangibles assets as described in Note 13 above.
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